Media Prime time to overweight
Overweight (Initiate) We initiate our coverage on media companies MNC Nusantara Citra (MNCN/ Buy/ TP IDR2,700) and Surya Citra Media (SCMA/ Buy/ TP IDR3,870). We like SCMA on the back Initiation of its: 1) low gearing and high free cash flow (FCF), 2) robust dividend payout ratio, and July 29, 2016 3) stellar ROE compared to peer. For MNCN, we favor the company due to 1) its strong audience share, 2) top notch power ratio, 3) the fact that it is the only TV operator that
has integrated studio facilities located in one area in Kebon Jeruk, (MNC studio complex). PT Daewoo Securities Indonesia We also believe MNCN will benefit from the strengthening of the rupiah given its USD debt exposures. Trade
Christine Natasya Indonesian media: appealing outlook ahead +62-21-515-1140 [email protected] We believe the media industry is well positioned to benefit from the continued expansion of private consumption. Given the large population base (4th populous
country in the world) combined with stable income growth of consumers, we believe fast
moving consumer goods (FMCG) companies are likely to benefit from this favorable macro backdrop. Furthermore, we expect FMCG companies to gear up their
advertisement spending to maximize their position in the market. Even though Indonesia
has exhibited high ad spend growth over the past couple of years (16% CAGR during 2011-2016F), we note that the average price for 30-second prime-time spot is relatively inexpensive at only USD5,400/spot compared to peer countries such as Australia, Singapore, Philippines (indicating ample room for growth). Furthermore, existing free-to- air TV operators are likely to benefit from the natural entry barrier given broadcasting license is limited by the regulators.
Expecting better revenue in2Q on the back of Ramadhan
We project revenue growth for both MNCN and SCTV will jump in 2Q, largely due to the sahur (“pre-dawn meal” which refers to food consumed early in the morning) base effect. As a quick reminder, Ramadhan was held during mid-June to July last year (vs. during the early part of June in 2016). MNCN and SCMA feature popular religious dramas during sahur in Ramadan.
We initiate coverage on SCMA with a buy recommendation and a target price of IDR3,870, implying 34.7x 2016F P/E. We think the premium valuation on SCMA is justified, given that SCMA has a strong track record and a solid balance sheet. Our IDR3,870 target price is derived by using a blended calculation of target P/E at 35x and Discounted Cash Flow (DCF) method with 10-year time span.
We initiate our coverage on MNCN with a trading buy rating and a target price of IDR2,700, implying 27.5x 2016F P/E. Our target price of IDR2,700 was derived using a blended calculation of target P/E at 28x and Discounted Cash Flow (DCF) method with 10-year time span.
Media companies covered in this report TP ROE (%) P/E(x) P/B(x) Company name Ticker Rating (IDR) 2016F 2017F 2016F 2017F 2016F 2017F Media Nusantara Citra MNCN Buy 2,700 14.2 16.6 22.4 17.8 3.1 2.9 Surya Citra Media SCMA Trading Buy 3,870 47.5 47 29.6 25 12.6 10.7 Source: Daewoo Securities Research
Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
July 29, 2016 Media
CONTENTS
Investment summary 3 Indonesian media: appealing outlook ahead 3 Buy rating for SCMA (TP IDR3,870) and Trading buy for MNCN (TP IDR2,700) 4
Overview of the media industry 5 Private consumption is the backbone for advertisement demand 5 FMCG companies, especially cigarettes companies dominate the TV ad spend 9 TV companies’ biggest revenue comes from PT.Wira Pamungkas Pariwara 11 Ad supply: Limited for TV, yet huge potential for online advertisement 13 Biggest media TV competitor: Online advertisement 15
Surya Citra Media 18 Company Background 18 PT Indonesia Entertainment Group 20 Management team 21 Famous TV shows/drama currently played on SCTV 23 Famous TV shows/drama that is currently playing on Indosiar 24 SCMA investment in iflix 25 Analyzing the Sports content 26 Investment thesis on SCMA 28 Surya Citra Media (Valuations) 34 Surya Citra Media (Ticker SCMA IJ/ Buy/ TP: IDR3,870) 35
Media Nusantara Citra 39 Company Background 39 MNCN’s local content 40 MNC Pictures 40 Talent management 41 MNC Channels 41 MNC’s FTA stations appeal to different audience segments 47 Famous dramas currently played on RCTI 47 Famous dramas that are currently played on GlobalTV 48 Famous dramas that are currently played on MNC TV 49 MNCN charges more premium advertising cost through its quality contents 50 Investment thesis on MNCN 51 Media Nusantara Citra (Valuations) 54 Media Nusantara Citra (Ticker MNCN IJ/ Trading buy/ TP: IDR2,700) 55
Risks to our call 58
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Investment summary
Indonesian media: appealing outlook ahead
We believe Indonesia’s TV media industry is well poised to benefit from the continued private consumption expansion. Given the large population base (Indonesia is the world’s 4th largest populous country) combined with stable income growth of consumers, we believe fast moving consumer goods (FMCG) companies are likely to benefit from this favorable macro backdrop. Furthermore, we expect FMCG companies to increase their advertisement expenses to maximize their position in the market. Even though Indonesia has already exhibited high ad spend growth over the past couple of years (16% CAGR during 2011-2016F), we note that the average price for 30-second prime-time spot is relatively inexpensive at only USD5,400/spot compared to peer countries such as Australia, Singapore, Philippines (indicating ample room for growth). Furthermore, existing free-to-air TV operators are likely to benefit from the natural entry barrier given broadcasting license is limited by the regulators.
Figure 1. Indonesia ad spending has grown by 16% CAGR in 2011-2016F
18% 16%
14%
12%
10%
8%
6%
4%
2%
0%
Source: Media Partners Asia, Daewoo Securities Research
Figure 2. Average price for 30 seconds prime-time spot
USD/spot
90,000 80,000 80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000 5,400
0 Australia Singapore Philippines Thailand Vietnam Malaysia Indonesia
Source: Media Partners Asia, Daewoo Securities Research
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Figure 3. Prime time all demography (Free-to-air TV market share)
4%
MNC Group 11% 14% SCMA
VIVA
Trans group 48% Others
23%
Source: Nielsen, Daewoo Securities Research
Buy rating for SCMA (TP IDR3,870) and Trading buy for MNCN (TP IDR2,700)
We like Surya Citra Media (SCMA) due to 1) its ability to maintain strong revenue growth despite lower audience share compared to Media Nusantara Citra (MNCN), 2) better monetization of its audience shares, and 3) high dividend payout ratio and strong cash position, as well as its stellar EBITDA margin compared to peers.
MNCN, we favor the company due to 1) its strong audience share, 2) top notch power ratio, 3) the fact that it is the only TV operator that has integrated studio facilities located in one area in Kebon Jeruk, (MNC studio complex). We also believe MNCN will benefit from the strengthening of the rupiah given its USD debt exposures.
Risks to our investment call Risks to our call include 1) growing internet penetration which should prompt higher demand for digital advertisement growth and pose threat to the conventional TV ad market, 2) government’s regulation on cigarettes advertisement (as a quick reminder, cigarette companies command a large portion of TV operators’ revenue), as well as 3) macroeconomic factors such as weaker-than- expected Indonesian GDP (Daewoo forecast: 5.1% in 2016F, 5.3% in 2017F), commodity prices, inflation rate, as well as the rupiah value against other countries.
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Overview of the media industry
Private consumption is the backbone for advertisement demand
Private consumption is a crucial part of Indonesia’s economy
Indonesia’s 1Q16 GDP growth picked up 4.9% YoY. Although 1Q16 GDP growth is below the 2- year average of c. 5.0% YoY growth, at the same time, we note that 1Q16 GDP print was higher than the 4.7% YoY growth in 1Q15. Given private consumption is a key growth driver for the broader economy (accounting for c. 55% of Indonesia’s economic output), we judge private consumption growth to be an important economic indicator for growth.
We suspect consumers now have greater purchasing power following the sharp decline in inflation (average CPI: 4.3% YoY in 1Q16 vs. 6.4% YoY in FY15). However, contrary to market expectations, private consumption growth remained sluggish in 1Q16 (4.9% YoY). Despite fatter pockets for consumption, we judge that mid-to-higher income households are hesitant to spend. We attribute this conservative spending to escalating uncertainties related to the macroeconomic environment.
Nevertheless, we forecast consumption growth to pick up in 2Q16. Our view largely embeds the Ramadan effect, school holiday and Idul Fitri festive. Furthermore, low inflationary pressures and potential fund flows into Indonesia from the tax amnesty program should add more momentum to private consumption, in our opinion. We retain our view that economic growth is likely to hinge on private consumption. However, we remain positive on the broader economic growth outlook given 1) strong willingness from the government to pace up its spending initiatives, 2) implementation of multiple economic packages to bolster the sagging economy and 3) elimination of bureaucratic hurdles for investments. Yet, we still think the backbone of Indonesia's economic growth stems from private consumption, evidenced by President Jokowi’s efforts to enhance the purchasing power.
