Another record year in the making for MCIL

Media Chinese International Ltd (Feb 14, RM1.19)
Maintain buy with fair value RM1.47: According to AC Nielsen’s latest published figures, newspaper advertising expenditure (adex) registered a commendable year-on-year (y-o-y) growth of 12.1% in 2011.

Other than Malay dailies which continued to make adex market share gains (33.4% y-o-y), Chinese dailies too chalked up a commendable y-o-y growth of 6.8%.

For 9MFY12, MCIL’s share of adex improved y-o-y by 8.8%, driven by its flagship Sin Chew Jit Poh publication where adex share went up by 7.14% y-o-y for 3QFY12 alone. On the other hand, management guided that its Hong Kong operation is likely to see improvements by leveraging on higher ad-dollars from the property segment.

As such, we believe the group is likely to record its best quarter ever in 3QFY12. Net profit is expected to come in at RM60 million, which represents a y-o-y growth of 10%.

Stepping into 4QFY12, we foresee that the group will continue to report healthy growth, on the back of aggressive advertising and promotion activities among hypermarkets and fast-moving consumer good companies during the Chinese New Year period in January 2012.

We expect the positive trend to persist going into FY13 as it pursues continuous efforts to better manage overhead and operating expenses.

In addition, newsprint prices, which are currently hovering at US$650 (RM1,982.50) to US$660 per tonne, are likely to remain stable. Upcoming major events, such as the impending general election, the 2012 Olympics and Euro 2012 football tournament will provide a potential boost.

We also see strength in its creatively bundled offerings, where MCIL organises crowd-pulling events for customers that advertise in its publications to increase the brand visibility of their products.

We feel positive that its 9MFY12 results will be at least in line with our forecasts in light of its resilient adex share in Malaysia and improvements in its Hong Kong operations, which made up 15% of the group’s earnings before interest and tax (Ebit).

We also believe the group will continue to reward its shareholders given its mounting cash pile, which stood at RM390.7 million as at September 2011.

Thus, we continue to impute a payout ratio of 60% for FY12, which translates into an appealing yield of 5.5%. Hence we maintain our “buy” call at an unchanged fair value of RM1.47, based on 13 times CY12 price-earnings ratio. We make no changes to our forecasts at this juncture, though an upside bias could likely be confirmed by its upcoming 3QFY12 results. — OSK Research, Feb 14


This article appeared in The Edge Financial Daily, February 15, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

KLCI edges up at mid-morning, but struggles to sustain early gains

KUALA LUMPUR (Feb 2): The FBM KLCI rose at mid-morning on Thursday, in line with the gains at the key regional markets, but found it hard to sustains its gains.

At 10am, the FBM KLCI was up 7.87 points to 1,529.16, lifted by gains at select blue chips. The index had initially breached the 1,540-level in very early trade.

Gainers led losers by 388 to 188, while 287 counters traded unchanged. Volume was 628.94 million shares valued at RM519.44 million.

At the regional markets, Hong Kong’s Hang Seng Index rose 1.2% to 29,577.00, Japan’s Nikkei 225 added 0.84% to 8,883.94, the Shanghai Composite Index edged up 0.19% to 2,272.28, Taiwan’s Taiex rose 1.15% to 7,635.93, South Korea’s Kospi added 1.42% to 1,987.04 and Singapore’s Straits Times Index was up 0.44% to 2,917.59.

OSK Research director Chris Eng Poh Yoon in his February market outlook on Thursday said the research house’s January Sell call on the FBM KLCI was correct as the market dipped slightly, underperforming almost all major markets in the world.

He said its “Alternative” Top Buys also did well in January with four out of its five Top Buys outperforming the FBM KLCI, namely Supermax, JCY, Old Town and Sarawak Oil Palm

Still, markets performed better than expected and the global rally seems sustained by a flush of liquidity from the Long Term Refinancing Operation (LTRO), he said.

“As such, we are keeping a close eye on the market for the 1st half of Feb. If indeed markets continue to do well, we may be forced to abandon our Bearish stance and upgrade the KLCI to a Neutral with a preliminary year-end target of around 1,600 points.

“To note our 1,466 points current Fair Value will remain intact but it’s a Fair Value not a year-end target,” he said.

Eng said an upgrade would likely see the research house more aggressively promoting the CONSTRUCTION [] and O&G sectors, adding that for now, Consumer stocks are the flavor of the month.

“Top Buys are KPJ, MBSB, QL and Media Chinese as well as Padini which should attract interest as a cheap and good consumer stock,” he said.

