News

Media Chinese Int’l (MEDIAC) announced that Comwell Investment Ltd (a wholly-owned subsidiary of MEDIAC) has on 4 March 2016 entered into an exclusive memorandum of understanding (MOU) with Qingdao West Coast Holdings (International) Ltd, the ultimate controlling shareholder which is a Chinese state-owned-enterprise, in relation to the possible disposal of its entire 292.7m shares in One Media (OMG).

The exclusivity period of the MOU will be valid until 15 April 2016.

MEDIAC owns a 73.01% equity stake in OMG.

Comments

We were not surprised by the news as management had shown its intention to fully or partially dispose OMG shares in mid-January. Should this materialise, the earnings' impact to MEDIAC is likely to be minimal, in our view.

OMG is primarily involved in the publishing of Chinese's language lifestyle magazines and provides digital and outdoor media services in the Greater China region.

As of 9M16, OMG registered a turnover of HKD111.1m (-23.3% YoY) and contributed c.30% revenue to the group’s Hong Kong segment or 5.1% topline to MEDIAC’s total turnover. In tandem with its tepid revenue trend, its EBITDA plunged to HKD6.6m (-75.5% YoY) amid a slowdown in the retail sector caused by weak consumer demand and reduced spending by Mainland tourists.

Based on pre-suspended last traded price of HKD1.47, OMG has a market cap of HKD589.3m and is trading at 0.79x below its BV/share.

Outlook

Outlook remains challenging in view of the cautious advertising spending environment coupled with increased competitive pressure from other media platforms. While lower newsprint prices could provide some earnings cushion, it may have an adverse impact should MYR continue to depreciate against USD.

Having said that, we understand that the group will remain focused on strengthening operational efficiencies and striving for higher profitability through extensive marketing strategies and sustainable cost reduction.

Forecast

We make no changes to our FY16/17E earnings forecast.

Rating

MAINTAIN MARKET PERFORM

Valuation

Maintain our TP at RM0.65 based on a targeted FY17E PER of 8.0x, representing -1.0x SD below its 5-year mean.

Risks

Lower-than-expected adex growth.

Source: Kenanga Research - 7 Mar 2016