Figure 4. Sluggish consumption growth despite low CPI Figure 5. Population is relatively young
(YoY) 5.2%
5.1% age 0-14 age 25-54, 5.0% 42% 8% age 15-24 4.9% 7% age 25-54 4.8%
4.7% age 55-64
4.6% 26% age 65+ 17% 4.5%
4.4% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Source: BPS, Daewoo Securities Research Source: BPS, Daewoo Securities Research
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Media advertisement is a proxy to consumption
We believe Indonesia’s long term growth remains intact, supported by our government’s actions to boost public expenditure. In addition, young demographic profile (figure 5) and growing population, higher education and improving infrastructure situation will collectively be key catalysts for Indonesia’s long term economic outlook.
Given our positive long-term growth outlook for Indonesia, we firmly believe media companies are likely to benefit as we expect increased demand for advertisement from various industries.
Media advertisement is an impersonal one way mass-communication related to products and/or services which play an important role in enhancing sales and market share. Hence, we expect the trend will continue to grow in tandem with consumption spending.
According to Media Partners Asia, Indonesia’s net advertising spending (including rate card discounts and agency commission) will reach c. USD3,500mn in 2016F, where most of the spending is expected to be allocated to TV and print media (figure 6). As >70% of advertising spending is likely to be skewed towards TV, growing audiences for TV is the key determinant of TV rate card.
Figure 6. Ad spend is focused on TV Figure 7. Free-to-air TV advertising
USDmn (USDmn) 3,000 TV 3,000 Newspaper 2,500 Magazine 2,500 Online 2,000 Out-Of-Home advertising Radio 2,000
1,500 1,500
1,000 1,000
500 500
0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Media Partners Asia, Daewoo Securities Research Source: Media Partners Asia , Daewoo Securities Research
Low net Ad spend as % of GDP compared to other countries
Moreover, Indonesia’s net ad spend as a % of GDP is still relatively low compared to neighboring countries at 0.2% in 2013 and the average price for 30 seconds prime-time spot is relatively cheap (USD5,400/spot) compared to Australia (USD80,000/spot).
Figure 8. Net Ad spend as % of GDP (2013) Figure 9. Thirty seconds prime time spot
1.0% USD/spot 0.9% 90,000 80,000 0.8% 80,000 0.7% 70,000 0.6% 60,000 50,000 0.5% 40,000 0.4% 30,000 0.3% 20,000 0.2% 5,400 0.2% 10,000 - 0.1% 0.0%
Source: Media Partners Asia, Daewoo Securities Research Source: Media Partners Asia 2016, Daewoo Securities Research
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Prime time show on TV
TV operators are regulated under the Law number 32 of 2002 on Broadcasting (Law 32/2002) dividing broadcasters into 1) public broadcasters, 2) private broadcasters, 3) community broadcaster and 4) subscription-based broadcasters.
In the area of broadcasting, there are several provisions concerning the minimum requirement to air local contents. For example, broadcast content of private and public TV broadcasters must contain at least 60% of domestic programs. Therefore, Indonesian TV stations have set up in- house production facilities to produce local contents. Popular programs which are aired on TV stations are locally produced dramas which are aired during prime time.
Prime time in Indonesia is considered to be from 18:30 to 22:00. It is imperative for TV broadcasters to air the most popular movie or the highest rated drama during prime time since it lifts up the all-time audience shares. In addition, prime time shows are highly profitable since clients take advantage of the prime time shows to advertise. MNCN’s top TV channel namely, RCTI, generates around USD6,000 gross rate per episode. The price of an advertising slot is mostly determined by the number of viewers, with upper ratings leading to higher rates.
Following the prime time hours, “adult” programs are allowed to be broadcasted. In addition, there is also a midnight prime time during sahur (“pre-dawn meal” which refers to food consumed early in the morning) during the month of Ramadhan. It usually takes place from 02:30 and end at the Fajr prayer call which varies from 04:30 to 05:00 in the early morning.
Figure 10. Screen use during the day
TV Laptop Smartphone Tablet 40%
35%
30%
25%
20%
15%
10%
5%
0% 6 am-9 am 9 am-12 noon 12 noon- 3 pm 3 pm -6 pm 6 pm- 9 pm 9 pm-12 12 midnight - 6 midnight am
Source: Millward Brown, Daewoo Securities Research
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Indonesian favorite prime time dramas
Indonesian people love local dramas which are aired by RCTI, ANTV (program name: Uttaran) and SCTV. As we can see from the chart below (figure 11), RCTI and SCTV have strong negative correlation in terms of audience share. We ascribe this to the popularization of TV programs which affect Indonesian preference of which drama to watch. We see that the audience share of RCTI and SCTV has widened since October 2015 due to the success of RCTI’s programs including Anak Jalanan (which began showing on October 12, 2015) and Tukang Ojek Pengkolan (on April 12, 2015). On the other hand, SCTV was the all-time audience share winner in 2014 thanks to the great performance of prime time drama namely, Ganteng-Ganteng Serigala, which grabbed the highest audience shares from May to December 2014.
Figure 11. RCTI, SCTV and ANTV audience shares (%)
35
30
25
SCTV 20 RCTI ANTV 15
10
5
0
Source: Nielsen, Daewoo Securities Research
Figure 12. Anak Jalanan soap opera (RCTI) Figure 13. Mermaid in Love soap opera (SCTV)
Source: Internet, Daewoo Securities Research Source: Internet, Daewoo Securities Research
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FMCG companies, especially cigarettes companies dominate the TV ad spend
According to Nielsen, cigarette companies such as Djarum (Not listed), HM Sampoerna (HMSP/Hold/TP IDR4,260), Gudang Garam (GGRM/Buy/TP IDR81,200) are large spender of TV advertising, with a total advertising value of IDR1,356bn, IDR1,228bn and IDR866bn, respectively, as of FY2015. Second large spenders are Indomie, Traveloka, Tokopedia and Unilever products.
Figure 14. Top brands TV advertising spending (as of FY15)
IDR1,356bn IDR225bn
IDR1,228bn IDR212bn
IDR866bn IDR592bn
IDR569bn IDR938bn
IDR311bn IDR685bn
IDR276bn IDR431bn
IDR65bn IDR276bn
IDR467bn IDR229bn
IDR460bn IDR324bn
IDR254bn IDR407bn
IDR233bn
IDR367bn
IDR232bn
Source: Nielsen, Company data, Daewoo Securities Research
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Figure 15. Brands that do advertisement on TV
Source: Nielsen, Company data, Daewoo Securities Research
Given our expectations for improving economy this year, we expect higher advertising expenses from FMCG companies in 2016. Indeed, we have witnessed higher ad spend in 1Q16. According to Nielsen Indonesia, total ad spend growth jumped 33% YoY in 1Q16 reaching IDR31.5tr (77% of total ad spend allocated to TV worth IDR24.2tr).
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TV companies’ biggest revenue comes from PT.Wira Pamungkas Pariwara
Revenues from customers which individually represent more than 10% of the total revenue largely come from PT. Wira Pamungkas Pariwara (Not listed). PT Wira Pamungkas Pariwara is a local subsidiary of Young & Rubicam Advertising which is one of the world’s largest consumer advertising agencies. Young & Rubicam Advertising ranks as the world's 10th largest advertising agency. The company is a subsidiary of WPP plc (Wire and Plastic Products) which is a British multinational advertising and public relations company with its main office in London and its executive office in Dublin. WPP plc is the world's largest advertising company by revenues and has c. 3,000 offices across 112 countries with 190,000 employees. Both MNCN and SCMA generate revenue mostly from PT Wira Pamungkas Pariwara. In FY15, MNCN received IDR1.65tr from WPP, representing 25.64% of total revenues, while SCMA received IDR1.28tr or 30.38% of total revenue.
Figure 16. % of revenue that comes from PT. Wira Pamungkas Pariwara
40% 35% 35% 34% 30% 30% 26% 25% 25% 26% 25% 23%
20% SCMA MNCN 15%
10%
5%
0% 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research
We consider media companies to be key beneficiaries of rising competition between FMCG companies. Large cap FMCG names such as Gudang Garam (GGRM/Buy/TP IDR81,200), HM Sampoerna (HMSP/Hold/TP IDR4,260) and Unilever Indonesia (UNVR/Buy/TP IDR52,000) have begun to normalize their advertising spending since 2015, after being cost sensitive during the presidential election year (2014). In particular, Indofood CBP Sukses Makmur (ICBP/Buy/TP IDR9,200) and HMSP’s ad spending has demonstrated tremendous growth. ICBP’s advertisement spending grew by 24% CAGR during 2011-2015 (figure 18), HMSP increased by 23% CAGR during the same time frame (figure 19) – which were higher compared to that of GGRM at 6% CAGR (figure 20) and UNVR’s 6% CAGR (figure 17). Furthermore, financial data from ICBP, GGRM, HMSP further supports the appealing media outlook as their A&P spend per total sales is growing (see figure 21).