On Bursa Malaysia, Petronas Gas added 52 sen to RM16.20, BAT 48 sen to RM49.88, Hartalega 47 sen to RM7.69, Ekovest 21 sen to RM2.96, Kretam and Petronas Dagangan 20 sen each to RM2.55 and RM18.30, Malayan Flour Mills 17 sen to RM4.50, United PLANTATION []s 16 sen to RM20.50, IJM Corp 14 sen to RM5.88 and Lafarge Malayan Cement up 12 sen to RM6.80.

Tebrau Teguh was the most actively traded counter after a takeover offer made by Iskandar Waterfront Holdings Sdn Bhd (IWH), which is offering 76 sen per share – or just one sen above Tebrau’s pre-suspension price of 75 sen.

The stock rose eight sen to 83 sen with 40.7 million shares done.

Other actives included Coastal Contracts, DRB-Hicom, DBE Gurney, UEM Land, Petronas Chemicals, Mudajaya and Jotech.

Decliners included Tahps, Dutch Lady, Melewar, Southern Steel, MPI, Ajinomoto, Glenealy and BHIC.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Media: Meek end to 2011

Media sector
Maintain underweight: Total gross advertising expenditure in December 2011 was up only 1% year-on-year (y-o-y), while TV adex contracted 2% y-o-y, the third consecutive month of contraction. With consumer sentiment at a two-year low, total gross adex growth in 2012 will likely be off to a slow start. Maintain “underweight” on the media sector.

Although newspaper adex still grew 6% y-o-y, this was the weakest growth since February 2011. By language, we understand that newspaper adex growth was driven by the Malay and Chinese newspapers, while adex of English newspapers was flattish if not lower y-o-y.

Gross adex growth for 2011 of 8% was within expectations and a tad higher than our forecast of 7%. By segment, however, TV adex growth of 4% was below our expectation of 7% while newspaper adex growth of 12% was above our 5% expectation. The eurozone debt crisis drove European multinationals to migrate more of their ad spend from TV to cheaper mediums such as newspapers in 2H11.

Media Chinese International Ltd, which owns Sin Chew Daily, remains a 'hold'.

There is a high correlation between consumer sentiment and total y-o-y adex growth. The Malaysian Institute of Economic Research (Mier) Consumer Sentiment Index hit a two-year low of 106.3 in 4Q11 on job security and inflation concerns. With consumers expected to reduce spending going forward, adex growth will be negatively affected.

We maintain our 2012 total gross adex growth forecast of 7% based on two times real GDP growth.

We understand that spot newsprint prices eased from US$700 (RM2,128) per tonne in 3Q11 to US$680 in 4Q11 due to the slowing Chinese economy negatively impacting old newspaper prices, the raw material for newsprint production. That said, it remains to be seen if the slowing Chinese economy will negatively impact the Malaysian economy and hence, adex growth, even further.

As 2011 TV adex growth of 4% was below expectation of 7%, we may have to review our Media Prima Bhd estimates. We reiterate our view that total y-o-y gross adex growth
going forward will be in mid-single digits at best until mid-2012 at the earliest.

Media Prima and Media Chinese International Ltd remain “sells”, while Star Publications (M) Bhd remains a “hold” for its stable dividend yields of more than 5%. — Maybank IB Research, Jan 26



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Media past its prime time for now

Media
Maintain underweight: We expect advertising expenditure (adex) growth to slow significantly due to weak consumer sentiment and slower economic growth. Coupled with still high newsprint prices, we expect three-year forward media sector earnings compound annual growth rate of only 2%. As current risk reward ratios are unfavourable, we continue to rate Media Prima Bhd and Media Chinese International Ltd (MCIL) as “sell” but Star Publications (M) Bhd a “hold” for its attractive net 5.8% dividend yield.

We expect media sector earnings to grow by just 3% in 2012. Over the next three years, we expect media sector earnings compound annual growth rate of only 2%. Although we still expect adex revenue of media companies to continue to expand, we do not expect it to outpace cost inflation, especially higher newsprint cost.

We note: (i) shortened forward ad booking visibility from two to three months pre-Hari Raya Aidilfitri to one to two months currently due to lack of adex friendly events and weak consumer sentiment; and (ii) the eurozone debt crisis has prompted European multinationals to cut their advertising and promotional (A&P) budgets.

We expect total gross adex growth year-on-year to be mid single digit in percentage terms at best, insufficient to outpace cost inflation. To reinforce our view, each adex bull cycle in the past lasted five to 11 quarters before contracting or stalling. This adex bull cycle has already lasted for 11 quarters.

Our forecast is based on two times real GDP growth of 3.5% and will be the weakest for a “peak” year (Olympics, Euro Cup football and general election) in a decade. This weakness is due to the slowest real GDP growth for a peak year and European MNCs cutting their A&P budgets. There is also added downside risk from slower-than -expected economic growth.

