Media Chinese International (MCIL)’s FY13 results were in line with our and  consensus  forecasts.  The group’s Malaysian  operation  remained resilient  but  its  overseas  operations  were  not  performing  well. Nonetheless,  we  see  little  concern  as  the  overseas  contributions  are not  very  significant.  Downgrade  to  NEUTRAL,  as  the  share  price  has reached  our  MYR1.31  FV,  pending  further  updates  from the analysts’ briefing later today. 
 
- FY13  core  earnings  in  line.  MCIL’s  FY13  core  net  earnings  of MYR172.5m  (-11.8%  y-o-y)  were  in  line  with  our  and  street  estimates. Revenue  inched  up  1.2%  y-o-y  but  this  was  offset  by  higher  operating expenses and finance costs, resulting in an 11.8% y-o-y drop in core net profit.  4QFY13  revenue  from  Malaysian  operation  climbed  2.7%  on improved  adex  revenue,  driven  largely  by  government  spending. However,  the  slow-moving  economic  conditions  in  North  America  and intensified  competition  from  free  papers  in  Hong  Kong  led  to  revenue declines in these two markets.   

-  Still  stable.  While  its  overseas  operations  are  facing  some  difficulties, we  think  it  is  a  small  issue  as  they  contribute  less  than  5%  of  the  total group  earnings  (on  EBITDA  level).  Meanwhile,  its  Malaysian  operation should remain stable as adex for Chinese newspapers continues to grow positively.  While  escalating  newsprint  costs  could  erode  its  margin,  we believe  MCIL  has  enough  inventories  to  cushion  the  impact,  as highlighted previously. We have factored in higher newsprint costs in our 
valuation model to remain prudent.  

- Our  FV  met,  downgrade  to  NEUTRAL.  MCIL’s last closing price of MYR1.30  has  reached  our  MYR1.31  FV,  based  on  14.5x  CY13F  EPS. Hence,  we  are  downgrading  our  recommendation  to  NEUTRAL  (from Trading Buy) but keep our forecasts unchanged at this juncture, pending further updates from Management at the analysts’ briefing later today. 

Source: RHB