Figure 17. UNVR advertising and promotion spending Figure 18. ICBP advertising and promotion spending
(IDRbn) (IDRbn) 5,000 1,000 6% CAGR (2011-2015F) 4,500 900
4,000 800 24% CAGR (2011-2015) 3,500 700
3,000 600
2,500 500
2,000 400
1,500 300
1,000 200
500 100
0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research Source: Company data, Daewoo Securities Research
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Figure 19. HMSP advertising and promotion spending Figure 20. GGRM advertising and promotion spending
(IDRbn) (IDRbn) 3,500 2,000 6% CAGR (2011-2015) 1,800 3,000 1,600 23% CAGR (2011-2015) 2,500 1,400 1,200 2,000 1,000 1,500 800
1,000 600 400 500 200 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research Source: Company data, Daewoo Securities Research
Figure 21. GGRM, ICBP and HMSP A&P spend per sales (%)
4.5% GGRM ICBP HMSP
4.0% 3.7% 4.0%
3.5% 3.4% 3.3% 3.2% 3.1% 3.0% 2.9%
2.6% 2.5% 2.4% 2.4% 2.1% 2.0%
1.5% 2011 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research
On the other hand, we see that UNVR’s advertisement spending has been gradually transferred to direct promotions (see figure 22).
Figure 22. UNVR promotion spending Figure 23. UNVR’s ad vs promotion to total A&P Spending
120% (IDRbn) Promotion Advertising 1,400 100% 1,200 22% 20% 24% 26% 30% 80% 1,000
60% 800
600 40% 78% 80% 76% 74% 70% 400 20% 200
0 0% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research Source: Company data, Daewoo Securities Research
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Ad supply: Limited for TV, yet huge potential for online advertisement
Free-to-air dominates TV ad
TV advertising – the main channel to reach both mass market and premium segments – is mostly dominated by free-to-air TV rather than subscriber-based TV (figure 12). Free-to-air TV advertisement market is expected to dominate more than 65% of the total ad market by 2019F, whereby print media will have around 20% and online of c. 11% (see figure 25).
Figure 24. Free to Air TV dominates the TV ad spend Figure 25. The pie of advertising spending in 2019F
USDmn Online/ FTA mobile, 11% 2,500 Magazines, Pay Tv 2%
2,000
1,500 Newspapers, 18%
1,000 Out-Of-Home TV, 66% advertising, 2% 500 Radio, 1%
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Media Partners Asia, Daewoo Securities Research Source: Media Partners Asia , Daewoo Securities Research
Limited supply for TV advertisement: Indonesia has only 11 FTA TV stations
In the past, there was only 1 state-owned TV channel, namely, TVRI which dominated the market for over 25 years. This changed when the government allowed Rajawali Citra Televisi Indonesia (RCTI) – a privately owned TV operator – to broadcast. However, when RCTI was introduced to the market, viewers with satellite dish and a decoder were able to receive and watch the programs. Began operating in 1989, RCTI is the first commercial TV station in Indonesia with a nationwide coverage.
Currently, there are 11 private channels with nationwide coverage, such as Indosiar, SCTV, Global TV (which initially offered programs from MTV Indonesia), MNC TV (formerly known as TPI), RCTI, TV One, ANTV, Trans7, Trans TV, Metro TV and iNews TV.
While prime time slots in the private free-to-air TV are limited, there is growing demand for advertisement. Given c. 65% of total advertisement is allocated to TV, while there are only 11 TV channels available, we believe the potential for growth is huge and attractive. Moreover, since the enactment of UU Penyiaran No. 32/2002 (Broadcasting Act No. 32/2002) TV operators what have nationwide coverage must be affiliated with the local TV stations. We consider this regulation to be positive given it creates a natural barrier to new local TV entrants.
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Figure 26. Prime time all demography (Free-to-air TV market share)
4%
MNC Group 11% 14% SCMA
VIVA
Trans group 48% Others
23%
Source: Nielsen, Daewoo Securities Research
Broadcasting Act No. 32/2002
The Indonesian Broadcasting Commission (Komisi Penyiaran Indonesia or KPI) – an independent body whose responsibility is to regulate and provide recommendations in the area of broadcasting – was established under the Law 32/2002. It also recognizes broadcasting as a subject to government regulation and a matter of public interest. In other words, private broadcasting institutions (Lembaga Penyiaran Swasta or LPS) are commercial broadcasters in the form of a limited liability company (Perseroan Terbatas or PT) where they are able to engage in radio or television broadcasting services under the broadcasting license.
Regulation under the Minister of Communication and Information (MoCI) of the Republic of Indonesia No.28 year 2008 (MoCI 28/2008) – which is the regulatory framework of the Broadcasting Act 32/2002 – stipulates the provisions concerning the requirements to establishing a private broadcasting company and the licenses required.
MoCI 28/2008 states that private broadcasting institutions shall obtain the Broadcasting License (IPP) in order to conduct broadcasting activities. The Minister shall issue a Broadcasting Operation License to the private broadcasting institutions after obtaining the recommendation from the broadcasting evaluation team. The Broadcasting Operation License for radio shall be granted for 5 (five) years and 10 (ten) years for television broadcasting, while both licenses are extendable.
Indonesian government limits the number of broadcasting licenses due to inadequate frequency. Therefore, we think this creates a natural barrier to entry for new local TV stations.
Currently, the Indonesian Broadcasting Commission (KPI) states that all 10 privately owned FTA TV stations – Media Nusantara Citra’s (MNCN) RCTI, MNC TV and Global TV, Surya Citra Media’s (SCMA) SCTV and Indosiar, Visi Media Asia’s (VIVA) ANTV and TV One, Trans Group’s Trans TV and Trans 7, and Metro TV – are subject to the renewal process once their licenses expire (e.g., MNCN is expected to renew its license on October 2016). The KPI is currently conducting a factual verification of the administrative, content and technical requirements of the 10 individual TV stations.
We believe the licenses can be extended for another 10-year period if it is renewed by the KPI and the Minister of Communications and Information (MoCI). We believe, MNCN and SCMA should be able to get the approval for renewal for their TV stations without any major issues.
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Biggest media TV competitor: Online advertisement
Daytime screen use- Smartphone is the highest media screen used by Indonesian
According to Milward Brown research, Indonesian people spend nine hours or 540 minutes in front of their screens (Television, laptop, smartphone, tablet, etc) each day. This is the highest view time compared to peer countries (see figure 31) with smartphone being the most viewed screen by Indonesian people (figure 27). Therefore, we think, over the next few years (albeit slow), a gradual shift towards digital-based advertisement will take place, given the number of smartphone users are increasing and mobile advertisements are getting more popular. While TV is where most companies spend for advertisement, ironically, smartphone is the most widely used device by Indonesians. Having said that, we judge TV broadcasters will eventually need to adapt to the changing environment.
Figure 27. % of hours people spent on media (hours)
20% 24% TV
Laptop
Smartphone
22% 34% Tablet
Source: Milward Brown research ,Daewoo Securities Research
Figure 28. Example of digital advertising on Youtube
Source: Internet, Daewoo Securities Research
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However, the digital advertisement needs strong internet connection…
Indonesian internet penetration still remains low at c. 20.4%, and it is worth noting that the fourth largest nation in the world (with population of more than 250mn). It is also the largest archipelago in the world consisting five major islands that stretch from Sabang to Merauke. Given the natural characteristics of Indonesia, we believe it is more convenient and effective for companies to advertise their products through Television as it has wide coverage.
Figure 29. Indonesia large archipelago Figure 30. Indonesia is the fourth largest country
mn pax 1,600
1,400
1,200
1,000
800
600
400
200
0
Source: Internet, Daewoo Securities Research Source: Wikipedia, Daewoo Securities Research
Figure 31. Average daily screen use (hours) Figure 32. Indonesian internet users
hours (mn pax) 9.5 60 Internet users (L) 25.0% 9.0 Penetration (R) 20.4% 19.4% 8.5 50 17.1% 20.0% 8.0 14.9% 7.5 40 14.5% 7.0 12.3% 15.0% 10.9% 6.5 30
6.0 6.9% 10.0% 5.5 20
5.0 5.0%
10
UK
Italy
USA
India
Brazil
Saudi Spain
Japan
Szech
Kenya
China
Russia Turkey
Poland France
Mexico
Nigeria
Canada
Vietnam
Slovakia Hungary
Thailand
Australia
Germany
Colombia Argentina
Indonesia 0 0.0%
Philippines South Africa South
South Korea South 2009 2010 2011 2012 2013 2014 2015F 2016F
Source: Millward Brown, Daewoo Securities Research Source: Internet live stat, Daewoo Securities Research
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Surya Citra Media (SCMA IJ) Grist to the mill
Media Surya Citra Media in brief The company was first established under the name PT Cipta Aneka Selaras in 1999. The (Initiate) Trading Buy company changed its name into PT Surya Citra Media (SCMA) in 2001. In 2002, the company acquired 99.9% of shares of PT Surya Citra Televisi (SCTV) and then listed the Target Price (12M, IDR) 3,870 shares on the exchange with a ticker code, SCMA. In 2013, SCMA and IDKM merged together to become the current SCMA.
