Indonesia Results Review

7 May 2021 Communications | Media

Surya Citra Media (SCMA IJ) Buy (from Neutral)

Digital Business Growth Is Key; Upgrade To BUY Target Price (Return): IDR1,960 (+30%) Price: IDR1,510 Market Cap: USD1,559m Avg Daily Turnover (IDR/USD) 17,837m/1.24m

 Upgrade To BUY from Neutral, IDR1,960 TP, 30% upside with c.2% Analyst FY21F yield. 1Q21 earnings of IDR332bn are in line, at 28%/26% of ours/Street full-year estimates. Free-to-air (FTA) advertising (ad) revenue Ghibran Al Imran dipped, but topline still rose 7.6% YoY, buoyed by a 60% YoY increase in +6221 5093 9842 digital ad revenue. This was due to the growth in monthly active users [email protected] (MAU) and paid Vidio subscriptions, as well as ad revenue from Kapan Lagi Dot Com Netowrks (KLY).

 Net revenue saved by digital ad turnover. Also its overall audience share continued to fall behind that of competitor (MNCN

IJ, BUY, TP: IDR1,640), Surya Citra Media managed to keep its FTA ad revenue stable, at IDR696bn (-3.1% YoY) and IDR509bn (+0.4% YoY) for Share Performance (%) broadcast stations SCTV and IVM. This is a clear sign that ad spending is YTD 1m 3m 6m 12m recovering, albeit slowly. SCMA’s digital ad revenue, however, grew by a Absolute (34.1) (12.2) (33.8) 0.0 86.4 solid 59.6% YoY to IDR147bn, mainly due to Vidio and KLY. As such, it still Relative (33.9) (11.6) (30.8) (11.9) 56.9 maintained its EBITDA margin. 1Q21 earnings also still grew 6% YoY, outperforming expectations at 28%/26% of ours/Street full-year forecasts. 52-wk Price low/high (IDR) 785 – 2,500

 Vidio’s next challenge: Converting subscribers to paying customers. Surya Citra Media (SCMA IJ) One of the key drivers of SCMA’s digital business was the rapid increase in Price Close Relative to Composite Index (RHS) MAU and paid subscribers for Vidio, which now number 70m and 1.45m. 2,610 280 2,410 260

SCMA’s revenue comprises a mix of ad revenue from non-paying 2,210 240 subscribers and subscription revenue. Management noted that user growth 2,010 220 will soon start to plateau, at this rate. The next challenge would be to convert 1,810 200 users to paying customers, with multiple programmes offered via a paywall, 1,610 180 including sports and original entertainment series. Hence, programming 1,410 160 1,210 140

costs from Vidio should still be exhaustive in the coming quarters. 1,010 120

810 100

 Manageable increase in interest expense. This rose to IDR18bn, from 610 80

IDR7bn last quarter. This came from its IDR1.5trn loan from HSBC, drawn

Jul-20 Jul-20

Oct-20 Apr-21 Apr-21 Oct-20

Jan-21 Jan-21 Jun-20 Jun-20

Mar-21 Mar-21

Feb-21

Aug-20 Nov-20 Dec-20 Sep-20 Sep-20 Nov-20 Dec-20 May-20 in last November. This loan was used for working capital, which we believe May-20 would be allocated to fund programming. Source: Bloomberg

 BUY post sell-off, premised on the Lebaran catalyst. Even though SCMA’s audience share is under pressure from competitors, we believe its share price may see some upside when advertisers boost spending in conjunction with Lebaran. SCMA’s share price has declined by 15% post its 4Q20 results announcement, on which we noted that its valuation was expensive after share buybacks were halted. The share price has undergone a correction, and the market is now valuing it at 17x P/E, or -2SD from the mean. We believe this may present an opportunity for investors to accumulate the stock.

