Media Chinese (BUY)

Media Chinese Angpow

• Proposed capital repayment of RM700m (~RM0.41 sen/share). The repayment will be part financed by internal funds of RM200m and new borrowings of RM500m. The proposal is expected to be completed by 4QCY12.
• MCIL has followed suit the general trends of media companies (i.e. Media Prima and Star) in returning surplus cash back to its shareholders. Although, the repayment is partially financed (71%) by borrowings, we do not see this as an issue as it will optimise MCIL’s capital management.
• By undertaking an additional RM500m in borrowings, we estimate that FY13’s net gearing will be ~22%, given the estimated yearly operating cashflow generation of >RM200m. Hence, given the strong recurring cashflow business model, we do not believe that the gearing will pose any problem.
• Tweaked earnings to factor in higher financing costs for capital repayment and other minor changes in forecast assumptions. Hence FY13 and FY14 earnings cut by 6% and 12% respectively.
• TP revised upwards by 24% to RM1.69 to take into account of the 41 sen capital repayment. However, ex-repayment TP has been lowered by 6% to RM1.28 from RM1.36 previously, based on 11x FY13 P/E multiple.

Source: Hong Leong Investment Bank Research - 17 July 2012