Share Price (7/28/16, IDR) 3,300 Highest EBITDA margin compared to peers
Expected Return 17.2% SCMA has the highest EBITDA margin compared to peers. We believe its high margin is supported by Indosiar’s prudency in replacing some of its expensive drama during prime
OP (16F, IDRbn) 2,191 time with in-house produced talent, variety and entertainment shows. In-house production Consensus OP (16F, IDRbn) 2,226 shows bear significantly low cost base. Moreover, for SCTV’s locally produced dramas, 90% of contents are produced in-house which is created under Screenplay production house (51% EPS Growth (16F, %) 6.7 owned by SCMA) which was bought from PT Elang Mahkota Teknologi, Tbk (EMTK) for Market EPS Growth (16F, %) 9.6 IDR242.25bn, and also PT Amanah Surga which is owned through PT IEG (IEG owns 70% of P/E (16F, x) 29.6 the outstanding shares). Market P/E (16F, x) 28.9 JCI (7/28/2016) 5,299.2 SCTV’s audience share started to recover
Market Cap (IDRbn) 48,251.3 SCMA has launched several new dramas to fill in their prime time slots, such as Mermaid in Shares Outstanding (mn) 14,621.6 Love (began airing on May 2, 2016) and Surga yang ke 2 (started airing on April 18, 2016), Free Float (%) 39.8 in an attempt to increase its audience shares. We expect the company to be successful in its Foreign Ownership (%) 6.56 new drama releases, evidenced by its improvement in audience share in May 2016. Beta (5Y) 0.90 52-Week Low (IDR) 2,285 Initiate with a Trading Buy (TP: IDR3,870) 52-Week High (IDR) 3,550 We initiate our coverage on SCMA with an overweight recommendation and present a (%) 1M 6M 12M blended target price of IDR3,870, implying a 34.7x P/E to our 2016F EPS estimates. We think Absolute 2.17 13.4 14.58 the premium valuation on SCMA is justified, given SCMA has strong track record and Relative -6.37 1.44 2.19 strong balance sheet. Our target price of IDR3,870 was derived by using a blended calculation of target P/E of 35x and Discounted Cash Flow (DCF) method with 10-year time span.
We like SCMA on the back of its 1) low gearing and high free cash flow (FCF), 2) high ROE,
preferably above market average, and 3) high EBITDA margin.
FY (Dec.) 12/13 12/14 12/15 12/16F 12/17F Revenue (IDRbn) 3,695 4,075 4,238 4,663 5,417 Gross profit (IDRbn) 2,313 2,591 2,712 2,951 3,428 Operating profit (IDRbn) 1,759 1,928 2,015 2,191 2,545 NP (IDRbn) 1,286 1,458 1,522 1,630 1,934 EPS (IDR) 88 100 104 111 132 BPS (IDR) 186.41 236.34 215.19 254.04 308.72 P/E (x) 37.5 33.1 31.7 29.6 25.0 ROE (%) 48.6% 47.2% 46.1% 47.5% 47.0% ROA (%) 32.9% 33.2% 32.7% 32.4% 32.4% Note: NP refers to net profit attributable to controlling interests
Source: Company data, Daewoo Securities Indonesia Research estimates
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Surya Citra Media
Company Background
The company was first established under the name PT Cipta Aneka Selaras in 1999. The company changed its name into PT Surya Citra Media (SCMA) in 2001. In 2002, the company acquired 99.9% of shares of PT Surya Citra Televisi (SCTV) and then listed the shares on the exchange with a ticker code, SCMA. In 2010, SCMA established PT Surya Citra Pesona which engages in the field of television broadcasting service with the coverage area in Gorontalo.
As of 2012, the board of directors of SCMA and PT Indosiar Karya Mandiri Tbk (previous ticker code: IDKM) reviewed the potential synergies that might be achievable through merging the two entities. SCMA and IDKM are both controlled by Elang Mahkota Teknologi (Ticker code: EMTK). Hence, in 2013, SCMA and IDKM merged together to become the current SCMA.
Figure 33. Company’s shareholding structure (2015)
Eddy Kusnadi Sariatmadja 18.37%
PT Elang Mahkota Teknologi Tbk 61.80% Ir Sutanto Suwarto 10.52%
PT Adikarsa Sarana 15.05%
Piet Yaury 8.85%
The Northern Trust Company S/A Archipelago Investment Pte Ltd Public 8.07% 38.20%
ING Bank NV SG Branch S/A PT Prima Visualindo 5.94%
Standard Chartered Bank SG PVB Clients 7.84%
Public 25.36%
Source: Company data, Daewoo Securities Indonesia
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Figure 34. SCMA’s business line structure (2015)
PT Surya Citra Televisi
Broadcasting PT Indosiar Visual Mandiri
PT Bangka Tele Vision
PT Surya Citra Pesona
PT Screenplay Produksi
PT Indonesia Entertainmen Group
PT Indonesia Entertainmen Studio
PT Indonesia Entertainmen Production
Content
PT Amanah Surga Produksi
PT Animasi Kartun Indonesia
Supporting and others PT Screenplay Sinema Film
PT Surya Trioptima Multikreasi
PT Surya Citra Gelora
Source: Company data, Daewoo Securities Indonesia
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PT Indonesia Entertainment Group
PT Indonesia Entertainmen Group (IEG) was set up in July 2015 to recognize the content businesses of SCM and Emtek in order to 1) consolidate content resources and capabilities to expand production and maximize utilization and efficiency, 2) create contents business that can service multiple media distribution platforms, and 3) create new revenues which can provide diversification from FTA TV revenues.
Figure 35. IEC’s business line of structure (2015)
51% PT Screenplay Produksi
72% 70% PT Amanah Surga Productions
50.10% PT Animasi Kartun Indonesia PT Indonesia Entertainmen grup (IEG)
99.90% PT. Indonesia Entertainmen Produksi PT Elang Mahkota Teknologi Tbk
28%
99.90% PT Indonesia Entertainmen Studio
Source: Company data, Daewoo Securities Indonesia
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Management team
Board of Commissioners
President Commissioner (Independent): Raden Soeyono Mr Raden Soeyono was born in 1943 in Malang, East Java. He has been serving as the President Commissioner of the Company since 2005. His academic background includes the National Military Academy in Magelang in 1965 and the National Defense Agency regular course class XXII. He obtained his Bachelor’s Degree in Economics from Universitas Terbuka. His career path ranged from Aide de Camp to President Soeharto, Vice Assistant of Security to the Head Staff of Military, Vice Commander to the Centre of Infantry Arms, Commander of Regional Military IV/ Diponegoro, Head of Staff of the Armed Forces, Secretary to the Bureau of Aid Coordination to National Stability, and Secretary General of the Defense and Security Department.
Vice President Commissioner: Suryani Zaini Mrs Suryani Zaini is an Indonesian citizen who was born in 1962 in Jambi. She graduated from the Department of Economic Laws and Notarial Program of the University of Indonesia. In 2011, she joined PT Indosiar Karya Media (IDKM) and held the position of President Commissioner and Independent Commissioner of IDKM and Indosiar. She has been the Company’s Vice President Commissioner and Independent Commissioner since April 2013. Aside from holding the position of Vice President Commissioner, she actively participated in various social and educational programs in the community.
Independent Commissioner: Glenn M Surya Yusuf Mr Glenn M Surya Yusuf is an Indonesian citizen who was born in 1955 in Jakarta. He obtained his Bachelor of Arts Degree in Economics from University of the Philippines, Manila, the Philippines, and a Master’s Degree in Business from the Asian Institute of Management, Makati, Philippines. He commenced as the Company’s Independent Commissioner since May 24, 2012. In addition, he is also chairman of the Audit Committee since October 2012. He has had important roles as the President Director and Director in several companies in Indonesia since 1991. Currently, his title includes Non-Executive Independent Director of CIMB Group Holdings Berhad, in Malaysia, since 2010, and Vice President Commissioner of PT Bank CIMB Niaga Tbk. Several governmental roles previously assumed includes: Chairman of the Assistance Team to the Minister of Finance for the Financial Sector Restructuring during the period of October 2001 - October 2002, Chairman of the Indonesian Bank Restructuring Agency (IBRA) for the period of June 1998- January 2000, and Director General for Finance Institutions, Ministry of Finance for the period of April-June 1998.
