Media Nusantara Citra (MNCN IJ) Still pulling in the biggest audience share

4Q16 preview: Solid EBITDA delivery despite decrease in revenue

Media In a press release circulated on February 6, 2017, Media Nusantara Citra (MNCN/Trading Buy/TP: IDR1,915) announced a 4Q16 top-line result of IDR1.5tr (+6.1% YoY; -11.6% Company Report QoQ). And for the full year, the company reported revenue of IDR6.8tr (+5.5% YoY), February 9, 2017 achieving 97% of both our estimate and the consensus. As expected, quarterly revenue growth was subdued across the industry. This was partly attributable to an increase in the proportion of direct promotional activities (as opposed Recommendation Trading Buy to advertising spending) at Unilever (UNVR/Buy/TP: IDR52,700), the largest contributor to media revenue. In addition, recent political instability has caused fast-moving Target Price (12M, IDR) 1,915 consumer goods (FMCGs) players to hold back on advertising. And for the broader consumer sector, the rising cost of raw materials—underpinned by slight depreciation of Share Price (2/8/17, IDR) 1,700 the rupiah as well as pickups in the prices of commodities (primarily CPO, skimmed milk, rubber, and steel)—drove down ad expenditure. Expected Return 12.6% For FY16, MNCN booked EBITDA of IDR2.6tr, equivalent to around 94% of both our

estimate and the consensus. This year, MNCN is aiming for EBITDA growth of 12% YoY, which represents a more optimistic target than our projection of 8% YoY. Of note, Consensus OP (17F, IDRbn) 2,674 MNCN’s FY16 EBITDA margin came in at a robust 38.2%, up 210bps YoY (see Figure 2). EPS Growth (17F, %) 16.2 On a QoQ basis, EBITDA margin expanded by 4.4%p from 36.7% in 3Q16 to 41.1% in P/E (17F, x) 13.9 4Q16. Industry P/E (17F, x) 19.0 Glued to RCTI: Local dramas win large audience shares Benchmark P/E (17F, x) 15.0 Market Cap (IDRbn) 24,269.4 According to a Nielsen survey, RCTI, which is owned by MNCN, remains the most- watched free-to-air TV station during prime time. Indeed, in January 2017, the network Shares Outstanding (mn) 14,276.1 recorded an audience share of 27%, significantly higher than the 21.8% figure recorded Free Float (mn) 5,949.4 by runner-up (VIVA IJ; Not Rated). We note that ANTV’s lineup has been Institutional Ownership (%) 10.8 underpinned by Indian soap operas such as Gopi, Geet, Lonceng Cinta (Kumkum Beta (Adjusted, 24M) 1.3 52-Week Low (IDR) 1,370 Bhagya), and Mohabbatein. However, we believe that homegrown soap operas 52-Week High (IDR) 2,415 (sinetron) are still the nation’s favorite. (%) 1M 6M 12M As per MNCN’s press release, RCTI’s Dunia Terbalik (A Reversed World), a new soap Absolute -4.0 -22.4 11.8 opera produced by MNC Pictures (MNCN’s in-house production company) that Relative -4.2 -20.9 0.1 premiered on January 5, 2017, was the TV ratings leader for January. In second place was Cinta, which concluded on January 22nd after its production house was (D-1yr=100) JCI MNCN 170 acquired by (SCMA/Trading Buy/TP: IDR3,290). 150 130 The response to Dunia Terbalik has been extremely positive, with viewers praising the 110 show’s comedic elements and expressing a desire for lengthier episodes. Should MNCN 90 70 continue to maintain its high audience share, we believe it is unlikely to suffer significant

deterioration in revenue. Furthermore, production costs should be lower going forward

6/16 2/16 3/16 4/16 5/16 7/16 8/16 9/16 1/17 2/17

11/16 12/16 10/16 given that MNCN no longer buys content from Sinemart.

PT. Mirae Asset Sekuritas

FY (Dec) 12/13 12/14 12/15 12/16F 12/17F 12/18F Revenue. (IDRbn) 6,522 6,666 6,445 7,015 7,611 8,289 Christine Natasya Gross Profit (IDRbn) 3,672 3,853 3,584 3,978 4,316 4,700 +62-21-515-1140 [email protected] Operating Profit (IDRbn) 2,560 2,602 2,194 2,465 2,674 2,913 Net profit (IDRbn) 1,691 1,761 1,186 1,486 1,716 1,953

