Highlights

• We attended Media Chinese’s analyst briefing and came away with a neutral view. Adapting to industry challenges the group is diverting into multiple advertising products instead of sticking to the traditional print.

• The 15.7% YoY drop in Malaysia’s FY17 print adex was significant, leading MCIL’s Malaysia print PBT to drop by 28.6% YoY.

• Besides that, the print adex in Hong Kong fell by 16.2% YoY in FY17, specifically the magazine segment was hit the hardest. This has resulted in a 52% YoY drop in MCIL’s Hong Kong PBT segment in the same period.

• However, the group’s effort in embracing digital platform (video advertising) has proven fruitful as the group witnessed a revenue contribution of 30% from its Hong Kong market through its digital initiatives (mingpao education publications, mingpao.com and many more) in 4QFY17.

• Its Malaysia market has yet to see a significant digital contribution (<5% of total Malaysia revenue). Among its digital initiatives are Sin Chew E-paper, Pocketimes Online, Logon E-Marketplace, Health and Wellness and CO3.

• Digital advertising revenue is forecasted to experience double digit YoY growth from 2017 onwards; making it the fastest growing segments of advertising spend in Malaysia.

• MCIL believes in having multiple advertising platforms to serve different targeted audiences. It is best to provide a combination of everything, which includes print, event, and digital. The group mentioned that it would continue to explore into the digital market.

• Moving forward, we believe that traditional media remains relevant despite the disruption, considering the fact that most advertisers generally allocate about 70% of their advertising budget for traditional media.

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 businesses, we believe that adex will remain soft and gloomy mainly caused by the macro headwinds and subdued consumer sentiments. However the probable GE14 in Malaysia and 20 th

anniversary of HKSAR in Hong Kong are expected to present favourable opportunities for adex in FY18.

Valuation

• We maintain HOLD call with an unchanged TP of RM0.55 based on unchanged P/E multiple of 9.5x (1SD below mean) on FY18 EPS.

Source: Hong Leong Investment Bank Research - 31 May 2017