This article first appeared in The Edge Financial Daily on February 20, 2018

Media Chinese International Ltd
(Feb 19, 38.5 sen)
Maintain the target price (TP) at 35 sen: Media Chinese International Ltd (MCIL) is raising its flagship newspaper (Sin Chew Daily) cover price by 20 sen or 15.4% to RM1.50 effective March 1, 2018. A similar price hike is also set to be implemented for the other newspapers of the group.

We are “neutral” on the news as the price hike could be offset by the potential lower circulation volume. We make no changes to our financial year 2018 (FY18) to FY19 earnings estimates pending the upcoming result review. We maintain our TP at 35 sen but raise our rating to “market perform” as per our rating definition.

MCIL attributes the price increase to rising operating expenditure, which led the group to raise the newspaper cover price after 13 years. The group is also raising the cover price of its remaining newspapers (such as China Press, Guang Ming and Nanyang) by 20 sen each, effective early March.

Circulation is likely to be hit in the 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 latest data from the Malaysian Audit Bureau Circulation (ABC), Sin Chew’s physical daily newspaper circulation has continued its declining trend since 2012, recording 310,000 in newspaper circulation in first-half 2017 (1H17) (versus 2H16: 324,000; 1H16: 339,000). Likewise, the group’s total newspaper circulation (ex-Nanyang) is also facing a similar deteriorating trend, recording 543,000 in 1H17 as compared to an average of 549,000 in 2016 and 820,000 in 2011. The trend, however, is in line with the industry’s performance, with the country’s total circulation dipping to 2.65 million (in 1H17) from 4.2 million in 2012 as a result of change in consumer habits, behaviour, lifestyle and use of technology.

The potential decline in circulation volume could impact MCIL’s advertising expenditure (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 MCIL’s newspaper circulation volume may have a negative impact on the group’s adex revenue moving forward. Although the group’s digital replica newspapers’ circulation has successfully grown to 152,000 in 1H17 (versus an average 48,000 in 2015), it is still not enough to raise its adex revenue as the physical newspapers still command higher rates.

Note that MCIL’s gross adex has declined 1.1% quarter-on-quarter (q-o-q) (or -17.2% year-on-year to RM142 million) in fourth-quarter 2017 (4Q17) in contrast to +1.8% q-o-q in 3Q17 as advertisers appear to shy away from the print segment and focus more on the digital/TV media platforms.  — Kenanga Research, Feb 19