EPS (IDR/share) 120 123 84 105 122 138

BVPS (x) 523 631 635 644 818 896

P/E ratio (x) 14.0 13.7 20.0 16.0 13.9 12.2

ROE (%) 22.9% 19.7% 13.2% 16.3% 14.9% 15.4%

Note: All figures are based on consolidated data; OP refers to operating profit Source: Bloomberg, Mirae Asset Sekuritas Research Indonesia

Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

February 9, 2017 Media Nusantara Citra

Counting on new homegrown programs to defend audience share

Following the acquisition of Sinemart by SCMA, MNC Pictures is set to ramp up production of local dramas to help MNCN maintain its audience share. On February 8, 2017, MNC Pictures’ new soap opera Cinta dari Surga (Love from Heaven) premiered as a replacement for Tukang Bubur Naik Haji. Although Cinta dari Surga has some big shoes to fill—Tukang Bubur Naik Haji boasted the third-highest ratings in Indonesia before its conclusion—we are confident that Cinta dari Surga will be able to help MNCN defend its industry-leading audience share as well as its rate card (advertising rate for a 30-second slot).

Maintain Trading Buy call with TP of IDR1,915/share

Based on our view of the media landscape, we expect MNCN’s revenue to grow 9% YoY in 2017, slightly short of the company’s guidance. All in all, we maintain our Trading Buy rating on MNCN with a target price of IDR1,915/share. Currently, MNCN is trading at 13.9x 2017F P/E, implying a discount of around 40% relative to SCMA, which is trading at 23.2x 2017F P/E.

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KDB Mirae Asset Sekuritas Indonesia February 9, 2017 Media Nusantara Citra

Figure 1. MNCN’s quarterly revenue and revenue growth Figure 2. MNCN’s EBITDA and EBITDA margin

IDRbn IDRbn Quarterly Revenue Quarterly revenue growth 2,500 35% 3,000 EBITDA (LHS) EBITDA Margin (RHS) 38.5% 38.2% 27% 25% 38.0% 2,000 2,500 37.5% 15% 10% 2,000 37.0% 1,500 5% 36.5% -3% 1,500 -5% 36.0% 1,000 -12% 1,000 35.5% -15% -17% 500 35.0% -25% 500 34.5%

- -35% - 34.0% FY15 3M16 1H16 9M16 FY16

Source: Company data, Mirae Asset Sekuritas Research Source: Company data, Mirae Asset Sekuritas Research

Figure 3. MNCN’s quarterly EBITDA margin Figure 4. UNVR’s breakdown of direct promotion vs. advertising % UNVR direct promotion spending to total ad expenses (LHS) 50% % UNVR advertising spending to total ad expenses (LHS) 100% 45% 90% 22% 20% 24% 26% 30% 41.17% 80% 35% 40% 70% 60% 35% 36.7% 50% 30% 40% 78% 80% 76% 74% 70% 30% 65% 25% 20% 10% 20% 0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 2011 2012 2013 2014 2015 9M16

Source: Company data, Mirae Asset Sekuritas Research Source: Company data, Mirae Asset Sekuritas Research

Figure 5. CPO prices Figure 6. Skimmed milk prices

MYR/Metric Tonne Euro/MT 3,400 2,300 3,200 2,200 2,100 3,000 2,000 2,800 1,900 2,600 1,800 2,400 1,700 1,600 2,200 1,500 2,000

Source: Bloomberg, Mirae Asset Sekuritas Research Source: Bloomberg, Mirae Asset Sekuritas Research

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KDB Mirae Asset Sekuritas Indonesia February 9, 2017 Media Nusantara Citra

Figure 7. USD/IDR exchange rate Figure 8. Prime time audience share trends

13,600 % SCTV RCTI ANTV 35 13,500 13,473 30 13,400 27.0 13,343 25 21.8 13,300 20

13,200 15 11.4 10 13,100 5 13,000 13,033 0 12,900 10/14/2016 11/14/2016 12/14/2016 1/14/2017

Source: Bloomberg, Mirae Asset Sekuritas Research Source: Nielsen, Company data, Mirae Asset Sekuritas Research

Figure 9. Dunia Terbalik (premiered in January 2017) Figure 10. Cinta dari Surga (premiered in February 2017)

Source: Instagram, Mirae Asset Sekuritas Research Source: Instagram, Mirae Asset Sekuritas Research

Figure 11. MNCN’s P/E band

( x ) 30

28 +2 Std Dev

26

24 +1 Std Dev

22

20 Avg PER

18

-1 Std Dev 16

14

-2 Std Dev 12

10 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Source: Bloomberg, Mirae Asset Sekuritas Research

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KDB Mirae Asset Sekuritas Indonesia February 9, 2017 Media Nusantara Citra

