CIMB Research: Media Chinese may reward shareholders after OMG sale

KUALA LUMPUR: Media Chinese International (MCIL) could reward its shareholders in the form of special dividends if it sells its entire 73.01% stake in its listed Hong Kong subsidiary, OMG.

“We believe that its existing free cashflow generation is sufficient to finance the group’s operations. It could potentially pay up to 12 sen a share based on full payout or dividend yield of 19%,” it said on Wednesday. 

CIMB Research said based on OMG's last closing price of HK$1.22, MCIL’s effective stake is valued at RM203.1mil. 

“This is a positive surprise given that management has not mentioned the potential exercise previously.   OMG operates in Greater China,” it said. 

OMG is mainly involved in printing, publishing and outdoor media businesses in Greater China. It publishes five magazines and one mobile app in Hong Kong.

Among its key publications in Hong Kong are Ming Pao Weekly, TopGear Hong Kong and MING Watch. OMG also operates two additional magazine publications in Mainland China.  

For 1HFY16, OMG's revenue fell by 22% on-year due to lower advertising expenditure (adex) in Hong Kong on the back of a weakening economy. OMG's revenue contribution in 1HFY16 made up 4.4% of the group's overall turnover. As a result of the lower sales, OMG recorded a 1HFY16 loss of HK$1.8mil against HK$4.2mil net profit in 1HFY15.     

“We are positive on the potential disposal of OMG as we estimate MCIL stands to benefit from a one-off gain of about RM136mil with minimal impact to future earnings. OMG’s pretax profit contribution over the past two years ranges between -1% and 6% of the group’s pretax profit. 

“However, we maintain our earnings forecast for now given the preliminary status of the deal and lack clarity on the deal completion. MCIL has a healthy balance sheet with a net cash of RM100.5m as at end-September 2015,” it said. 

CIMB Research said it was maintaining its Hold call for MCIL, with a target price of 60 sen, based on 88 times CY17 P/E (still at a 50% discount to our target market P/E). 

“While MCIL offers attractive FY16/17 dividend yields of 6.4%/5.9%, we prefer Astro for exposure to the media sector due to its defensive earnings structure and lower sensitivity to adex,” it said.