Journey to Wealth
Media Chinese Intn'l - Strong adex spending BUY
We reiterate our BUY recommendation on Media Chinese InternationalLtd (MCIL), with a higher DCF-based fair value of RM1.37/share versusRM1.30/share previously.
MCIL's 9MFY12 earnings of RM155mil outperformed our full-yearforecast by 4%. Annualised earnings were at 24% above consensus.
We revise upwards our earnings estimates for FY12FFY13F by25%, owing to stronger-than-expected adex volume moving forward.
MCIL's 3Q net profit rose 32% QoQ to RM63.1mil, despite a slightdrop in turnover by 4.4%. The improved performance was largely attributed torobust sales contributed by acceleratedadex spending and cost containment efforts.
So far, 3Q has been the strongest quarter with a 34.9% QoQjump in pre-tax profit. Publishing and printing performed well, increasing by8.7%. Advertising growth was boosted by improvements in volume and rate,despite the economic uncertainty and advertising volatility in the local market.
On a YoY basis, MCIL recorded a 6% rise in net profit for 9MFY12due to a higher turnover at 9%. This strong growth was mainly attributable toadvertising revenue from national advertising, property sector and luxuryproducts and tour revenue especially in the long-haul tours.
We understand that publishing and printing in Hong Kong seta record for MCIL. Print advert is fully booked for CY12 for a magazine called'MING Watch' in Hong Kong and China. 'MING Watch' is a watch magazine featuringthe latest news on high-end watch trend.
Nevertheless, adex outlook in Malaysia remains healthy, withthe potential election in CY12 to bode well for the sector. Other regionalevents such as elections in the US, China, Taiwan, HK and the Olympics wouldalso support adex spending.
Management expects escalating costs due to inflation, especiallyfor newsprint price and staff costs. Newsprint price is expected to rise due toan increasing demand in 1HFY13F as many elections are taking place globally.
We like MCIL due to the group's monopolistic position withinthe Chinese language print segment in Malaysia (87% of market share) andsuperior pricing power for adrates ' the second highest industry wide.
Source: AmeSecurities
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