Forecasts and Valuation Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Total turnover (IDRb) 5,523 5,101 5,615 6,005 6,425 Recurring net profit (IDRb) 968 1,083 1,146 1,287 1,305 Recurring net profit growth (%) (30.5) 11.9 5.8 12.3 1.5 Recurring P/E (x) 23.05 20.60 19.47 17.34 17.09 P/B (x) 4.5 19.2 3.2 2.9 2.6 P/CF (x) 18.12 11.60 na 5.85 15.66 Dividend Yield (%) 3.3 na 2.1 2.2 2.4 EV/EBITDA (x) 14.83 13.61 11.59 9.48 9.01 Return on average equity (%) 20.3 35.3 28.3 17.5 15.9 InterestNet debt cover to equity (x) (%) - net 577.83 cash - net 185.78 cash - net 157.36 cash - net 176.14 cash - net 178.66 cash

Source: Company data, RHB

See important disclosures at the end of this report 1

Surya Citra Media Results Review

7 May 2021 Communications | Media

Financial Exhibits

Asia Financial summary (IDR) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Indonesia Recurring EPS 65.51 73.29 77.55 87.08 88.36 Communications DPS 50.25 - 31.09 32.62 36.43 Surya Citra Media BVPS 336.82 78.75 469.52 527.98 583.91 SCMA IJ Return on average equity (%) 20.3 35.3 28.3 17.5 15.9 Buy Valuation metrics Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F

Recurring P/E (x) 23.05 20.60 19.47 17.34 17.09 Valuation basis P/B (x) 4.5 19.2 3.2 2.9 2.6 25x P/E on FY21F EPS FCF Yield (%) 3.5 8.0 (2.8) 16.2 5.5 Dividend Yield (%) 3.3 - 2.1 2.2 2.4 Key drivers EV/EBITDA (x) 14.83 13.61 11.59 9.48 9.01 i. Ad rate increases; EV/EBIT (x) 16.79 15.26 13.02 10.63 10.19 ii. Spike in the growth of digital ad revenue Income statement (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Key risks Total turnover 5,523 5,101 5,615 6,005 6,425 i. Economic downturn; Gross profit 2,660 2,609 3,024 3,284 3,459 ii. Execution risks; EBITDA 1,507 1,636 1,768 1,975 2,022 iii. Legal risks. Depreciation and amortisation (177) (177) (194) (214) (235) Operating profit 1,331 1,459 1,574 1,761 1,787 Company Profile Net interest (43) (22) (20) (20) (20) Surya Citra Media is a media company with a unique Pre-tax profit 1,288 1,431 1,554 1,742 1,767 integrated media ecosystem, offering end-to-end Taxation (322) (338) (398) (445) (452) advertising solutions from traditional free-to-air TV Reported net profit 968 1,083 1,146 1,287 1,305 (SCTV, ), content production (Sinemart), out- Recurring net profit 968 1,083 1,146 1,287 1,305 of-home (OOH) billboards (EYE), online media (KLY),

video-streaming platforms (Vidio.com), and event Cash flow (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F management and social media campaigns (Samara Media). The company is ultimately owned by the Change in working capital (229) 533 (1,778) 2,309 (120) Sariatmadja family’s Emtek Group (EMTK IJ, NR). Cash flow from operations 1,231 1,923 (435) 3,813 1,425 Capex (450) (128) (200) (200) (200) Cash flow from investing activities (617) (303) (392) (412) (412) Dividends paid (742) 0 (459) (482) (538) Cash flow from financing activities (1,064) (30) 4,610 (433) (489) Cash at beginning of period 830 545 678 2,433 4,196 Net change in cash (449) 1,590 3,783 2,969 524 Ending balance cash 380 2,135 4,461 5,402 4,720

Balance sheet (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F

Total cash and equivalents 545 678 2,433 4,196 4,693 Tangible fixed assets 1,502 1,616 1,816 2,016 2,216 Total assets 6,717 6,766 10,697 10,384 11,264 Total long-term debt 0 8 0 0 0 Total liabilities 1,228 2,870 1,945 1,978 2,043 Total equity 5,489 3,895 8,752 8,405 9,222 Total liabilities & equity 6,717 6,766 10,697 10,384 11,264

Key metrics Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Revenue growth (%) 10.4 (7.6) 10.1 6.9 7.0 Recurrent EPS growth (%) (30.5) 11.9 5.8 12.3 1.5 Gross margin (%) 48.2 51.2 53.9 54.7 53.8 Operating EBITDA margin (%) 27.3 32.1 31.5 32.9 31.5 Net profit margin (%) 17.5 21.2 20.4 21.4 20.3 Dividend payout ratio (%) 76.7 0.0 40.1 37.5 41.2 Capex/sales (%) 8.1 2.5 3.6 3.3 3.1 Interest cover (x) (578) (186) (157) (176) (179)

