PT MNC Vision Networks Tbk (IPTV IJ) Advertising, Printing and Media Reaching Further: Continued Its Strong Momentum

MNCS COMPANY UPDATE MNC Sekuritas Research Division | December 15, 2020

PT MNC Vision Networks Tbk (IPTV IJ) Advertising, Printing and Media Reaching Further: Continued its Strong Momentum

The 9M20 results have confirmed the strength and resilience of its integrated Not Rated business model  Resilient performance with revenue reaching IDR2,686.23 billion (+6.28% YoY) in 9M20, followed by a substantial increase in net income before minority to IDR236.11 billion (+50.61% YoY). Stock Data  DTH/satellite services (+4.59% YoY) along with Digital, IPTV and Broadband segment (+14.51% YoY) revealed strong growth, largely due to a higher number of viewers and Curent Price : IDR292 watch time as most people stay at home during a pandemic.  IPTV has also managed to maintain a healthy balance sheet with DER relatively stable 52wk Range H-L : IDR550-274 at 0.51x. Share Outstanding : 38.31 billion  Management believes that the positive profitability trend to continue throughout the year as the Company’s subsidiaries performance remains on track to achieve its Free Float (%) : 19.10 financial and subscriber targets that translate into meaningful incremental value Mkt Capitalization : 11,721.7 creation. (IDR bn) Most of strategies are fully on track; Looking forward to record astonishing result  IPTV implement new initiatives on its subsidiary, MNC Vision (2.1 million subscribers), Major Shareholders from lending STB/equipment to selling it outright to consumers which will drive higher revenue, healthier cash flow, and less overhead cost by avoiding STB/ equipment retrieval and reparation cost due to churn. PT Global : 63.44%  MNC Play along with Playbox and Vision+ is in the progress of a potential Special Mediacom Tbk. Purpose Acquisition Company (SPAC) transaction with a valuation of around USD400 PT MNC Asset : 7.32% million. If it went well, the two units will serve as the two main operating entity under Management the SPAC listed on NASDAQ.  Acquiring local content operator (LCO) is intended to prevent piracy and broaden PT MNC Media : 7.20% MVN networks as IPTV focuses on low capex business model across all unit while Investasi working together with neutral network providers instead of rolling out new network, PT Infokom : 2.91% also using Playbox to sell IPTV services to customers with different internet providers. Elektrindo  IPTV is looking to introduce digital ordering feature on its prepaid DTH service (QR Public : 19.13% link) that will boost purchase of top-up voucher for K-Vision’s existing subscriber.  IPTV has 6.7 million of subscribers as of Jun-2020 through MNC Vision (post-paid DTH), K-Vision (pre-paid DTH), MNC Play (IPTV and broadband), Play Box (Android TV OTT Box), and LCO, reaching 91.78% of FY20E target amounted to 7.3 million subscribers.  Hidden treasures: monetization of its 5G and LTE spectrum (150Mhz) along with lease back strategy.

Valuation and Recommendation: NOT RATED IPTV is currently traded at 1.92x PBV, while it has only been traded for almost one year. However, IPTV is affiliated with the Company, so we do not offer any recommendation related to company prospects. Recommendation: NOT RATED.

Key Financial Highlight In billion IDR FY17 FY18 FY19 9M20 Revenue 3,140.78 3,227.28 3,524.91 2,686.23 EBITDA 1,305.63 1,355.79 1,521.44 1,202.53 EBITDA Margin (%) 41.57 42.01 43.16 44.77 Net Profit before minority (127.74) (69.13) 326.19 236.11 Net Profit Margin (%) (4.07) (2.14) 9.25 8.79

MNCS Team Coverage ROA (%) -0.74 -0.51 3.06 2.08 [email protected] ROE (%) -1.50 -1.55 5.51 3.13 (021) 2980 3111 Source : IPTV

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1H20 Result : Strong IPTV IJ or “MVN” record a steady performance with revenue reaching IDR2,686.23 Business Growth and Healthy billion (+6.28% YoY) in 9M20 from IDR2,527.44 billion in 9M19. With revenue reaching Balance Sheet IDR1,749.05 billion, increased by 4.59% YoY, the satellite services remains the largest contributor of the revenue. The rise is followed by Digital, IPTV and broadband revenue which grew by 14.51% YoY to IDR669.14 billion in 9M20. Moreover, IPTV managed to record a stellar net income before minority interest increase of 50.61% YoY to IDR236.11 billion in 9M20 (with margin rose up to 9% from 6% in 9M19). IPTV has been withstanding the hard blown wind of the pandemic-stricken economic, the performance keep going stronger with Gross Profit Margin and EBITDA Margin both rising to 23%/45% in 9M20 (vs 18%/43% in 9M19). IPTV has also managed to maintain a healthy balance sheet with DER relatively stable at 0.51x.