Spot newsprint prices have remained elevated at US$700 (RM2,205) per tonne to US$750 per tonne. The financial troubles of the two largest newsprint manufacturers in the world, Abitbi Bowater and Norske Skog, have kept global newsprint supply tight. Media companies cannot look to cheaper newsprint prices for relief.

This is because we expect media sector earnings growth to slow markedly with added downside risk. Media Prima is a “sell” for its vulnerability to deceleration in adex growth. MCIL is a “sell” for its vulnerability to increases in newsprint prices. Star is a “hold” for its attractive net dividend yield of 5.8% for 2012. — Maybank IB Research, Jan 10


This article appeared in The Edge Financial Daily, January 11, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

OSK maintains neutral view on the market

TEFD: What is your outlook for the Malaysian stock market and economy for 2012?
Eng: We remain neutral on the market as we see downside potential for the global economy and the Malaysian market.

What is your target for the FBM KLCI for 2012?
We maintain our 2012 fair value for the KLCI at 1,466 points.

How do you think the euro debt crisis will play out and what impact will it have on Malaysia?
I believe there is a high chance that Greece will eventually have to default. Whether it leaves the euro region at that point is still too difficult to say. Whether or not Greece defaults, a number of European countries should slip into recession in 2012 dampening global growth and trade and thus affecting Malaysia.

The years 2010-2011 were seen as years of merger and acquisition (M&A) activities, and the government’s Economic Transformation Programme (ETP). What do you see as the domestic theme for 2012?
For 2012, it will be the election and post-election Malaysia which could well see a rollback of subsidies and how Malaysian companies will need to increase their efficiency to cope with this.

If general elections are held in 2012, how do you expect the market to react, pre- and post-election?
We found that buying just before an election and exiting one month later is the most consistent strategy for the Malaysian market, especially since we feel that there is a strong chance of the ruling coalition improving on its 2008 poll performance.

Election trading strategy should be short and tight. As such, investors should: (1) wait for profit-taking ahead of the general election before entering the market; (2) buy just before the election date and ride on the positive post election sentiment; (3) exit about one month after the election; (4) focus on blue chips in the banking, oil and gas and construction sectors rather than on so-called “election plays”.

However, we caution that the longer the government waits to hold an election, the greater the uncertainty of the results.

What sectors do you like for 2012?
Consumer, telco and healthcare.

What sectors would you avoid in 2012?
Tech and auto.

What are your top stock picks and why?
AirAsia Bhd as it benefits from lower oil price and the IPO of an associate; Axiata Group Bhd is still the cheapest telco with room for capital management; Malayan Banking Bhd — cheap and liquid bank vs return on equity; Petronas Gas Bhd — defensive with growth catalyst in liquefied natural gas; Telekom Malaysia Bhd — boosted by Unifi; Dialog Group Bhd — defensive O&G with tank terminals as its catalyst; KPJ Healthcare Bhd — hospital chain still growing strongly with re-rating catalyst from Parkway Pantai’s listing; QL Resources Bhd — replicating Malaysia’s success in Indonesia and Vietnam; Media Chinese International Ltd — benefiting from falling newsprint prices; TRC Synergy Bhd — strong exposure to the ETP via the MRT project.

Your wish list for the year?
For a free and fair election regardless of the outcome. And for racist rhetoric to be made a crime.



This article appeared in The Edge Financial Daily, January 4, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Media Chinese Intl director sells 400,000 shares

KUALA LUMPUR (Jan 3): MEDIA CHINESE INTERNATIONAL LT []d director Tiong Kiew Chiong disposed of 400,000 shares in the open market on Dec 30.

A filing to Bursa Malaysia on Tuesday showed he disposed of the shares, representing 0.03%, for RM1.19 a share.

After the disposal of the stake, Tiong’s stake was reduced to 3.607 million shares.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

OSK Research: 2012 Outlook – be nimble in the “way of the market”

KUALA LUMPUR (Dec 25): OSK Investment Research has a Neutral outlook on the Malaysian market going into 2012 as the combination of uncertain growth outlook in the US and Asia coupled with a positive recession in Europe cloud the prospects for strong earnings growth locally.

Its director Chris Eng in his 2012 market outlook strategy report on Dec 23 said that while Malaysia would likely avoid slipping into a recession, the deficit reduction exercises undertaken by Eurozone economies may well tip their slow growing economies into a recession.

“In any case, for Malaysia, we see earnings growth slipping to between mid single digits and low double digits, a pale shadow of what it was in 2006, 2007 and 2010 when earnings growth came in between 20 to 30%,” he said.