Source: Company data, RHB

See important disclosures at the end of this report 2

Surya Citra Media Indonesia Results Review

7 May 2021 Communications | Media

Figure 1: 4Q20 results review SCMA - P&L 1Q20 4Q20 1Q21 QoQ YoY 3M20 3M21 YoY RHB% Cons% Net Revenue 1,304 1,516 1,404 -7.4% 7.6% 1,304 1,404 8% 25% 25% - - Gross Profit 724 585 755 29.0% 4.3% 724 755 4% 25% 26% Gross Margin 55% 39% 54% 55% 54%

Operating Expenses (845) (1,236) (948) -23.3% 12.2% (845) (948) 12% Broadcast and Program Exp (581) (931) (649) -30.3% 11.7% (581) (649) 12% General and Admin Exp (308) (304) (301) -1.0% -2.3% (308) (301) -2% Other operating income 28 11 7 28 7 -77% Other operating expense (3) (12) (5) (3) (5) 55%

Operating Income 459 280 456 62.4% -0.8% 459 456 -1% 29% 27% Operating Margin 35% 19% 32% 35% 32% Other Income / (expense) 8 2 (4) -316% -144% 8 (4) -144% Financing requirements (0) (7) (18) (0) (18) Financing income 7 6 4 7 4 Others 6 3 10 6 10

Income before Tax 453 227 452 98.9% 0% 453 452 0% 28% 28% Net Tax Expense

NPAT 312 235 332 41.2% 6% 312 332 6% 28% 26% Net Margin 24% 15% 24% 24% 24%

Source: Company data, RHB

Figure 2: SCMA’s P/E band

40.0 +2 SD = 35.2x 35.0 +1 SD = 30.5x 30.0 Mean = 25.8x 25.0 -1 SD = 21.1x 20.0 P/E = 17x -2 SD = 16.5x 15.0

10.0

5.0

Source: RHB

See important disclosures at the end of this report 3

Surya Citra Media Indonesia Results Review

7 May 2021 Communications | Media

Recommendation Chart

Date Recommendation Target Price Price Price Close 2021-04-08 Neutral 1,960 1,785 3,980

Recommendations & Target Price 2020-12-14 Buy 2,400 1,875

na

940 940

2,630 2,630 2,800 1,870 1,550 2,400 1,960 1,750 1,750 3,480 2,415 2020-11-05 Buy 1,750 1,510

915 915 2020-07-09 Buy 1,550 1,225 2,980 2020-05-04 Neutral 915 820 2,480 2020-04-15 Neutral 940 840 1,980 2019-11-05 Buy 1,870 1,185 2019-08-01 Buy 2,415 1,470 1,480 2018-09-25 Buy 2,800 1,825 980 Source: RHB, Bloomberg 480 Buy Neutral Sell Trading Buy Take Profit Not Rated May-16 Aug-17 Nov-18 Feb-20

Source: RHB, Bloomberg

See important disclosures at the end of this report 4

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(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

KUALA LUMPUR JAKARTA RHB Investment Bank Bhd PT RHB Sekuritas Indonesia Level 3A, Tower One, RHB Centre Revenue Tower, 11th Floor, District 8 - SCBD Jalan Tun Razak Jl. Jendral Sudirman Kav 52-53 Kuala Lumpur 50400 Jakarta 12190 Malaysia Indonesia Tel : +603 9280 8888 Tel : +6221 509 39 888 Fax : +603 9200 2216 Fax : +6221 509 39 777

BANGKOK SINGAPORE RHB Securities (Thailand) PCL RHB Bank Berhad (Singapore branch) 10th Floor, Sathorn Square Office Tower 90 Cecil Street 98, North Sathorn Road, Silom #04-00 RHB Bank Building Bangrak, Bangkok 10500 Singapore 069531 Thailand Tel: +66 2088 9999 Fax :+66 2088 9799

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