Exhibit 01. 9M20 Financial Results

IDR Bn 9M19 9M20 YoY 2Q20 3Q20 QoQ

Revenues 2,527.44 2,686.23 6.28% 890.98 952.63 -2.57% Satellite Services 1,749.05 1,829.35 4.59% 593.05 585.72 -7.70% Digital, IPTV & Broadband 669.14 766.20 14.51% 270.01 336.01 11.42% Others 109.26 90.68 -17.01% 27.88 30.90 -25.79% Direct Cost 1,267.64 1,316.03 3.82% 456.59 423.27 -0.93% G&A Expense 164.45 167.67 1.96% 71.68 47.06 -33.46% EBITDA 1,097.36 1,202.53 9.58% 362.67 482.31 0.51% EBITDA Margin 43.42% 44.77% 40.70% 50.63% D&A Expense 804.26 760.71 -5.42% 273.15 231.56 -9.88% Net Profit before minority 156.77 236.11 50.61% 84.98 110.32 -17.59%

Source : Bloomberg, MNCS

Exhibit 02. IPTV Revenue and Net Income Trend

Revenues (IDR Bn) Revenue Growth YoY (RHS) Net Income (IDR Bn) NI Growth YoY (RHS)

400.00 500% 4,000 10% 450% 300.00 471.84% 3,500 400% 9.22% 8% 3,000 200.00 350% 6.28% 2,500 6% 100.00 300% 2,000 250% - 50.61% 4% 200% 1,500 4.68% (100.00) 150% 1,000 2.75% 2% 100% (200.00) 500 50% - 0% (300.00) 61.36% 54.12% 0% FY16 FY17 FY18 FY19 9M20 FY16 FY17 FY18 FY19 9M20

Source : IPTV

Revamping Its Business IPTV will implement new initiatives on its subsidiary, MNC Vision; a DTH post-paid Pay- Model: Sale of STB/ TV that uses S-band weatherproof satellite technology. The management has decided Equipment Leads to Higher to innovate MNC Vision’s business model from lending STB/equipment to selling it Revenue and Reduced outright to consumers. Moreover, the adjustment should have a substantial positive Overhead Cost impact, which will drive higher revenue, healthier cash flow, and less overhead cost by avoiding STB/equipment retrieval and reparation cost due to churn. The move will result in lower capex spending due to economies of scale as well as lower overhead cost, such as sales, technical and other related expenses. Starting Nov-2019, MVN has transitioned into selling its equipment to customers for USD31/set, from USD44/set and will be fully implemented within 6 months. IPTV is on target to acquire 2,000 new subscribers per day upon the full implementation of the new model. Currently, MNC Vision has 2.1 million subscribers with ARPU of IDR72,777.

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Multiplying Subscribers and IPTV has 6.7 million of subscribers as of October 2020 through MNC Vision (post-paid Decent Channels DTH), K-Vision (pre-paid DTH), MNC Play (IPTV and broadband), Play Box (Android TV Performance OTT Box), and LCO. This is supported by the K-Vision massive customer acquisition which consistently acquired 8,000 customers per day followed by an all-time high of 382,000 new subscribers acquisition on July 2020. Meanwhile, Vision+, the Company’s OTT platform, has gained more than 33.1 million monthly active user (MAU) as of October 2020. Moreover, IPTV also has accumulated a total audience share of 26.1% as of October 2020, which was the highest amongst all pay channel group. The current subscribers has reached 91.78% of the targeted subscribers in FY20E which amounted to 7.3 million subscribers.

Unlocking the Future Value To further reaching the global market, MNC Play along with Playbox and Vision+ is in the progress of a potential Special Purpose Acquisition Company (SPAC) transaction in the near future with a valuation of around USD400 million. Provided that the deal goes through, the two units will serve as the two main operating entity under the SPAC listed on NASDAQ. A SPAC is a company that initially has no commercial operations and is formed solely to raise capital through an initial public offering (IPO) and typically has a certain period to make an acquisition.

