KUALA LUMPUR: RAM Ratings expects Media Chinese International Ltd
(MCIL) to continue to face challenges to monetise its digital traffic and contents due to the dominance of digital media giants such as Facebook and Google.
It said on Thursday contributions from digital platforms have stayed small at below 10% of the group’s publishing and printing segment revenue.
“MCIL is also susceptible to economic cycles as its performance is heavily dependent on advertising expenditure (adex), which generally correlates with the country’s economic wellbeing and consumer sentiment.
“Furthermore, the group is exposed to newsprint price volatility and forex risk, given that a portion of its newsprint is purchased overseas in US dollars,” it said.
However, MCIL’s rating is moderated by the increasing popularity of digital media, which poses stiff competition against traditional media platforms such as print.
The rating agency said the group’s print ad revenue has been shrinking over the last five years, with the ad revenue of its Malaysian operations sliding a respective 18% and 16% y-o-y in FY March 2018 and 1Q FY March 2019.
RAM reaffirmed AA3/Negative rating of MCIL’s RM500mil medium-term notes (MTN) programme (2014/2029).
It said the reaffirmation of the rating is based on the group’s performance, which is largely within its expectations, and supported by its robust financial profile.
Following its last rating action in July 2018, MCIL’s operating performance improved in 1Q FY March 2019.
This was despite a decline in its advertising (ad) revenue – albeit at a slower pace – amid the ongoing structural shift in the traditional media industry. Similarly, the reaffirmed negative rating outlook continues to reflect these concerns.
In July 2018, RAM downgraded MCIL’s rating to AA3/Negative from AA2/Negative, based on the accelerated industry-wide decline in adex that had further eroded the Group’s cashflow and earnings.
In FY March 2018, MCIL’s revenue slid 6% y-o-y, weighed down by the weaker showing of its publishing and printing segment.
Together with its hefty fixed costs, this resulted in a 30% plunge in the group’s operating profit before depreciation, interest and tax. Ad revenue from its Malaysian operations fell a steeper 18% y-o-y (FY Mar 2017: -12%). The sombre situation had necessitated USD26.80mil of impairment charges on MCIL’s Malaysian operations, leading to a pre-tax loss of USD6.87mil – its first in a decade.
In spite of a 5.6% fall in print ad revenue, the group’s total revenue was lifted 11% y-o-y in 1Q FY Mar 2019, mainly by the better showing of its travel segment as well as increases in cover prices of its newspapers.
In tandem with its stronger top line, the group’s operating profit before depreciation, interest and tax (OPBDIT) surged 20.7% y-o-y to US$5.85mil.
Kevin Lim, head of RAM’s Consumer and Industrial Ratings said: “Despite MCIL’s improved operating performance, it remains to be seen if this can be sustained through the rest of fiscal 2019, especially given the rapid deterioration in its print ad revenue amid the changing advertising landscape and the seasonality of its travel business.”
Notwithstanding its weaker ad revenue, MCIL has managed to retain its robust financial profile and dominance over Malaysia’s Chinese-language newspaper segment.
The group remained in a net-cash position, with its adjusted gearing ratio relatively unchanged at 0.35 times as at end-June 2018.
While its annualised adjusted funds from operations debt coverage (FFODC) weakened slightly on account of its higher debt level, this stayed favourable at 0.37 times. MCIL’s liquidity position is also deemed superior.
As at end-June 2018, the group held US$128.95mil of cash and bank balances against US$63.24mil of short-term debts.
“We expect the group to maintain its conservative balance sheet, with its adjusted FFODC hovering close to one time after the full repayment of its outstanding RM225mil MTN in February 2019,” it said.