KUALA LUMPUR (January 19): Kenanga Investment Bank Bhd has upgraded its call on Media Chinese International Ltd to “market perform” from “underperform” while maintaining a target price (TP) of 68 sen, after reports  the company will undergo drastic structural changes.

The research house noted news reports on the transformation of  Media Chinese (fundamental: 2.0; valuation: 1.2) to address falling revenue due to shrinking print advertising market, as aggregate circulation slid 4.4% year-on-year to 623,399 copies per day since June 2013.

“According to the press, instead of having four national daily newspapers, Media Chinese is likely to transform China Press into an evening paper; Nanyang Siang Pau into a full-blown thrice-weekly financial newspaper; and Guang Ming Daily into the regional newspaper with focus on the northern region market,” said the research house.

Under the plan, the company’s flagship, Sin Chew Daily, will remain as the main national daily, while the evening edition of the paper will ceased publication in Perak, Malaccca, Pahang, Kelantan and Terengganu, together with Guang Ming in 2015.

Kenanga said the move by the management could be a double-edged sword for the company, as it may be neutral-to-negative in the short-term, but likely to be positive in the longer run.

“The repositioning of its daily newspapers will no doubt lower its circulation revenue. It could, however, provide some savings operationally. Its adex revenue, meanwhile, is expected to benefit over the long-term due to lesser competition among the group’s newspaper,” said the research house.

Kenanga has maintained its earnings forecasts for FY15 and FY16, pending further clarification from the management.

At 11.12am, Media Chinese was unchanged at 68.5 sen, for a market capitalisation of RM1.15 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)