Exhibit 03. MNC Play Subscribers and Home Pass Growth 2015-2019

Subscribers (in Thousand) Home Pass (In Thousand)

1,492 1,492

1,208

1,000

509

115 265 290 57 175

2015 2016 2017 2018 2019

Source : IPTV

Exhibit 04. K-Vision Monthly Customer Acquisition from Feb-19 until Oct-20 K-Vision Monthly Acquisition (In Thousand)

Customer Acquisition (In Thousand) 382 400 288 290 300 250 263 240 213 205 204 226 161 186 200 135 155 107.8 82.2 100 35.645.3 7.5 7.3 7.3

19 20

19 20 20

19 20

20 19

19 20

- - - -

- -

- - -

- -

Jul Jul

Jan

Jun Jun

Oct Oct

Apr Apr

Feb Feb

Sep Sep

Dec

Mar Mar

Aug Aug

Nov

May May

Source : Bloomberg, MNCS

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Spreading Nationwide with IPTV has just acquired PT AMG Kundur Vision (AMG) in May-2020, a Local Cable Acquisition and QR link Operator (LCO) in Batam-Kepulauan Riau for its majority shares of 80%. The acquisition implementation is aimed to capture untapped Pay-TV market in areas not attainable by the Company’s 2 DTH units. Thus, the penetration of nationwide Pay-TV market will be maximized. IPTV targeted AMG to have 35,000 subscribers at FY20E, 45,000 subscribers in FY21F, and 55,000 subscribers in FY22F. While, two more LCO acquisitions on tier 2 and tier 3 cities are expected to reach a deal in early FY21F. Moreover, IPTV is looking to introduce digital ordering feature on its prepaid DTH service (QR link) that will boost purchase of top-up voucher for K-Vision’s existing subscriber with expected IDR50 billion-70 billion voucher sales per month (vs IDR10 billion-14 billion previously).

Exhibit 05. LCO Acquisition is aimed to capture untapped Pay-TV market

LCO Partnership— Methods

LCO Acquisition Or Digitalization/Content Licensing

Source : IPTV

Exhibit 06. Corporate Structure PT MNC Vision Networks TBK (IPTV)

Source : IPTV (as of March 2020)

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Hidden Treasures: IPTV is planning to monetize its LTE and 5G spectrum that sits on 2.520-2.670 GHz Monetization its 5G and LTE band (highly demanded in the midst of 5G’s development) , which occupy 150Mhz and Sprectrum along with... followed by migrating their satellite from S-band to KU-band. IPTV also had launched Android TV OTT Box called “Playbox”, this device offers a variety of features including Google Assistant with voice command and Catch Up TV. Through Playbox, IPTV can now penetrates more than 6 million untapped non MVN broadband internet users in Indonesia.

.... Lease Strategy for IPTV, through MNC Play, is expected to enter into exclusive talks to monetize its Efficiency homepass and start a sale and lease back model, while continue to lease excess capacity from third party neutral network providers, such as ICON+ and Fibrestar, as a way to expand its subscribers’ penetration moving forward. This is in line with the IPTV’s strategy to reduce capital expenditure requirements.

Valuation and IPTV is currently traded at 1.92x PBV, while it has only been traded for almost one year. Recommendation: NOT However, IPTV is affiliated with the Company, so we do not offer any recommendation RATED related to company prospects. Recommendation: NOT RATED.

Exhibit 07. IPTV is currently traded at 1.92x PBV or –1STD of 6-Month Average

IPTV PBV Mean STD-1 STD-2 STD+1 STD+2

Jul-20

Jan-20

Jun-20 Jun-20

Oct-19 Oct-20

Apr-20 Apr-20

Feb-20 Feb-20

Sep-19 Sep-20

Dec-19 Dec-19

Mar-20

Aug-20 Aug-20

Nov-19 Nov-20 Nov-20 May-20

Source : IPTV

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Exhibit 08. Financial Summary

Income Statement Balance Sheet

IDR Billion FY17 FY18 FY19 9M20 IDR Billion FY17 FY18 FY19 9M20

Revenues 3,140.78 3,227.28 3,524.91 2,686.23 Cash and Cash Equivalents 66.33 75.39 84.16 57.11