Profit & Loss Balance sheet Year end Dec 31 (IDRbn) 2015 2016E 2017E 2018E Year end Dec 31 (IDRbn) 2015 2016E 2017E 2018E Net Revenue 6,445 7,015 7,611 8,289 Assets COGS (2,861) (3,037) (3,295) (3,588) Cash 398 780 155 601

Gross Profit 3,584 3,978 4,316 4,700 Receivables 3,020 2,907 3,198 3,500 Opex (1,390) (1,513) (1,642) (1,788) Inventories 1,593 1,826 1,756 1,998 Operating Profit 2,194 2,465 2,674 2,913 Others 1,588 1,093 1,248 1,436 Other income/(expenses) (506) (381) (287) (214) Total current assets 7,727 7,765 7,552 8,766 Profit before income tax 1,681 2,077 2,379 2,690 Fixed assets - net 4,145 4,663 4,630 4,585 Income tax expenses (404) (499) (572) (646) Advances 1,144 1,144 1,144 1,144

Minority interest (91) (91) (91) (91) Others 1,017 816 835 859 Net profit 1,186 1,486 1,716 1,953 Total non-current assets 6,748 7,065 7,050 7,029 EBITDA 2,447 2,757 2,978 3,227 Total assets 14,830 14,602 15,795 14,475 Liabilities and equity Growth & margins 2015 2016E 2017E 2018E ST bank loans & CM 117 3,366 117 117 Net Revenue -3.3% 8.8% 8.5% 8.9% Trade payables 511 570 604 655 EBITDA -11.7% 12.7% 8.0% 8.4% Others current liabilities 412 514 545 593 Net profit -32.7% 25.4% 15.5% 13.8% Total current liabilities 1,040 4,450 1,266 1,365 Profitability (%) Long term debt 3,649 457 957 957 Gross margin 55.6% 56.7% 56.7% 56.7% Others 219 229 224 223 Operating margin 34.0% 35.1% 35.1% 35.1% Total non-current liabilities 3,868 686 1,181 1,180 EBITDA margin 38.0% 39.3% 39.1% 38.9% Total liabilities 4,908 5,136 2,447 2,545 Minority interests 601 601 601 601

Cash Flow (Summarized) Shareholders' equity 8,966 9,094 11,554 12,649

Year end Dec 31 (IDRbn) 2015 2016E 2017E 2018E CF from operation Net profit 1,186 1,486 1,716 1,953 Ratio analysis Depreciation/amortization 253 292 303 315 Year end Dec 31 2015 2016E 2017E 2018E Change in working capitals 123 (60) (187) (492) Current ratio 7.4 1.7 6.0 6.4 Others (588) 597 (124) (140) Quick ratio 4.4 1.1 3.6 3.9 CF from operation 974 2,316 1,709 1,635 Debt to equity 0.4 0.4 0.1 0.1 CF from Investments Net debt to equity 0.2 0.2 net cash net cash Net capex (979) (844) (305) (306) Others (321) 201 (19) (24) CF from investments (1,300) (643) (324) (329) CF from financing activity Increase/(decrease) in debt 575 57 (2,750) - Increase/(decrease) in equity (3) - - - Dividend payments (888) (593) (743) (858) Others (109) (756) 1,483 (1) CF from financing activity (425) (1,292) (2,009) (860) Net changes in cash (752) 381 (624) 446 1,132 398 780 155 Beg cash balance 18 - - - Non-cash adjustment Ending cash 398 780 155 601 Source: Mirae Asset Sekuritas Research

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KDB Mirae Asset Sekuritas Indonesia February 9, 2017 Media Nusantara Citra

APPENDIX 1

Important Disclosures & Disclaimers

Disclosures As of the publication date, PT Mirae Asset Securities Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving Relative performance of 10% or greater, but with Trading Buy Neutral Fundamentals are steady without any material changes volatility Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -10% * Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Indonesian jurisdiction and are subject to Indonesian securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT Mirae Asset Securities Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or PT Mirae Asset Securities Indonesia except as otherwise stated herein.

Disclaimers This report is published by PT Mirae Asset Securities Indonesia (“Mirae Asset”), a broker-dealer registered in the Republic of Indonesia and a member of the Indonesia Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Mirae Asset makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Bahasa Indonesia. If this report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available to investors in advance of this report. Mirae Asset, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Mirae Asset and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset. Mirae Asset, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

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KDB Mirae Asset Sekuritas Indonesia February 9, 2017 Media Nusantara Citra

Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Mirae Asset Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Mirae Asset Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset and its affiliates to any registration or licensing requirement within such jurisdiction.

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KDB Mirae Asset Sekuritas Indonesia