Commissioner: Alvin W. Sariaatmadja Mr Alvin W Sariaatmadja is an Indonesian citizen who was born in 1983 in Sydney, Australia. He graduated from University of New South Wales, Australia, with a bachelor’s degree in law and finance. He has been serving as the Company’s Commissioner since 2015. Previously, he served as a Director of the Company from 2013 to 2015. Previously, he served as a Director of PT Indosiar Karya Media Tbk and PT Indosiar Visual Mandiri from 2011 to 2013.
Commissioner: Jay Geoffrey Wacher Mr Jay Geoffrey Wacher is an Australian citizen, born on September 16, 1967. He was appointed as Commissioner since April 2013. He has over 26 years’ experience in finance, private equity, mergers and acquisitions, direct investment, business development and strategy. He is also a Commissioner of PT Elang Mahkota Teknologi Tbk (EMTK IJ), Plan B Media Public Co. Ltd (Thailand) and Property Guru Pte Ltd (Singapore). Previously, he served as a Financial Director of PT PP London Sumatra Indonesia Tbk from 2004 to 2007 and Investment Director of Carnegie Wylie & Company, Sydney, Australia, from 2000 to 2006. He held various other corporate finance and investment roles in Australia from 1993 to 2000 and started his career as a Lawyer of Blake Dawson Waldron, Sydney, Australia, from 1992 to 1993. He completed his studies at the University of New South Wales, Sydney, Australia in 1991, earning a Bachelor of Law and Commerce degree as well as becoming an Associate of the Australia Securities Institute in 1996.
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Directors
President Director: Sutanto Hartono
Mr Sutanto Hartono was born in 1967 in Yogyakarta. He was appointed as the Company’s President Director in 2013. Prior to his appointment, from 2011 to 2013 he served as the President Director of SCTV, a role for which he was re-appointed in 2015. Previously, he was the Country General Manager/President Director of PT Microsoft Indonesia and the CEO of Rajawali Citr Televisi (RCTI) since 2008. He served as a Managing Director since 2003 and, at the same time, the Director of Media Nusantara Citra (MNC). Prior to this, Sutanto started his career in Sony Music Entertainment as the Senior Vice President to the South East Asia Division, and a Senior Associate at Booz Allen & Hamilton, Southeast Asia.
He obtained his Bachelor’s Degree in Chemical Engineering from the University of Notre Dame, Indiana, and obtained his Master of Business Administration Degree from University of California, Berkeley, US.
Director: Harsiwi Achmad
Mrs Harsiwi Achmad was born in 1966 in Karanganyar, Central Java. She was the best graduate of Gadjah Mada University in 1990, and in 1992, she secured a scholarship from AIDAB Australia to study for a Master’s Degree at Monash University.
Mrs Harsiwi Achmad has been serving as the Company’s Director since 2013. Previously, she held the position of Programming Director of PT Surya Citra Televisi (SCTV) in 2010-2013, Director at PT Rajawali Citra Televisi (RCTI) in 2006-2010 and General Manager of PT CTPI in 2004-2005. She started her career in SCTV in various positions in programming division in 1997-2004.
Director: Imam Sudjarwo
Mr Imam Sudjarwo was born in 1955 in Kendal, Central Java. He has been serving as the Company’s Director since 2015. Previously, he served as the President Director of PT Indosiar Visual Mandiri in 2014. In December 2013, he held the position of Inspector of General Supervision in the National Police (Inspektur Pengawasan Umum Polri), previously he was the Head of Security Intelligence of the National Police (Kepala Badan Intelijen Keamanan Polri), Head of National Police Security (Badan Pemeliharaan Keamanan Polri – Kabaharkam Polri), Head of National Police Educational Institution (Lembaga Pendidikan Polri ), Head of Mobile Brigade Corps of National Police (Kepala Korps Brimob Polri) and Chief of Regional Police of Bangka Belitung Islands. He obtained his Bachelor’s Degree from Perguruan Tinggi Ilmu Kepolisian (PTIK) and his Master of Science Degree from the University of Indonesia.
Director: Rusmiyati Djajaseputra
Mrs Rusmiyati Djajaseputra was born in 1978 in Jakarta. She has been serving as the Company’s Director since 2015. Previously, she served as the Finance Director of PT Surya Citra Televisi (SCTV) and PT Indosiar Visual Mandiri (Indosiar). She started her career as an auditor at Public Accounting Firm of Prasetio Utomo & Co in 2000, before joining Public Accounting Firm of Prasetio, Sarwoko & Sandjaja (Ernst & Young) in 2002. In 2005, she continued her career at Public Accounting Firm of Haryanto Sahari & Rekan (PricewaterhouseCoopers). In 2006, she continued her career at PT Johnson Home Hygiene Products (member of SC Johnson Group). She graduated from Tarumanagara University with a Bachelor’s Degree in Accounting and owned CPA Indonesia certificate.
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Famous TV shows/drama currently played on SCTV
Super Puber: Indonesian locally made drama that tells a story about Joned, an 8th grade teenager who is in his puberty.
D’Hijabers: Indonesian locally produced drama that tells a story about Kantini, a solehah Muslim woman who is always terrorized by her mother to get married but always avoids her whenever the question came. This drama airs every day at 18.00.
Romeo and Juminten: Indonesian locally made drama that tells a love story of Romeo and Juminten who happens to know each other from their parents’ relationship. This drama airs Monday to Friday at 19:00.
Mermaid in love: Indonesian locally produced drama that tells a story about two mermaids who fell in love after meeting two handsome guys at the beach. The program airs every Monday- Friday at 20:15.
Surga yang ke 2 (or ‘The second paradise’ in English): Indonesian drama that tells a story about three comrades who are trapped in a love triangle, airs every day at 21:15.
Figure 36. D’Hijabers Figure 37. Mermaid in love
Source: Internet, Daewoo Securities Research Source: Internet, Daewoo Securities Research
Figure 38. SCTV’s audience share began to rebound due to Mermaid in Love
(%) SCTV RCTI IVM TPI/ MNCTV TRANS7 GTV ANTV 35
30
25
20
15
10
5
0 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 10/15 11/15 12/15 1/16 2/16 3/16 4/16 5/16 6/16
Source: Nielsen, Daewoo Securities Research
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Famous TV shows/drama that is currently playing on Indosiar
SCMA has changed its strategy in the prime time program by moving out of drama series and into variety and entertainment shows. SCMA’s audience share improved after the D’Academy- a reality show or the first largest dangdut singer talent show in Indonesia. This event first began on Monday, February 3, 2014 for the first season. The second season started on February 8, 2015, which was followed by the third season which aired on January 24, 2016. In addition, Indosiar also launched D’Academy Asia which was aired in November and December of 2015, bringing together contestants from Singapore, Malaysia, Brunei and Indonesia. D’Academy was nominated by Panasonic Gobal Awards for Talent and Best Reality Show in 2015. Indosiar ranked first spot in prime time in Feb-May 2015, bringing its audience share as number 2 in 2015’s prime time.
Figure 39. SCMA GPM always peak in 2nd quarter due to Indosiar’s great seasonality performance
75.0%
70.0% 70.9% 65.8% 68.1%
65.0% 63.8% 62.9% 61.8% 60.7% 60.0% 59.5% 57.9%
55.0%
50.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Source: Company data, Daewoo Securities Research
Going forward, we believe that due to its strong performance in talent shows, Indosiar will be able to gain higher margins since its talent shows are studio based which do not require higher programing costs (e.g., hiring actors/actresses and filming outside of the studio). We also highlight that Indosiar achieved 67.8% of gross margins in 1Q16 compared to SCTV’s 57.0%.
Figure 40. Indosiar’s audience share peaked on April 2015 due to D’Academy
35.0
30.0
25.0 21.9 20.5 SCTV 18.9 20.0 18.1 RCTI 15.0 Indosiar
10.0
5.0
0.0
Source: Nielsen, Daewoo Securities Research
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SCMA investment in iflix
SCMA has investments in iflix amounting to IDR98.6bn in 1Q16, which is SCMA’s first technology related investment.
iflix is Southeast Asia’s version of Netflix, which is Southeast Asia’s leading Internet TV service or a subscription video on demand (SVOD) platform based in Kuala Lumpur. The company owns library of the world’s top TV shows and movies in the region, with over tens of thousands of hours of popular comedies, drama, K-drama and cartoons plus movies from Hollywood, UK, Asia and more. iflix was founded by Patrick Grove (CEO of Malaysia based Catcha Group), Mark Britt and Evolution Media Capital (EMC), a merchant bank focused on the media, sports, and entertainment industries.
iflix (available in Malaysia, Thailand, and the Philippines) will use the funds for expansion into new markets on the back of strong demand for the service. Rupert Murdoch’s, European broadcaster Sky has also invested USD45mn into iflix.
