Resilient earnings

Weak adex. We maintain our HOLD call on Media Chinese (MCIL) with a lower TP of RM0.60, based on 12x CY17 PE. The near-term outlook for its Malaysian print business remains challenging as adex has remained subdued due to weak consumer sentiment and uncertain economic outlook. The same can be said for its print business in HK/China and North America, both of which are facing slowing retail sales and sluggish economic conditions. At current level, the stock offers a decent 5-6% net dividend yield based on 70% dividend payout.

Disposal of its 73% stake in OMG. MCIL has conditionally agreed to sell its entire 73%-stake in HK-listed One Media Group (OMG) to a Chinese state-owned enterprise, Qingdao West Coast Holdings Ltd for approximately US$64.2m cash (~RM260m), subject to certain conditions. We are positive on this disposal as the cash consideration is quite substantial at about 20% of MCIL?s current market cap.

Valuation

Following the cut in earnings, our TP is lowered to RM0.60 TP, still based on 12x CY17 EPS.

Key Risks to Our View

Rising operating costs. Rising operating costs, particularly relating to labour and newsprint, could pressure margins, although the company usually keeps six months of inventory for its publication needs.

Source: Alliance Research - 01 Dec 2016