Ming Pao lays out growth plans

With Mr Yu Pun-hoi as leader of Hongkong's fourth-largest newspaper, profits more than doubled in the six months to last September. And as the emphasis turns to advertising revenue and production capacity, other ideas are on the drawing board in a quest tomake Ming Pao a high-growth stock, reports IVAN TONG. MING Pao Enterprise, Hongkong's fourth-largest newspaper by circulation, is undergoing quiet changes that may offer more comfort to shareholders than readers. Under Mr Yu Pun-hoi, who bought into the newspaper as managing director of controlling shareholder CIM Holdings about a year ago, Ming Pao has applied a corporate strategy which lays great emphasis on boosting production capacity and advertising revenue. ''The prime concern of my job will be to realise Ming Pao's underlying potential and turn it into a high-growth stock,'' said Mr Yu, a director of Ming Pao who makes no secret of his profit-driven approach to the media business. From this point of view the track record following the stock's ownership restructuring is reassuring. It has just announced a 101 per cent rise in net profit to $119.4 million for the six months to September 1992, on the back of a property sale by its listed subsidiary South Sea Holdings. Even stripping out the significant property element in the group result, profit rose about 35.5 per cent to $86.69 million. Mr Yu is confident of maintaining or increasing the growth rate in advertising income for the 1993-94 year. That income currently constitutes about 30 per cent of group profit. ''In the past, Ming Pao had underperformed in terms of advertising due to sub-standard marketing and limited production capacity,'' he said. ''Being a respected literary man, Louis Cha [Ming Pao's founder and present chairman] understandably wouldn't take too much of a business perspective in running the newspaper.'' Ming Pao was established in 1959 by Mr Cha and Mr Shen Pao-sing. In March 1991, the newspaper was publicly listed. The newspaper has an estimated circulation of 120,000 and readership of 440,000, representing about nine per cent of Hongkong's population. A broad scope of coverage and diversified readership protects it from any major demographic changes in the territory. During the past 12 months, Mr Yu has consolidated Ming Pao's printing bases under one roof by moving its headquarters from Quarry Bay to Chai Wan. Production capacity is expected to increase by 70 per cent by the end of May when the new premises and equipment are scheduled to be in full operation. Total capital investment committed will amount to about $120 million towards the end of the year. Despite being a novice in the newspaper business - buying into Ming Pao was his entry to the sector - Mr Yu has larger plans on the drawing board. ''I am interested in buying or setting up a daily which will serve a medium-to lower-end market,'' he said. ''Although leading in circulation, the established press can no longer catch up with the changes in younger but less educated people's reading habits.'' Arguing that there is a niche in every market segment, he said: ''A few years ago, when Next magazine was launched, few thought it would be that successful.'' He said the local newspaper industry was on a downward trend with circulation falling, and ''something'' had to be done to save the situation. However, he was quick to stress that no concrete plans had been formed about the new daily. On overseas investment, Ming Pao plans to launch Ming Pao Canada in early April to rival Sing Tao's publication, which has long been the leader in the overseas Chinese readership market. Mr Yu said total investment in the overseas paper, including a new printing house and equipment, was about $35 million. He expected a minor loss in the first year of operation and break-even in the second year. Aided by increased printing capacity, Ming Pao will shortly launch a classified advertisement section to challenge established rivals such as Next magazine. ''Revenue from classified ads has long been negligible, but the latest launch, with a $20 million investment in commercials, is expected to provide another $90 million to the total revenue in the year to March 1994,'' said Mr Yu. Ming Pao was revamped when CIM bought a controlling stake in the newspaper last year at the same time as it bought a 50.7 per cent stake in property stock South Sea. The complicated re-structuring puzzled some stock analysts, who questioned why shareholders who sought a newspaper play should stick with a company carrying property business. They also feared that South Sea would add volatility to its parent's total earnings. Mr Yu said: ''It is inevitable for South Sea to create volatility for Ming Pao, but as the latest result shows, its contribution has significantly boosted the newspaper's earnings.'' In the future, South Sea would try to arrange more systematic property sales in a bid to maintain a more stable income stream, he added. It would also boost rental income by retaining retail properties on the mainland and in Hongkong. At present, South Sea has eight property projects, in Qingdao, Beijing, Chongqing, Harbin, Nanjing, Hangzhou and Changchun, most of which are for residential use. Mr Yu said South Sea's equity participation in these projects ranged between 50 and 70 per cent. Despite being expected to be completed by 1995, most of them could be pre-sold this year and booked this fiscal year, he said. He also revealed that Ming Pao had increased its stake in South Sea from 50 per cent to about 70 per cent, as the stock was trading at more than a 40 per cent discount to its net asset value. Kim Eng Securities reckons solid earnings growth from Ming Pao's publications plus staggered property development contributions will lead to steady growth in earnings per share. The shares are relatively cheap on 6.7 times 1994 forecast earnings, it notes. Worldsec International analyst Michael Fogarty says that given the placement and rights issue by Ming Pao and South Sea last year, the two companies were in a good financial position to pursue new investments. However, he has reservations about how far Ming Pao can benefit from its strong push into classified advertising, as other Chinese newspapers are adopting a similar strategy.