We believe SCMA’s investment into iflix is positive for SCMA as the company can monetize its content library which is produced under IEG. Moreover, this investment should benefit SCMA in the longer term on the back of Indonesia’s expansive internet penetration.
We also think that this SVOD (subscription video on demand) business is very attractive, as people can be more flexible in downloading movies instead of following the given movie schedules. If we benchmark the service to Netflix users in the United States, there were several reasons why Netflix subscribers in the USA subscribed to Netflix (as of January 2015). According to our findings, 82% of respondents signed up for Netlfix due to the convenience of on-demand streaming, 67% said it was cost effective, and around 23% said they subscribed to watch Netflix’s original programs. Having said that, we believe the prospect of SVOD business is bright for Indonesia. The digital subscription video-on-demand viewer penetration in the U.S. is expected to grow from 23.5 percent in 2015 to 30.1 percent in 2020. Rentals or subscription-based services (SVoD) such as Netflix, Hulu and Amazon Prime Instant Video are expected to account for 30 percent of this total, with forecasted revenue of around USD15bn by 2020. About half of this total revenue is projected to be generated in the US, one of the biggest SVoD markets in the world.
Figure 41. iflix layout Figure 42. SVoD penetration in USA
31%
29% 30%
27%
25%
23%
21%
19%
17%
15% 2014 2015 2016 2017 2018 2019 2020
Source: Internet, Daewoo Securities Research Source: Statista, Daewoo Securities Research
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Analyzing the Sports content
SCMA aired the Champions League for the last three seasons (usual schedule: August to May) from 2012~ 2013 season, 2013~ 2014 season and 2014~ 2015 season, after it bought the rights from Orange TV for a limited Free-to-Air rights (limited meaning only 3 matches per weekend). Moreover, SCMA also aired the Barclays Premier League (also called Premier League and English Premier League) in 2013~ 2014, 2014~ 2015, and 2015~ 2016 seasons (usual schedule: August to May). Currently, the contract has been expired.
Observing SCMA’s historical gross profit margin during 2013~ 2015, we notice that the trough of the cycle was at 4Q13. We suspect that the decline was mainly due to the introduction of more soccer programs that include the Barclays Premier League (BPL) since 3Q13, whereby the expenses were USD-denominated and thus was negatively impacted by a weaker rupiah. SCMA’s gross profit margin recovered to 68.1% in 4Q15 due to the expiry of the Champions League Football contract in June 2015.
SCMA is looking to buy BPL (Barclays Premier League) from BEIN (Aljazeera Qatar news channel), however, SCMA is mulling at the price tag, which we suspect is quite expensive (and denominated in USD). Furthermore, the matches are usually aired after midnight.
Figure 43. SCMA historical GPM
75.0%
70.0% 68.1%
65.0%
60.0% 57.9%
55.0%
51.5% 50.0% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Source: Company data, Daewoo Securities Research
Currently, both SCTV and Indosiar take turns to air the Indonesian Torabika Soccer Championship (rupiah denominated expense), which began since April 29, 2016 (it has 2 matches every Friday, Saturday and Sunday).
Post the suspension of the Indonesian Super Leagued (ISL) by Minister for Youth and Sports Affairs, Imam Nahrawi, on April 17, 2015, FIFA then froze the membership of the PSSI, resulting in the suspension of the Indonesian Football Association. The 2015~ 2016 season of the Indonesia Super League (ISL) was originally scheduled to begin from October 25, 2015 and end in August 2016. However, various constraints have thwarted the plan, including the use of the name ‘Indonesia Super League’ which was the property of PSSI. Finally PT Liga and Indonesian football clubs agreed not to use the ISL name for the upcoming long-term tournament.
The Indonesia Soccer Championship or more widely known as Torabika Soccer Championship (which is a professional soccer competition in Indonesia) replaced the temporarily-suspended Indonesia Super League (ISL). As such, we are projecting flat number of GPM throughout the coming years. Over the past 2~ 3 years, there has been no domestic league (Indonesia Super League - ISL) aired by SCMA. SCMA hopes that there will be another next year, once PSSI is reformed and FIFA once again accredits Indonesian soccer (currently banned by FIFA). Under such conditions, we see the likelihood of SCMA bidding for the deal.
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Figure 44. Torabika Soccer Championship 2016
Source: Internet, Daewoo Securities Research
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Investment thesis on SCMA
Highest EBITDA margin compared to peers
SCMA has the highest EBITDA margin compared to peers. We believe its high margin is supported by Indosiar’s prudency in replacing some of its expensive drama during prime time with in-house produced talent, variety and entertainment shows. In-house production shows bear significantly low cost base. Moreover, for SCTV’s locally produced dramas, 90% of contents are produced in- house which is created under Screenplay production house (51% owned by SCMA) which was bought from PT Elang Mahkota Teknologi, Tbk (EMTK) for IDR242.25bn, and also PT Amanah Surga which is owned through PT IEG (IEG owns 70% of the outstanding shares).
Figure 45. EBITDA margin (as of 1Q16)
60%
50%
40%
30%
20%
10%
0% TV18 IN ABS PM BMTR IJ ENIL IN MNCN IJ BEC TB SCMA IJ
Source: Company data, Daewoo Securities Research
Through SCMA’s in-house production joint venture, SCTV has been able to produce some of the great high-rating drama series, for instance, Ganteng- Ganteng Serigala which was the top ranking show back in 2014. We believe Screenplay has been supporting SCMA’s great performance given much lower cost and good quality dramas. Screenplay and Amanah Surga (for SCTV) film on location, while PT IEP (99% owned by IEG) and PT IES (90% owned by IEG) film inside studios (for Indosiar).
Consistently pay large dividend amount
SCMA has maintained its high dividend payout ratio (an average of 87% in the past 3 years), which enables the company to sustain its top-notch ROE (average of 47% through the years). We model in a dividend payout ratio of 70% going forward as we believe SCMA 1) has solid balance sheet (net cash position), 2) is consistently generating positive operating cash flow of above IDR1tr, and 3) has moderately low capital expenditure (c. 5% of revenue).
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Figure 46. SCMA has the highest ROE among peers
50
45
40
35
30
25
20
15
10
5
0 SXL AU 511 HK 2008 HK 4676 JP 9409 JP TV18 IN 037560 KS 9404 JP 9413 JP 000665 CH ABS PM SKT NZ ENIL IN MNCN IJ 053210 KS MDIA IJ BEC TB SCMA IJ
-5
Source: Company data, Daewoo Securities Research
SCTV’s audience share started to recover
SCMA has launched several new dramas to fill in their prime time slots, such as Mermaid in Love (began airing on May 2, 2016) and Surga yang ke 2 (started airing on April 18, 2016), in an attempt to increase its audience shares. We expect the company to be successful in its new drama releases, evidenced by its improvement in audience share in May 2016.
Figure 47. SCTV’s audience share started to improve since May 2016
15
14
13
12
11
10
9
8
7 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16
Source: Company data, Daewoo Securities Research
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SCMA’s revenue gap is narrowing with MNCN
We like SCMA due to its solid balance sheet (large cash, better capex utilization) and better monetization of its audience shares, as seen from the stable growing revenue that it has generated over the past years even when its audience shares were not at the top (see figure 49 and figure 50). In 1Q16, SCMA was able to grow its revenue by 13% vs MNCN of a mere 1.6%, which has caused the revenue gap to narrow.
Figure 48. MNCN revenue vs SCMA revenue
(IDRbn) 2,000 90%
1,800 80% 1,600
1,400 70% MNCN 1,200
1,000 60% SCMA
800 MNCN % 50% premium to 600 43.9% SCMA 400 40% 200 37.1%
0 30% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Source: Company data, Daewoo Securities Research
Figure 49. SCMA vs MNCN revenue growth (year on year)
30%
SCMA MNCN 25%
20%
15%
10%
5%
0%
-5% Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016
Source: Company data, Daewoo Securities Research
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Figure 50. SCTV vs RCTI prime time audience share
(%) 35
SCTV RCTI
30
25
20
15
10
5
0 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016
Source: Company data, Daewoo Securities Research
Better working capital management
We believe SCMA has higher turnover since SCMA’s days of inventory in stock stood at an average of 92 days over the past 5 years, comparable to MNCN’s which stood at an average of 162 days. Moreover, SCMA’s average receivable days stood at an average of 102 days during the same time frame, while MNCN recorded an average of 150 days. However, both MNCN and SCMA were able to maintain its payable days low at a similar level. SCMA’s average of payable outstanding was 62 days, while MNCN’s was 63 days over the past 5 years. SCMA has a lower average of cash conversion cycle of 132 days compared to MNCN’s 250 days.
