Results

• We attended Media Chinese’s 2QFY17 briefing and left feeling neutral on the group’s future prospects. Below are the salient points.
• Print segment… Media Chinese still commands the largest market share (73%) for Chinese newsprint in Malaysia. Unsurprisingly adex has been declining for print however Chinese newspapers managed to limit its decline to 7% as opposed to the double digit decline across English, Malay and Tamil newspapers. Media Chinese managed to take stringent cost control with regards to its newsprint consumption. However, a continued depreciation of MYR against USD will have a negative impact on its costs.
• Uncertain travel outlook… Competition for its travel segment has intensified hence limiting profitability. Its Europe destination faced a tougher environment as Europe faced risk of terrorist attacks and uncertainties stemming from Brexit and the upcoming Italy referendum. Its Australian and New Zealand destinations, on the other hand, received an increase in tourists although not enough to compensate for the decline in tourists going to Europe.
• Digital media progressing… Its video content platform ‘Pocketimes’ continues its trend of significant yoy growth as it captured circa 75m page views per month (vs. 57m page views in 1HFY16) and managed to maintain upwards of 3m video views per month. Topline contribution from digital media has more than doubled. However, it is still very minimal when compared to the group’s total revenue.
• Moving forward we expect the group to experience more challenges due to gloomy adex outlook, slowdown in Greater China economy, economic uncertainties and continued decline in tourism industry in Europe.

Risks

• (1) Weak Adex growth; (2) High newsprint cost; (3) Threat of new players; (4) Shift to digital news; (5) Decline in tourism industry; (6) Depreciation of RM vs. US$; and (7) Regulatory risk.

Forecasts

• Unchanged.

Rating

HOLD (↔)

• Although we favour MCIL for its prudent cost management and strong cash generative business, we believe that adex will remain soft and gloomy mainly caused by the macro headwinds and poor consumer sentiments.
• We opine that if its venture into digital media comes to fruition, it will be a positive rerating catalyst.

Valuation

• We maintain HOLD call with unchanged TP of RM0.61 based on unchanged P/E multiple of 9.5x (1SD below average mean).

Source: Hong Leong Investment Bank Research - 02 Dec 2016