Eng said newsflow on developments surrounding the handling of sovereign debt in Europe and the US would also likely lead to volatile markets worldwide, adding that in the short term, volatile markets will likely give way to a dampened economic outlook.

“We advise investors stay cautious into mid 2012 and focus on Defensive sectors such as Consumer, Telco, Healthcare and Media.

“Our 2012 KLCI fair value is 1,466 points based on a PER of 13.5 times or 1 standard deviation below the historical average of 16.6 times given the uncertain market conditions,” he said.

At the same time, when trading opportunities present themselves, Banks, O&G and CONSTRUCTION [] should come into play, he said.

Eng said OSK Research was Overweight on 7 sectors, Neutral on 9 and Underweight on 2 sectors.

“In terms of our Top Buys, they reflect this overall strategy.

“Six of our Top Buys, namely Axiata, PetGas, Telekom Malaysia, QL Resources, KPJ Healthcare and Media Chinese reflect our Defensive Strategy while 2 others are from our Alternative Defensive Buys namely AirAsia and TRC Synergy,” he said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Slowdown in adex here to stay

Media Sector
Maintain underweight: November 2011 total gross advertising expenditure (adex) was up only 2% year-on-year (y-o-y) but TV adex contracted 6% y-o-y, the second consecutive month of contraction. December 2011 total gross adex may not be as strong as that of past Decembers as we understand that Europe-based companies are cutting their advertising and promotion (A&P) budgets. Maintain “underweight” on the media sector.

Newspaper adex, especially for the Malay and Chinese newspapers, grew 9% y-o-y while TV adex contracted 6% y-o-y, the second consecutive month of contraction. Radio adex’s inconsistent performance continued as it contracted 3% y-o-y, the third time this year.

November 2011 total gross adex was again little changed from the seasonally slower months of March 2011 and April 2011. Although newspaper adex eased only 1% month-on-month (m-o-m), historically November newspaper adex is usually seasonally higher m-o-m.

Ad spend by telcos plummeted by a whopping two thirds! November 2011 total gross adex growth of 2% y-o-y largely came from ad spend by government institutions which surged 40% y-o-y. That said, it was offset by a sharp contraction in ad spend by mobile service providers (telcos) which plummeted by a whopping 67% y-o-y.

Historically, December is the best month as advertisers exhaust their A&P budgets. We understand that the hitherto weak adex growth was aggravated by Europe-based companies cutting their A&P budgets. Therefore, this month’s total gross adex may not be as strong as that shown in December in previous years.


11M11 total gross adex grew 9% y-o-y, a tad above our +6.8% forecast for 2011; our forecast for 2012 is +7%. That said, we may cut our earnings estimates for Media Prima Bhd again as 11M11 TV adex grew by 5% y-o-y or below our 2011 TV adex growth assumption for Media Prima of 6.8% y-o-y.

We reiterate our view that total gross adex growth y-o-y going forward will be mid single digits in percentage terms at best. Media Prima and Media Chinese International Ltd remain as “sell” while Star Publications (M) Bhd remains a “hold” for its stable dividend yields of more than 5%. At current valuations, risk rewards ratios do not favour investors given the poor adex sentiment. — Maybank IB Research, Dec 21


This article appeared in The Edge Financial Daily, December 22, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Market sentiment to be defensive

KUALA LUMPUR: The current uncertainties in the US and Europe are expected to continue to impact market sentiment regionally and in Malaysia, where the FBM KLCI is down 4% month-on-month.

OSK Research director Chris Eng said investors should continue to be defensive for now.

“Our 2012 KLCI fair value remains at 1,466,” he said adding that recent earnings are generally poor though the research house is still compiling details.

For November, stock market data shows the FBM KLCI is down 4% or 60.34 points from 1,491.89 on Oct 31 after it closed at 1,431.55 on Nov 25.

Bursa Malaysia’s market capitalisation was reduced by RM38 billion to RM1.23 trillion from RM1.268 trillion during the period.

Among the stocks with recent corporate news are Guinness Anchor Bhd (GAB), Media Chinese International Ltd (MCIL), Sime Darby Bhd, Malaysian Resources Corp Bhd (MRCB), IJM Corp Bhd and Kulim (M) Bhd.

GAB plans to issue up to RM500 million in debt notes which will provide it with an alternative source of financing and enable it to effectively plan and manage its funding costs and requirements, it added.

The Edge weekly reports that MCIL, a newspaper publisher with the most Chinese titles in the world, has jumped onto the non-print media bandwagon and is scouting for opportunities in TV and radio.