Figure 51. Days of inventory Figure 52. Days of receivables
(days) (days) 250 180
160 200 MNCN Days of MNCN Days of inventory on hand sales outstanding 140 150 SCMA Days of 120 SCMA Days of inventory on hand sales outstanding 100 100
50 80
0 60 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research Source: Company data, Daewoo Securities Research
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Figure 53. Days of payables Figure 54. Cash conversion cycle
(days) (days)
115 MNCN Days of 350 payables payment 105 SCMA Days of 300 MNCN Cash payables payment Conversion 95 Cycle 250 85 SCMA Cash 200 Conversion 75 Cycle 150 65 100 55 50 45
35 - 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015
Source: Company data, Daewoo Securities Research Source: Company data, Daewoo Securities Research
SCMA invests for the future
We think that SCMA is ready for the development of online advertising since it has made investments in iflix. We believe iflix is going to fuel one of the most talked-about global media trend – especially among millennial consumers. Bear in mind that due to the rising internet connectivity and advancement of technology, consumers’ media screening habits have radically evolved – especially in terms of how they access traditional home entertainment media, including TV, print, and radio. Currently, we think some of the challenges of iflix are:
Lack of/limited live video streaming, such as live streaming of sports matches Internet speed issues Unavailability of certain movies Payment method - Low penetration of credit card usage
In addition, the Screenplay production contents are also sold to websites and cinemas. These websites are www.vidio.com, www.bintang.com, www.bola.com, www.liputan.com (all owned by EMTK). On the other hand, name of the movies in cinemas produced by Screenplay are Magic Hour (aired in 3Q15), London Loves Story (aired in 1Q16), ILY from 38.000 ft (aired in 2Q16).
Figure 55. Magic Hour movie
Source: Internet, Daewoo Securities Research
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Figure 56. London Love Story movie Figure 57. ILY from 38.000 ft movie
Source: Internet, Daewoo Securities Research Source: Internet, Daewoo Securities Research
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Surya Citra Media (Valuations)
We initiate our coverage on SCMA with an overweight recommendation and present a blended target price of IDR3,870, implying a 34.7x P/E to our 2016F EPS estimates. We think the premium valuation on SCMA is justified, given SCMA has strong track record and strong balance sheet. Our target price of IDR3,870 was derived by using a blended calculation of target P/E of 35x and Discounted Cash Flow (DCF) method with 10-year time span.
Our WACC assumption of 11.2% is derived by our assumptions on risk free (Rf) rate of 7%, market risk premium (MRP) of 5%, terminal growth rate of 3% and equity beta of 0.9x. We believe the reduction in cost of capital tracks the decline in Indonesian bond yields which further supports our DCF target price.
We like SCMA on the back of its 1) low gearing and high free cash flow (FCF), 2) high ROE, preferably above market average, and 3) high EBITDA margin.
Table 1. DFC assumption table Item Details Cost of Equity 12% Risk free rate 7.0% Beta 0.90 Equity risk premium 5% WACC 11.2% Terminal growth rate 3% After tax Cost of Debt 6.67% Total PV of FCF 23,371 PV of TV 31,556 Total PV of FCF and TV 54,927 Cash 2013 1,596 Debt 2013 434 Equity value (in bn) 56,088 Equity value/share 3,836 Source: Daewoo Securities Research
Figure 58. SCMA Forward P/E Band
( x )
45
40 +2 Std Dev
35 +1 Std Dev
30
Avg PER 25
-1 Std Dev 20
-2 Std Dev 15
10 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source: Daewoo Securities Research
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Surya Citra Media (Ticker SCMA IJ/ Buy/ TP: IDR3,870)
Table 2. Forecast and valuations 2014 2015 2016F 2017F Revenue (IDRbn) 4,075 4,238 4,663 5,417 EBITDA (IDRbn) 2,029 2,135 2,323 2,699 Net profit (IDRbn) 1,458 1,522 1,630 1,934 EPS (IDR/share) 100 104 111 132 DPS (IDR/share) 51 125 73 78 ROE (%) 42.2% 48.4% 43.9% 42.8% Dividend yield (%) 1.5% 3.8% 2.2% 2.4% P/E ratio (x) 33.1 31.7 29.6 25.0 P/BV ratio (x) 14.0 15.3 13.0 10.7 EV/EBITDA (x) 23.2 22.1 20.3 17.4 Source: Daewoo Securities Research
Table 3. Income Statement projection IDRbn 2014 2015 2016F 2017F Revenue 4,075 4,238 4,663 5,417 Broadcasting expenses (1,484) (1,526) (1,711) (1,988) Gross Profit 2,591 2,712 2,951 3,428 Opex (672) (711) (776) (901) Operating Profit 1,928 2,015 2,191 2,545 Other income/(expenses) 10 14 16 18 Profit before income tax 1,927 2,038 2,178 2,585 Income tax expenses (469) (513) (549) (651) Minority interest - - - - Net profit 1,458 1,522 1,630 1,934 EBITDA 2,029 2,135 2,323 2,699 Source: Daewoo Securities Research
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Table 4. Balance sheet projection IDR bn 2014 2015 2016F 2017F Assets Cash and equivalents 1,249 686 1,596 2,044 Receivables 1,292 1,412 1,339 1,557 Inventories 464 533 446 518 Others 201 213 220 261 Total current assets 3,205 2,843 3,600 4,380 Fixed assets - net 764 962 1,059 1,194 Long term investments 24 24 24 24 Others 757 736 800 853 Total non-current assets 1,545 1,722 1,883 2,072 Total assets 4,749 4,566 5,484 6,452 Liabilities and equity Short-term bank loans and current 102 150 116 155 maturities Trade payables 333 260 447 453 Others current liabilities 384 451 494 570 Total current liabilities 818 860 1,058 1,178 Long term debt 350 207 318 319 Others 94 85 108 102 Total non-current liabilities 444 292 426 421 Total liabilities 1,262 1,152 1,484 1,599 Minority interests 32 267 286 339 Shareholders' equity 3,456 3,146 3,714 4,514 Source: Daewoo Securities Research
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Table 5. Cash flow statement projection IDRbn 2014 2015 2016F 2017F CF from operation Net profit 1,458 1,522 1,630 1,934 Depreciation/amortization 55 12 64 51 Change in working capitals (328) (252) 326 (297) Others (40) 45 58 47 CF from operation 1,145 1,327 2,077 1,735 CF from Investments Net capex (96) (199) (182) (190) Others (41) 9 (42) (50) CF from investments (137) (190) (224) (240) CF from financing activity Increase/(decrease) in debt (55) (95) 78 41 Increase/(decrease) in equity - (4) - - Dividend payments (746) (1,828) (1,065) (1,141) Others (1) 225 45 53 CF from financing activity (802) (1,701) (942) (1,047) Net changes in cash 205 (565) 910 448 Source: Daewoo Securities Research
Table 6. Key Ratio 2014 2015 2016F 2017F Growth (%) Revenue 10.3% 4.0% 10.0% 16.2% EBITDA 9.0% 5.2% 8.8% 16.2% Net profit 13.4% 4.4% 7.1% 18.7% Profitability (%) Gross margin 63.6% 64.0% 63.3% 63.3% Operating margin 47.3% 47.5% 47.0% 47.0% EBITDA margin 49.8% 50.4% 49.8% 49.8% Net margin 35.8% 35.9% 34.9% 35.7% ROE 47.2% 46.1% 47.5% 47.0% ROA 33.2% 32.7% 32.4% 32.4% Leverage (X) Current ratio 3.9 3.3 3.4 3.7 Quick ratio 3.4 2.7 3.0 3.3 Debt to equity 0.03 0.05 0.03 0.03 Net debt to equity net cash net cash net cash net cash Interest coverage 28.3 46.8 41.8 44.4 Source: Daewoo Securities Research
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Media Nusantara Citra (MNCN IJ) Waiting for the real stars to show
Media Company Background PT Media Nusantara Citra Tbk was established in June 1997. It currently operates four out of (Initiate) Buy Indonesia’s total eleven free-to-air (FTA) TV stations. The company was listed since June 2007 with ticker code MNCN. Not only does MNCN own FTA-TV stations such as RCTI, MNCTV, Target Price (12M, 2,700 GlobalTV, and iNewsTV, but also owns 22 pay-tv channels. The company is diversified into IDR) additional businesses in television contents production and delivery. MNCN has been able to maintain its top ranking in audience shares. Share Price (7/28/16, IDR) 2,200 MNCN has integrated studio facilities
Expected Return 22.7% MNCN is the only TV operator that has integrated studio facilities located in one area (Kebon Jeruk, namely MNC studio complex). The construction began in 2014 where MNCN utilized OP (16F, IDRbn) 2,465 USD250mn loans to build the four buildings. The new MNC studio complex started Consensus OP (16F, IDRbn) 2,628 functioning in July 2016, which means it is at the end of its large 3 year-capex period. MNCN EPS Growth (16F, %) 18.1 is guiding its 2016F capex for buildings and maintenance of USD60-70mn, and 2017F of Market EPS Growth USD10-20mn. The integrated new studio complex which has four new buildings with a total of 24.7 (16F, %) 28 new studios and also equipped with HD rating equipment is believed to enhance the on- P/E (16F, x) 22.4 screen quality (better lightning, audio sharpness, etc.) and have more production capacity. Market P/E (16F, x) 17.7 MNCN expects new studios will help actors and actresses to with easier shooting with close JCI (7/28/2016) 5,299.2 proximity compared to scattered studios.
