Media Chinese International (MEDIAC) is scheduled to release its 2Q14 result on 28th of November. We expect the group to report a flat YoY growth in net profit of USD13m (or RM40.9m based on an exchange rate of RM3.15 to USD1.00), albeit its turnover is expected to grow marginally mainly underpinned by higher advertising revenue and tour segment contribution. Meanwhile, newspaper is not classified under the GST exemption list in Budget 2014, which may prompt players to raise newspaper cover price should the incumbents decide not to absorb the GST. On top of that, the anti-dumping policy of newsprint imports from five other countries is due for a review, which could provide some downward pressure to the domestic newsprint price should the authority abolish the policy. All in all, we have raised our FY14-FY15 net profit estimate marginally by 0.3%-0.6% after raising the tour division segment turnover contribution as well as higher interest cost assumption. We reiterate our MARKET PERFORM rating on MEDIAC with an unchanged target price of RM1.19 based on a targeted FY14 PER of 12.0x (+0.5x SD).

MEDIAC’s 2Q14 net profit is expected at USD13m (flat on YoY basis), which would be at RM40.9m based on an exchange rate of RM3.15 to USD1.00. We expect the group’s 2Q14 turnover to grow by 2.3% YoY to USD124m, mainly underpinned by the higher tour division contribution and higher advertising revenue. Note that, MEDIAC’s gross advertising revenue has improved to RM226.5m (+6.8% YoY) in 2Q14, according to the latest Nielsen’s media data. The higher turnover, however, may offset by higher interest cost coupled with a slimmer margin in its tour division.

Tour division may benefit from weaker Euro. MEDIAC’s tour division is expected to post a strong turnover in 2Q14 in view of the weaker Euro, where the currency has depreciated by 3.6% against HK Dollar during the period. Nevertheless, in view of the slim PBT margin (FY13: 2.3%; FY12: 3.5%) in the segment, the net earnings impact to the group should be minimal, in our view.

Newspaper cover price is set to increase post GST implementation? The recent announced Budget 2014 did not include newspaper in the GST exempted list. That said, newspaper readers may need to pay more should the incumbents decide not to absorb the GST. Nevertheless, in view of the sensitiveness of the newspaper cover price to the public, we understand that further studies will likely to take place before any conclusion is finalised by the incumbents.

Another newsprint anti-dumping policy is due to be reviewed? The Ministry of International Trade and Industry (MITI) had started to impose duties of 5.59% to 43.24% on newsprint imports from Canada, Indonesia, South Korea, the Philippines and the U.S. since 2003. The policy was extended for another five years in 2008 and has expired in September 2013.

We understand that MITI will have another six months to invite the incumbents to submit their views on the matter before making the final decision prior to March 2014. Should the authority decide to terminate the anti-dumping policy on the abovementioned five countries, it could provide some downward pressure to the domestic newsprint price and thus benefiting the incumbents. MEDIAC is currently holding 4-6 months of newsprint inventory with an estimated cost of USD630/MT. Note that, MITI had on last August opted against placing anti-dumping duties on newsprint imports from Belgium, Germany, Sweden and the United Kingdom. 

Source: Kenanag