Stocks with recent corporate results are Sime Darby, MRCB, IJM Corp and Kulim.

Sime’s first quarter net profit jumped 63.9% to RM1.07 billion from RM654.74 million a year ago, boosted by stronger results for the plantations and industrial divisions.

MRCB’s net profit for 3QFY11 ended Sept 30 jumped 191% to RM10.72 million from RM3.68 million a year ago, due mainly to higher contribution from its revenue recognition of ongoing and encouraging strata office sales of property development projects at Kuala Lumpur Sentral.

IJM Corp’s 2Q earnings fell 35% to RM74.77 million from RM115.13 million a year ago as it was impacted by unrealised foreign exchange translation losses on US dollar loans.

Kulim’s earnings slumped 39.9% to RM171.07 million in 3QFY11 ended Sept 30 from RM284.65 million a year ago following the disposal of its oleochemicals group that recorded a profit of RM156 million last year. For the nine-month period, its net profit increased 23% to RM444.46 million from RM361.21 million.

However, its declaration of a single-tier interim dividend of 20% will provide some support for the stock.

Kulim’s related companies, KFC Holdings (Malaysia) Bhd and QSR Brands Bhd also recorded a decline in earnings due to higher commodity prices.

KFCH reported a 12.2% decline in its 3Q earnings to RM33.52 million from RM38.2 million a year ago as it was affected by higher food, commodity and energy costs.

QSR’s earnings fell 10.5% to RM22.22 million in 3QFY11 ended Sept 30 from RM25.33 million a year ago, as its margins were affected by inflationary pressures including commodity costs.


This article appeared in The Edge Financial Daily, November 29, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Stocks to watch: MCIL, Sime, MRCB, IJM, Kulim

KUALA LUMPUR (Nov 27): The market sentiment is expected to stay cautious when it reopens for trading on Tuesday, Nov 29 as external factors arising from the eurozone will continue to weigh.

According to Reuters, France and Germany are planning a quick new pact on budget discipline that might persuade the European Central Bank to ramp up its government bond purchases.

The news report, quoting Germany’s Welt am Sonntag newspaper on Sunday, said the French and German leaders were prepared to back a deal with other euro countries that might induce the ECB to intervene more forcefully to calm the euro debt crisis.

If all goes, well this would be positive for the markets and hopefully shore up Malaysia's market sentiment.

At Bursa Malaysia, the market is down for November, extending several months of decline due to the eurozone and US crisis.

Stock market data showed the FBM KLCI is down 4% or 60.34 points from 1,491.89 on Oct 31 after it closed at 1,431.55 on Nov 25. Market capitalisation was reduced by RM38 billion to RM1.230 trillion from RM1.268 trillion.

Among the stocks to watch are SIME DARBY BHD [], MALAYSIAN RESOURCES Corporation Bhd (MRCB), IJM CORPORATION BHD [], KULIM (M) BHD [] following the recent corporate announcements.

Meanwhile, The Edge weekly reports that MEDIA CHINESE INTERNATIONAL LTD (MCIL), a newspaper publisher with the most Chinese titles in the world, has jumped onto the non-print media bandwagon and is scouting around for opportunities in TV and radio.

Last Friday, Sime Darby reported its net profit for the first quarter ended Sept 30, 2011 jumped 63.9% to RM1.07 billion from RM654.74 million a year ago, boosted by stronger results of the PLANTATION []s and industrial divisions.

Its revenue for the quarter rose 27.5pct to RM11.06 billion from RM8.67 billion in 2010.

MRCB’s net profit for the third quarter ended Sept 30, 2011 jumped 191pct to RM10.72 million from RM3.68 million a year ago, due mainly to higher contribution from its revenue recognition of ongoing and encouraging strata office sales of property development projects at Kuala Lumpur Sentral.

IJM Corp’s second quarter earnings fell 35% to RM74.77 from RM115.13 million a year ago as it was impacted by unrealised foreign exchange translation losses on US dollar loans.

Kulim’s earnings slumped 39.9% to RM171.07 million in the third quarter ended Sept 30 from RM284.65 million a year ago following the disposal of oleochemicals group that recorded a profit of RM156 million last year. Kulim declared a single tier interim dividend of 20%.

For the nine-month period, its net profit increased 23% to RM444.46 million from RM361.21 million while revenue rose at a slightly stronger pace of 29.2% to RM5.240 billion from RM4.056 billion.

Kulim’s related companies, KFC Holdings (Malaysia) Bhd and QSR BRANDS BHD [] also recorded a decline in earnings due to higher commodity prices.

KFCH reported a 12.2% decline in its third quarter earnings to RM33.52 million from RM38.20 million a year ago as it was affected by the higher food, commodity and energy costs.

