MEDIAC has raised its flagship newspaper cover price by 20.0 sen to RM1.50 effective 1 March 2018. A similar price hike is also set to be implemented by the other newspapers. We are NEUTRAL on the news as the price hike could be offset by the potential lower circulation volume. We made no changes to our FY18/FY19 earnings estimates pending the upcoming result review. Maintain target price at RM0.35 but raise rating to MARKET PERFORM as per our rating definition.

Sin Chew’s newspaper cover price increased from RRM1.30 to RM1.50. MEDIAC has raised the cover price of its flagship newspaper - Sin Chew Daily, by 20.0 sen or 15.4% to RM1.50 effective 1 March 2018. MEDIAC attributed the price increase to rising operating expenditure, which led the group to raise the newspaper cover price after 13 years. Likewise, we understand that the group also intends to raise the cover price of its remaining newspapers (i.e. China Press, Guang Ming and Nanyang) by 20.0 sen each, effective early of March.

Circulation likely to be hit in near term. We are NEUTRAL on the news as the increase in circulation revenue (as a result of the cover price hike) could be offset by a potential decline in circulation volume. According to the latest data from the Malaysian Audit Bureau Circulation (ABC), Sin Chew’s physical daily newspaper circulation has continued its declining trend (since CY12) and recorded 310k in 1H17 (vs. 2H16: 324k; 1H16: 339k). Likewise, the group’s total newspapers’ circulation (ex-Nanyang) is also facing a similar deteriorating trend and recorded 543k in 1H17 as compared to an average of 549k in CY16 and 820k in CY11. The trend, however, is in-line with the industry performance, where the country’s total circulation has dipped to 2.65m (in 1H17) from 4.2m in CY12 as a result of change in consumer habits, behavior, lifestyle and technology.

Potential decline in circulation volume could impact MEDIAC’s adex. The higher newspapers’ cover price could potentially cause some price-sensitive readers to shift away from the traditional platform to the digital media. Thus, a potential decline in MEDIAC’s newspaper circulation volume may have a negative impact to the group’s adex revenue moving forward given advertisers’ tendency to seek for higher publication media medium to publicize products. Although the group’s digital replica newspapers’ circulation has successfully grown to 152k in 1H17 (vs. an average 48k in CY15), it is still not enough to raise its adex revenue as the physical newspapers still command higher rates. Note that, MEDIAC’s gross adex has declined 1.1% QoQ (or -17.2% YoY to RM142m) in 4QCY17 in contrast to +1.8% QoQ in 3QCY17 (a similar trend also experienced in its peer - STAR Media Group), as advertisers appear to shy away from the print segment and focus more on the digital/TV media platforms to spur buying interest during the year-end festive and holiday season. The weak sequential performance suggested that the print media incumbents are set to face yet another challenging quarterly report card ahead.

Target price is maintained at RM0.35. We made no changes to our FY18/FY19 earnings forecasts for now, pending the upcoming 3Q18 result (which set to be announced on 26-February). Having said that, we intend to revise our MEDIAC’s newspaper circulation volume lower by c.5%-10% to account for the challenges ahead. We maintain our MEDIAC target price at RM0.35, based on unchanged targeted FY19E PER of 11.6x (implied -1.0x SD below its 5-year mean). The stock rating, however, is raised to MARKET PERFORM from UNDERPERFORM previously as per our rating definition. An upside risk is better-than-expected adex growth while a downside risks are the deteriorating (i) adex revenue and (ii) circulation volume.

Source: Kenanga Research - 19 Feb 2018