Surya Citra Media TP: Rp2,050 (+19.9%) Venturing Into Digital Realm
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EQUITY RESEARCH SCMA - Company Update - 26 March 2019 CIPTADANA SEKURITAS ASIA BUY Surya Citra Media TP: Rp2,050 (+19.9%) Venturing into digital realm Sector Media Gone are the days of awe A paradigm shift on how people access media exacerbated by limited FMCG’s A&P budgets Bloomberg Ticker SCMA IJ have stunted growth of media companies which triggered derating in the industry. While we believe soft consumptions pressure shall subside, the digital shift is structural. Share Price Performance Last price (Rp) 1,710 SCMA is going digital Avg. daily T/O (Rpbn/USDmn) 24.7/1.7 To anticipate the structural shift, SCMA recently announced a plan to enter into several transactions with the purpose of embarking new businesses in online and related digital 3m 6m 12m sphere. The first set of transaction is to acquire EMTK’s digital companies with estimated Absolute (%) -8.6 -8.8 -36.7 value of Rp323 bn. SCMA plans a share-swap deal in which it will issue new shares at Relative to JCI (%) -12.1 -16.1 -39.4 Rp2,446/share which will be used to pay EMTK. We estimate a potential dilution of c.1% from this transaction. This deal is subject to EGM, expected on May-19. Other transaction 52w High/Low price (Rp) 2,840/1,490 is acquiring Samara Media Entertainment (SME), which we believe will be done in cash. 3,000 5% The digital assets 0% The first asset is Vidio.com. It was launched in 2015 and now is the second most popular 2,500 -5% online video platform after YouTube. SCMA plans to monetize the platform with ads and by 2,000 -10% -15% providing premium contents. The second company is KapanLagiYouniverse, an integrated 1,500 -20% online media portal spanning from news, sports, entertainments, etc. It has been running -25% for several years and is now the largest integrated online portal in Indonesia. Next, is EYE 1,000 -30% which is on the out-of-home (OOH) advertisement business to capture the high potential of 500 -35% -40% OOH ads. EYE now has 76 boards in strategic area such as in SCBD, Senopati, Senayan and 0 -45% airports. The last company is SME which runs the film studio, social influencer, and events 19 18 18 18 18 18 18 19 18 18 19 18 18 management business to complement with SCMA’s other businesses. - - - - - - - - - - - - - Jul Oct Jan Apr Jun Feb Dec Sep Nov Aug Mar Mar May Non-FTA businesses SCMA 1yr Rel. to JCI (RHS) Apart from the aforementioned new ventures that will be acquired later, SCMA has already run other non-FTA-TV businesses. The first one is content producer company, IEG, Outstanding shrs (mn) 14,622 which incorporates Sinemart and Screenplay, among others. The former is a leading FTA- Mkt. Cap (Rpbn/USDmn) 25,003/1,765 TV contents maker, famous on its soap operas, while the latter is a movies maker which Estimated free float (%) 41.7 has been successful in producing some box office titles. Another interesting business is Whisper which enables advertisers to place their brands directly into existing contents Major shareholders with ‘geo-target’ feature that allows advertisers to promote different products in different Elang Mahkota Teknologi 60.8% regions of Indonesia at the same time, on the same TV shows. Public 39.2% Valuation and recommendation Our proforma analysis reveals a 1.0% and 3.8% potential EPS accretion in 2019F and 2020F. We have not incorporated the digital assets into our forecasts pending to further EPS Consensus clarity on the deals. We slightly tweak our numbers and tone down our margin Ciptadana Cons. % Diff assumptions to incorporate Company’s guidance. We believe SCMA is currently 2018F 106.3 105.5 0.8 undervalued, trading below regional peers average PER of c.18x and near to -2SD of its mean. We now pegged SCMA to 17.6x to 2019F PER, leading to TP of Rp2,050/share. 