QSR’s earnings fell 10.5% to RM22.22 million in the third quarter ended Sept 30 from RM25.33 million a year ago, as its margins were affected by inflationary pressures including commodity costs. Revenue increased 10% to RM821.49 million from RM746.49 million while earnings per share were 8.13 sen versus 9.22 sen.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

October 2011 adex: Reality bites

Media sector
Maintain underweight: October 2011 total gross advertising expenditure was up 4% year-on-year (y-o-y), but disturbingly, TV adex contracted 6% y-o-y, the largest contraction since February 2009. We understand this is due to weakening consumer sentiment. Newspaper adex, especially Malay and Chinese newspapers, grew 12% y-o-y.

November 2011 is expected to be another quiet month due to lack of adex-friendly events. Maintain “underweight” on the media sector.

Whenever TV adex contracts but newspaper adex grows y-o-y, this indicates that advertisers are turning cautious on consumers. Historically, TV adex is more sensitive to sentiment fluctuations than newspaper adex.

October 2011 total gross adex was little changed from the seasonally slower months of March and April.

Historically, October total gross adex is seasonally higher than that of both March and April. Like September 2011, we understand that this was due to still weak consumer sentiment.

Historically, November is a quiet month due to a lack of adex-friendly events with the total gross adex levels little changed from October. In terms of total gross adex growth y-o-y going forward, we reiterate our view that it will be mid single digits in percentage terms at best due to the high base effect and weakening consumer sentiment. Adex for 10MFY11 grew 10% y-o-y, in line with our 6.8% forecast gain for 2011 and 7% for 2012.

We maintain our assumptions and earnings estimates for the media companies under our coverage. As we expect three-year forward sector earnings compound annual growth rate of only 2%, we opine that media companies should not be trading at historical averages but at close to -1 standard deviation valuations.

Media Prima Bhd is a “sell” for its vulnerability to slower adex growth. Media Chinese International Ltd is a “sell” for its vulnerability to newsprint prices. Star Publications (M) Bhd is a “hold” for its stable dividend yields of more than 5%. — Maybank IB Research, Nov 17


This article appeared in The Edge Financial Daily, November 18, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

InsiderAsia’s model portfolio - 455

Global financial markets were subjected to harrowing daily swings over the past two weeks, as developments on the Europe debt crisis kept investors on a nervous edge.

Investors had earlier breathed a sigh of relief and cheered a rescue plan by eurozone members for Greece and plans to leverage on the remaining funds available in the European financial stability facility.

Representatives of the private bondholders have agreed to a voluntary 50% haircut, much deeper than the earlier proposed 21% reduction. This is projected to cut Greece’s debt to GDP ratio to about 120% by 2020, instead of more than 160% under the July proposal.

However, the euphoria quickly evaporated after Greece threatened a U-turn, with its Prime Minister George Papandreou announcing his decision to put the European bailout deal to a popular referendum. This was later aborted and the prime minister stepped down, but not without damaging confidence and sending financial markets into a tailspin.

Concerns over the European debt crisis later shifted to Italy, the eurozone’s third largest economy, and which holds US$2.6 trillion (RM8.2 trillion) of debt compared with Greece’s US$500 billion. Soaring Italian bond yields prompted fears of a default.

Towards the end of last week, financial markets regained some stability.


With Greece having appointed Lucas Papademos as the prime minister and Italy expected to appoint a new government headed by economist Mario Monti, investors are hoping that both countries will have measures to strengthen their economies, although the debt crisis is probably not by far over.

Amid a volatile external environment, local investors turned their attention to penny and retail stocks in the last two weeks on speculative buying interest. Many counters, notably Harvest Court, chalked up spectacular gains.

While the interest in these penny stocks and lower liners has livened up an otherwise dull market, investors should also note that they carry high risks. Many of these stocks are loss-making and the gains are not supported by fundamentals.

Over the last two weeks, the FBM KLCI lost a total of 13.1 points or 0.9% to close at 1,468.8.

Portfolio review
Stocks in our model portfolio outperformed the benchmark index in the last two weeks. Total market value for our basket of 17 stocks was up by 0.42% to RM377,900, compared with the FBM KLCI’s 0.9% loss.

Seven stocks in our portfolio closed with gains, six with losses and four stocks were unchanged in the past two weeks. DiGi was the biggest gainer, up 7.2% as it announced a capital management and repayment plan. This was followed by Pantech warrants (+4.3%) and Media Chinese International (+3.7%). The losers were led by Masteel and its warrants, down 8.5% and 5.5% respectively.

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lower 0.24% to RM657,113. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 310.7% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 127.1% over the same period, by some distance.