Cost of Sales 1,574.46 1,593.42 1,721.68 2,064.44 Trade Receivables 390.62 427.74 507.22 517.78

Gross Profit 595.06 619.25 744.86 621.79 Inventory 555.68 477.98 356.75 476.89

Other Current Assets 641.1 548.3 593.46 667.19

Operating Expense 268.41 287.93 308.07 179.97 Total Current Assets 1,653.73 1,529.40 1,541.60 1,718.96

Operating Profit 326.66 331.32 436.79 441.82 Fixed Assets - net 5,892.52 6,986.70 7,681.54 7,386.46

Other Non-Current Assets 2,916.66 616.33 998.63 1,012.21

EBITDA 1305.63 1355.79 1521.44 1,202.53 Total Non-Current Assets 8,809.18 7,603.03 8,680.17 8,398.68

Interest Expense (254.62) (253.58) (229.30) (182.31) TOTAL ASSETS 10,462.92 9,132.43 10,221.76 10,117.64

Interest Income - - - - Trade Payables 582.67 632.55 928.28 803.94

Other (87.67) (190.02) 115.87 (98.91) Short-term Liabilities 915.1 2,470.37 795.18 -

Other current liabilities 262.84 934.55 790.32 808.63

Profit Before Tax (15.63) (112.29) 323.37 160.61 Total Current Liabilities 1,760.61 4,037.47 2,513.78 1,612.56

Tax Expense (112.11) 43.16 2.82 75.51 Long –Term Debt 3,442.01 1,981.05 1,883.75 1,672.38

Profit of the Year (127.74) (69.13) 326.19 236.11 Other Long-term liabilities 73.42 91.83 153.15 115.89

Minority Interest (50.16) (22.14) 13.84 25.90 Total Long-term Liabilities 3,515.43 2,072.88 2,036.90 1,788.27

Total Equity 5,186.87 3,022.08 5,671.08 6,716.80

Net Income (77.58) (46.99) 312.35 210.21 TOTAL LIABILITY & EQUITY 10,462.92 9,132.43 10,221.76 10,117.64

Cash Flow Ratios

IDR Billion FY17 FY18 FY19 9M20 Ratio FY17 FY18 FY19 9M20

CFO Total (179.19) 1,832.46 1,563.61 870.81 Revenue Growth(%) 4.68% 2.75% 9.22% 6.28%

Net Income (77.58) (46.99) 312.35 210.20 Gross Profit Margin(%) 18.95% 19.19% 21.13% 23.15%

Depreciation 978.97 1,024.47 1,103.19 760.71 Operating Profit Margin(%) 10.40% 10.27% 12.39% 16.45%

Change in Working Capital (558.75) 90.47 337.47 21.17 EBITDA Margin(%) 41.57% 42.01% 43.16% 44.77%

Change in others (521.83) 764.51 (189.39) (121.28) Net Profit Margin(%) -4.07% -2.14% 9.25% 8.79%

CFI Total (3,246.38) 181.68 (2,180.32) (735.30)

Change in ST Investment - - - - Current Ratio(%) 93.93% 37.88% 61.33% 106.60%

Change in LT Investment - - - - Quick Ratio(%) 25.95% 12.46% 23.53% 35.65%

Capex (3,454.56) (2,129.20) (1,798.02) (794.31) Receivable Days 45.40 48.38 52.52 70.35

Change in Others 208.18 2,310.88 (382.30) 59.02 Inventory Days 128.82 109.49 75.63 84.32

CFF Total 3,411.07 (2,004.42) 527.12 (164.17) Payable Days 135.08 144.90 196.80 142.14

Net Change in Debt 2,057.85 94.30 (1,772.49) (203.20) Debt to Equity (x) 1.02 2.02 0.80 0.51

Equity financing 1,169.39 1,210.91 1,441.78 294.02 Debt to EBITDA (x) 3.34 3.28 1.76 1.39

Dividend payment - - - -

Others 183.82 (3,309.63) 857.83 (254.98) ROA (%) -0.74% -0.51% 3.06% 2.08%

Net Cash Increase (14.50) 9.72 (89.59) (28.66) ROE (%) -1.50% -1.55% 5.51% 3.13%

Forex Gain (Loss) on Cash 1.61

Closing Balance 66.33 75.39 84.16 57.10

Source: Bloomberg, IPTV

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MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months Not Rated : Stock is not within regular research coverage

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