2019F 116.7 114.5 1.9 2020F 128.5 126.9 1.2 Exhibit 1 : Financial Highlights Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (Rpbn) 4,524 4,454 4,975 5,324 5,750 Operating profit (Rpbn) 2,003 1,772 2,053 2,247 2,481 Net profit (Rpbn) 1,501 1,331 1,555 1,707 1,879 EPS (Rp) 102.7 91.1 106.3 116.7 128.5 EPS growth (%) -1.5 -11.3 16.8 9.8 10.1 Gani EV/EBITDA (x) 11.6 12.7 11.1 9.9 8.8 +62 21 2557 4800 ext. 734 PER (x) 16.7 18.8 16.1 14.6 13.3 [email protected] PBV (x) 7.3 6.4 5.6 4.9 4.3 Dividend yield (%) 4.9 3.4 4.0 4.3 4.8 http://www.ciptadana.com ROE (%) 43.8 34.1 34.8 33.5 32.5 Source : SCMA, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 2 EQUITY RESEARCH SCMA - Company Update - 26 March 2019 CIPTADANA SEKURITAS ASIA Gone are the days of awe Free to air (FTA) TV was once dubbed as the proxy to flourishing middle income class in Indonesia. Back in the early 2010s, double digit top-line growth was almost a given for the industry as CAGR of revenue was recorded at 18.5% in 2010-12 (Note: We use SCMA, MNCN, VIVA in our studies; we include IDKM in 2010-12 and proportionate its 1Q13 number to include its 5-month revenue as the acquisition was completed in May 2013 and SCMA began consolidating IDKM on June). SCMA outgrew the industry by booking 30.4% of revenue CAGR in the same period of 2010-12 thanks to its strong contents backed by solid management with superior corporate governance; its 2013 number may not be a good comparison as it was lifted by consolidating IDKM, however, even in 2014, a year after the acquisition, it still booked a solid growth of 10.3%. However, those glory days are now gone. Moving along, the story seemed to turn upside down. Industry’s top-line CAGR decelerated significantly to 3.4% in 2013-17 with growth plummeted to negative territory in 2015. SCMA still fared better than the industry in 2014-15 but came below in 2016-17 as ANTV, on a turnaround project with the guidance from Erick Thohir helming the Company as CEO, began to rise in prominence and garner some audience share from the top TV stations. In 9M18, SCMA is the only one who recorded solid growth thanks to the Asian Games, while VIVA was flat and MNCN grew by only c.3% YoY. Exhibit 2: Media Companies’ Revenue and YoY Growth 16,000 30% 14,000 23.8% 25% 5.0% 12,000 19.3% 20% 10,000 13.3% 15% 8,000 10% 6,000 9.0% 5.2% 5% 4,000 4.7% 2.4% 2,000 0% -1.7% 0 -5% 2010 2011 2012 2013 2014 2015 2016 2017 9M17 9M18 Media Revenue (LHS) Growth (RHS) Source: Companies, Bloomberg and Ciptadana Exhibit 3: SCMA’s Revenue and YoY Growth 5,000 42.1% 43% 4,500 10.8% 38% 4,000 33% 3,500 28% 3,000 19.6% 23% 2,500 19.4% 18% 2,000 10.3% 13% 1,500 12.7% 6.8% 8% 1,000 4.0% 3% 500 -1.6% 0 -2% 2010 2011 2012 2013 2014 2015 2016 2017 9M17 9M18 SCMA Revenue (LHS) Growth (RHS) Source: SCMA and Ciptadana Please see analyst certification and other important disclosures at the back of this report 3 EQUITY RESEARCH SCMA - Company Update - 26 March 2019 CIPTADANA SEKURITAS ASIA We think there are two main reasons of the FTA-TV industry deceleration. Firstly, we believe the economy slowdown has dented FMCG companies’ sales which in turn lowered their advertising and promotion (A&P) budget. FMCG companies, ranging from Home & Personal Care (HPC), Food & Beverage (FB) and cigarette, are the c.80% of ads buyers in Indonesia; therefore ads revenues should be linked with their performances. We collected data from FMCG companies under our coverage (UNVR, ICBP, MYOR, KLBF, HMSP, and GGRM) and find that in the period when the sales growth is trending down (2013-17), A&P growth tends to be muted which ultimately affecting media companies’ revenue. As a ratio, the percentage of A&P expenses to sales ratio was also on a down trend. However, silver lining is apparent in 2019F as consumer spending is expected to improve, in part, driven by increasing social funds and election money. Our consumer analysts have an OVERWEIGHT rating on both consumers and cigarette sectors. Please refer to the pertinent consumer reports for further details. Exhibit 4: FMCG Companies’ Revenue and YoY Growth 350,000 25% 300,000 19.6% 8.8% 20% 250,000 16.0% 13.5% 15% 200,000 13.1% 12.9% 150,000 9.0% 10% 100,000 7.6% 5% 50,000 5.7% - 0% 2010 2011 2012 2013 2014 2015 2016 2017 9M17 9M18 FMCG Revenues (LHS) Growth (RHS) Source: Companies, Bloomberg and Ciptadana Exhibit 5: FMCG Companies A&P Expenses and YoY Growth 14,000 35% 32.7% 30% 12,000 8.4% 25% 10,000 20% 12.8% 15.6% 8,000 14.6% 15% 10% 6,000 10.7% 5.9% 8.7% 5% 4,000 0% 2,000 -3.4% -5% - -10% 2010 2011 2012 2013 2014 2015 2016 2017 9M17 9M18 FMCG A&P Expenses (LHS) Growth (RHS) Source: Companies, Bloomberg and Ciptadana Please see analyst certification and other important disclosures at the back of this report 4 EQUITY RESEARCH SCMA - Company Update - 26 March 2019 CIPTADANA SEKURITAS ASIA Exhibit 6: A&P Expenses to Sales Ratio of FMCG Companies 4.9% 4.9% 4.8% 4.7% 4.6% 4.6% 4.6% 4.5% 4.5% 4.4% 4.4% 4.4% 4.3% 4.3% 4.2% 4.2% 4.1% 4.1% 4.0% 2010 2011 2012 2013 2014 2015 2016 2017 9M18 Source: FMCG Companies, Bloomberg and Ciptadana Another reason of the muted growth is the paradigm shift on how people access media.