Our total profits are very substantial at RM497,113, of which RM399,053 has already been realised from previous shares’ sales.

We kept our portfolio unchanged last week.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, November 14, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Sleepy September for advertising

Media
Maintain underweight: September 2011 total gross advertising expenditure was up 4% year-on-year (y-o-y), but down 17% month-on-month (m-o-m) to a counter-seasonal six-month low. The underperformance was due to weakening consumer sentiment. October is expected to be another quiet month due to a lack of adex-friendly events. The 3Q11 results season may see earnings contractions y-o-y as adex growth will not outpace cost inflation. We maintain underweight on the media sector.

Despite Hari Raya Aidilfitri falling in September last year versus August this year, September 2011 total gross adex was still up 4% y-o-y. Newspaper adex, especially Malay and Chinese newspapers, grew 7% y-o-y while TV only grew 3% y-o-y. Radio adex contracted 7% y-o-y, the first time this year, while outdoor adex snapped its seven-month losing streak, growing 4% y-o-y.

We expected September total gross adex to be down m-o-m due to a lack of adex-friendly events, but we were disturbed that it was the lowest since March 2011. Historically, September total gross adex is seasonally higher than that of March.

Historically, October and November are quiet months due to a lack of adex-friendly events with their total gross adex levels little changed from September. In terms of total gross y-o-y adex growth, we reiterate our view that it will be mid single digits in percentage terms at best, due to the high base effect and weakening consumer sentiment.

In 3Q11, total gross adex grew 8% y-o-y led by newspaper adex which grew 12% y-o-y while TV grew 4%. Adex revenue of individual media companies will continue growing y-o-y but will not outpace cost inflation at low double digits in percentage terms y-o-y. Therefore, 3Q11 results season may witness earnings contractions y-o-y, especially TV-centric Media Prima Bhd.

We maintain our assumptions and earnings estimates for the media companies under our coverage. As we expect three-year forward sector earnings compound annual growth rate of only 2%, we believe media companies should not be trading at historical averages but at close to -1 standard deviation valuations. Media Prima is a “sell” for its vulnerability to slower adex growth. Media Chinese International Ltd is a “sell” for its vulnerability to newsprint prices. Star Publications (M) Bhd is a “hold” for its stable dividend yields of over 5%. — Maybank IB Research, Nov 10


This article appeared in The Edge Financial Daily, November 11, 2011.

Softer advertising expenditure in September

Media sector
Maintain underweight
As expected, September’s gross advertising expenditure (adex) for TV and print media combined showed a sequential monthly contraction of 18.1%, following the bumper August adex (due to Hari Raya and Merdeka festivities), according to Nielsen Media Research (NMR). On year-on-year (y-o-y) basis, adex growth moderated to 5.1% in Septemebr (August: +9.7% y-o-y).

Print: Bearing in mind the ad rate hike effective January 2011, the print media showed positive y-o-y growth of 7% in September, although it has moderated (August: +14.1% y-o-y). On a month-on-month (m-o-m) basis, the print media contracted 21.2%, surprisingly due to the Malay dailies’ 37.5% m-o-m contraction. Prior to September, the Malay dailies’ adex growth has been quite strong since February, with a monthly sequential growth of 15.5%, compared with English (8.5%) and Chinese (5.8%) dailies.

Media Chinese International Ltd’s (MCIL) newspapers recorded stronger y-o-y numbers across the board, compared with other Chinese dailies. Star Publications (M) Bhd had a relatively decent month as adex grew 1.8% y-o-y (-7.1% m-o-m).

TV: TV adex in September moderated further since July with only 2.9% y-o-y growth (August: +4.4% y-o-y), mainly supported by strong numbers from TV3 and 8TV. Collectively, adex for Media Prima’s channels held up quite well with 8.6% y-o-y growth (-12.1% m-o-m). In comparison, TV1 and TV2 combined recorded -27.5% y-o-y growth (-26.5% m-o-m).


For the remainder of 2011, we expect adex growth to moderate further due to lack of festivities or big events and a high base effect in 4Q10. Looking at 2008 elections, a snap election before 2012 will have a positive though not significant impact on the 2011 adex. Also, global economic uncertainties have resulted in advertisers being more prudent on ad spend. Year to date, adex grew 11%. For now, we maintain our projected 2011 adex growth of 9%, and expect adex growth to slow down to 3.6% in 2012.

The risks include: 1) stronger-than-expected consumer spending and demand (and hence, adex), possibly due to a faster-than-expected recovery in the global economy, among others; 2) lower-than-expected newsprint/content costs; and 3) stronger-than-expected ringgit vs the US dollar.

