RAM assigns AA1 rating to Media Chinese's proposed MYR 500 million Medium-Term Notes Programme.
Listed in Malaysia and Hong Kong, MCIL is mainly in the business of publishing Chinese language newspapers in both countries. It publishes Sin Chew Daily, China Press, Guang Ming Daily and Nanyang Siang Pau in Malaysia, and Ming Pao Daily News in Hong Kong. The Group also publishes magazines and has a travel business.
"MCIL's credit standing reflects its dominant position in the Malaysian Chinese language newspaper sector with a combined circulation market share of 90 per cent and advertising expenditure (adex) share of about 70 per cent since 2009," observes Kevin Lim, RAM's Head of Consumer and Industrial Ratings. MCIL is also the largest newspaper publisher in Malaysia in terms of net circulation. Ownership of 4 out of the top 5 titles (including top 3) within the Chinese language segment provides the Group with the unique advantage of segmenting its readership and addressing competition from other titles. The relatively stable growth trend of MCIL's newspaper business, supported by consistent adex growth rates in the Chinese language segments in Malaysia and Hong Kong, has contributed to its top line expanding to $477.85 million in FY Mar 2013.
The rating is also supported by MCIL's robust cashflow generation ability and sturdy balance sheet. In addition to increasing its funds from operations (FFO) since FY Mar 2009, the Group has consistently maintained a positive free operating cashflow (FOCF) and pre-financing cashflow over the last 5 years. Given the low debt requirements of its operations, MCIL recorded superior debt protection ratios. Combined with a substantial cash balance, the Group has been in net cash position over the past 5 years, except FY Mar 2013. The disbursement of dividends totalling $262.40 million (including a special dividend payout of $225.72 million) last year was partially funded by borrowings, which resulted in the Group's gearing and net gearing rising to a respective 0.81 and 0.34 times as at end-March 2013. Notwithstanding the increased debt, MCIL's FFO and OCF debt coverage came in at a strong 0.48 and 0.47 times, respectively. As RAM do not expect the Group requiring additional debt for its operations, major acquisitions or a further special dividend payout, they anticipate its debt level reducing over the coming years. "In the next 3 years, we expect MCIL's gearing to drop to about 0.55 times, while it may return to a net cash position. Over the same period, its FFO debt coverage is anticipated to remain strong, ranging from about 0.40 to 0.45 times," adds Lim.
Meanwhile, the rating is constrained by MCIL's susceptibility to economic cycles and newsprint price volatility. Adex, which accounts for about 60 per cent of MCIL's revenue, is highly sensitive to GDP. That said the Group's business and financial profiles have proven to be resilient during past downturns. To reduce the effects of newsprint price volatility, we believe MCIL will maintain its inventory holding period at about 6 months, thereby giving it some flexibility in deferring newsprint purchases when prices are high. The Group is also exposed to the rising prominence of newer media platforms. Although RAM note that the Chinese language segment has been relatively stable and is expected to remain so at least for the medium term, we cannot discount the rising popularity of newer media especially among the younger generation.
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