No change to our earnings forecasts. Maintain “underweight” on the sector. We believe the sector lacks catalysts as adex growth may weaken further if a double-dip global economic recession materialises. Historically, we note that the GDP multiplier effect on adex growth weakens (potentially deteriorating by as much as half) when GDP growth softens. — RHB Research, Oct 31


This article appeared in The Edge Financial Daily, November 1, 2011.

InsiderAsia’s model portfolio

Global stock rebounded strongly last week on the back of positive developments in the eurozone and better- than-expected economic data in the US. The closely monitored Dow Jones Industrial Average added almost 400 points in the first four trading days of the week.

Bellwether indices in key Asian markets too closed sharply higher. The Hang Seng Index surged 11.1% while benchmark indices in Singapore and Japan closed 7.1% and 4.3% higher, respectively.

Reflecting the renewed investor confidence in riskier assets, stocks on the local bourse too traded on a stronger footing. The FBM KLCI finished in positive territory for four straight trading days. The benchmark index ended 43 points higher for the week at 1,481.8.

Trading volume also inched slightly higher, picking up strongly in the last two trading days for the week. The daily trading volume on the local bourse rose to nearly 1.49 billion shares, on average, up from the daily average of just under 1.48 billion shares in the immediate preceding week.
Positive momentum from last week may spill over into this week.

The rescue plan agreed by the eurozone members last week may not carry much details but it is widely seen as a step in the right direction — and will provide the framework for officials to work on in the comings weeks and, likely, months.

Representatives of the private bondholders have agreed to a voluntary 50% haircut, much deeper than the earlier proposed 21% reduction. This is projected to cut Greece’s debt to GDP ratio to about 120% by 2020, instead of more than 160% under the July proposal. The lower debt service costs will alleviate some of the country’s financial strain and buy more time for the government to implement the necessary structural reforms.

Investors also cheered plans to leverage on the remaining funds available in the European Financial Stability Facility (EFSF). Officials estimate that the firepower of the EFSF can be boosted up to €1 trillion (RM4.3 trillion) under the two suggested options. The first will see a first-loss guarantee on new bonds issued and under the second option, its resources will be used to seed special purpose vehicles that will attract private and sovereign wealth funds.

Lastly, European banks are required to boost their holdings of safe assets to 9% of total capital, to buffer against debt provisions and losses in the debt crisis fallout. It is estimated that some €106 billion will be needed for the recapitalisation exercise, although details are sketchy as to where the money will come from.

Indeed, leaders of the eurozone have put no additional money on the table. The proposed boost to the EFSF depends on the region’s ability to attract private investors and sovereign wealth funds, of which there is currently no indication of success. It also remains to be seen if the initial loss insurance will be sufficient to bring down borrowing costs for troubled countries like Italy and Spain.

Even if all goes to plan, it will take years to pare debt levels and repair government fiscal positions. Meanwhile, economic activities in the eurozone have slowed considerably in recent months and will likely stay weak for sometime with the ongoing austerity programmes.

In the other key development, US’ GDP grew 2.5% in 3Q11, much better than the anemic 0.4% in 1Q11 and 1.3% in 2Q11. The improved figure allayed concerns that the world’s largest economy will fall back into recession, at the least for now.

The biggest question is whether the growth is sustainable amid high unemployment and stagnate income growth. Market observers remain divided on the issue.

For the moment, stock markets are rallying on the premise that the global situation is not as bad as it could be. Nevertheless, with the outlook still hazy, a healthy dose of caution is warranted. There is a good chance that we may not have seen the last of market volatility.

Portfolio review
Stocks in our model portfolio underperformed the benchmark index last week. Total market value for our basket of 17 stocks was up by 2.11% to RM376,310, compared with the FBM KLCI’s 2.99% gain.

Fifteen stocks in our portfolio closed with gains last week while two ended lower and one traded unchanged. Some of the notable gainers include Media Chinese International (+8%), Genting (+8.7%), Pantech (+4.3%) and Quill Capita Trust (+3.9%). At the other end, DiGi (-0.3%) and BSDREIT (-1.4%) were the only two losers for the week.

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 1.2% to RM655,523. Last week’s gains boosted our model portfolio’s cumulative returns since inception to 309.7% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 129.1% over the same period, by some distance.

Our cash holdings remain substantial, accounting for 43% of our total portfolio value. The relatively high percentage is, primarily, for prudence sake. Despite the strong rebound so far this month, we are still cautious on the market outlook.

Our total profits are very substantial at RM495,523, of which RM399,053 has already been realised from previous shares sales. We kept our portfolio unchanged last week.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, October 31, 2011.