Market Cap (IDRbn) 31,407.4 Initiate with a BUY (TP IDR2,700) Shares Outstanding 14,276 We initiate our coverage on MNCN with a trading buy rating and a target price of IDR2,700, (mn) implying 27.5x 2016F P/E. Our target price of IDR2,700 was derived using a blended Free Float (%) 25.3 calculation of target P/E at 28x and Discounted Cash Flow (DCF) method with 10-year time Foreign Ownership (%) 12.78 span. Beta (5Y) 1 52-Week Low (IDR) 1,185 Our WACC assumption of 10.5% is derived from our estimates on risk free rate (Rf) of 7%, 52-Week High (IDR) 2,415 market risk premium (MRP) of 5%, a terminal growth rate of 3% and equity beta of 1.0x. We believe the reduction in cost of capital tracks the decline in Indonesian bond yields which (%) 1M 6M 12M further support our DCF target price. Absolute 2.33 15.79 7.32 Relative -6.22 3.83 -5.08
FY (Dec.) 12/13 12/14 12/15 12/16F 12/17F Revenue (IDRbn) 6,522 6,666 6,445 7,015 7,925 Gross profit (IDRbn) 3,672 3,853 3,584 3,978 4,494 Operating profit (IDRbn) 2,560 2,602 2,194 2,465 2,785 NP (IDRbn) 1,691 1,761 1,186 1,401 1,760 EPS (IDR) 120 123 83 98 123 BPS (IDR) 524.11 632.34 635.90 701.94 751.53 P/E (x) 18.3 17.8 26.5 22.4 17.8 ROE (%) 22.9% 19.7% 13.2% 14.2% 16.6% ROA (%) 17.6% 12.9% 8.2% 8.9% 10.5% Note: NP refers to net profit attributable to controlling interests
Source: Company data, Daewoo Securities Indonesia Research estimates
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Media Nusantara Citra
Company Background
PT Media Nusantara Citra Tbk was established in June 1997 and currently operates four out of Indonesia’s total eleven free-to-air (FTA) TV stations. The company was listed since June 2007 with ticker code MNCN. Not only does MNCN own FTA-TV stations such as RCTI, MNCTV, GlobalTV, and iNewsTV, but also owns 22 pay-tv channels. The company is diversified into additional businesses in television contents production and delivery.
MNCN has been able to maintain its top ranking in audience shares. Moreover, MNCN also owns radio, print media, talent management and TV production companies which support MNC’s core business areas.
Figure 59. Company’s business line structure (2015)
Source: Company data, Daewoo Securities Indonesia
Figure 60. Integrated end-to-end programing strategy
Source: Company data, Daewoo Securities Indonesia
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MNCN’s local content
MNC produces over 15,000 hours of in-house contents every year or 41 hours/ day. Currently, MNCN has a library of 270,000 hours of local contents which makes up 40% of the total contents available in Indonesia.
MNCN purchases some external contents other production houses in Indonesia such as SineMart and MD Entertainment to produce superior dramas. Quality contents provided by external production houses enable the company to reach large audiences as broadcasting high-quality programs continue to be the core pillar of MNCN.
In addition, through in-house production facilities such as MNC Pictures, as well as MNC’s talent management company, namely Star Media Nusantara, the company delivers diverse and high- quality programs that appeal to mass audiences.
We believe MNCN’s content library will be able to be monetized in the future once the broadband infrastructure is available throughout Indonesia. Hence, MNCN will be able to sell its contents to third party pay-tvs such as Nexmedia and/ or SVOD entities, such as iflix, etc.
MNC Pictures
Figure 61.
Source: Internet, Daewoo Securities Research
MNC Pictures was established in 2005. Since then, the company has produced diverse programs comprising both drama and non-drama genres, including movies (“Di Balik 98, 3 Dara, SkakMat”), movies for television, drama series, variety shows, reality shows, music, and documentaries for all 3 MNC’s FTA TV stations.
The programs produced by MNC Pictures have won several awards as well as produced several genuine local movies, for instance:
In 2009, H. Eddie Riwanto won the Most Commended Director category at the Bandung Film Festival 2009, for DIMAS dan RAKA drama series In 2010, Oka Antara, won the Best Male Actor category at the Indonesian Movie Award 2010, for the film Hari Untuk Amanda; Fanny Fabriana, in the Most Commended Actress category at the Bandung Film Festival 2010, for the film Hari Untuk Amanda In 2011 Eriz Rizly won the Most Commended Editor at the Bandung Film Festival 2011 for the series namely Udin Bui. In 2012, MNC Pictures won 8 nominations for the TV movie titled “Cinta Momo dan Tejo Di Antara Angkringan” and “Cinta Pengamen Badut” during the inauguration of the Indonesian Film Festival 2012 at the Metropole XXI, Jakarta. In 2014, MNC Pictures produced the film “7/24” which was launched in late November 2014 and managed to become one of the top 10 films of 2014, with a total audience of 375,000 people. In 2015 MNC Picture Soap Opera production titled “Preman Pensiun” triumphs as the “Most Admirable Soap Opera” in its category at the Bandung Film Festival 2015
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Talent management
We believe the most expensive programming costs are talent-related, which is part of the company’s direct costs. This is the interesting part of MNCN because the company can maintain its local programing expenses below 40%. MNCN currently owns a talent management company, Star Media Nusantara, home to more than 400 artists, including singers, bands, magicians, and models – the largest such agency in Indonesia.
The company has been able to monetize its efforts by constantly developing new talents and therefore keeping costs deflated. Due to the huge talent acquisition efforts, talent expenses have dropped significantly. Moreover, well-known TV music show Dahsyat now has 20 hosts, which enables the company to become less dependent on single host for making the show popular (hosts alternate every day).
Figure 62. Star Media Nusantara’s artists (singers, bands, magicians, models)
Source: Company data, Daewoo Securities Research
MNC Channels
MNC Channels is one of MNCs contents ownership businesses. During 2014, MNC channels managed to launch 2 channels, such as MNC Home & Living and MNC Health & Beauty. Exploiting MNCs large contents library, MNC has added another five branded channels in 2015. These new channels add to the total number of channels (currently 22).
The other 20 channels include MNC News, MNC Business, MNC Infotainment, MNC Muslim, MNC Entertainment, MNC International, MNC Music, MNC Movie, MNC Drama, MNC Comedy, MNC Lifestyle, MNC Fashion, MNC Food & Travel, MNC Kids, MNC Sports 1, MNC Sports 2 , Golf Channel, etc.
These channels are aired exclusively through pay-tv platforms owned by MSKY, namely Indovision, TopTV and Okevision. Furthermore, MNCN also sells its local contents to overseas destinations such as Malaysia, Brunei, Singapore, etc.
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Figure 63. Most comprehensive Pay-tv channel in Figure 64. MNCN’s list of pay-tv channels Indonesia
Source: Company data, Daewoo Securities Research Source: Company data, Daewoo Securities Research
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MNC’s management team
Board of Commissioners Independent commissioner: Irman Gusman Born in West Sumatera, Mr. Gusman graduated from Universitas Kristen Indonesia in 1985 and earned his Master of Business Administration (MBA) in 1987 from University of Bridgeport, USA. Pursuant to the decision of the shareholders last 19 April 2007, the Deed of Statement of Shareholders Resolution No. 163 named Mr. Irman Gusman is an Independent Commissioner and also Chairman of MNCN’s Audit Committee.
As a Chairman of the Regional Representative Council (DPD RI), Mr. Gusman has a distinguished career in public office. His tenure in political affairs and appointment to several prominent local and international organizations include: Vice Chairman of the Regional Representative Council (FUD) from 2004-2009, member of the Regional Representative Council from 2002-2004, Chairman of the Indonesian Regional Investment Forum (IRIF) from 2006-2008, and Advisory Board member of the 5th World Islamic Economic Forum (WIEF) in 2009. On 4 July 2009, he received an Outstanding Leadership Achievement award from the United States government for his role in the Regional Representatives Council of Indonesia. He further received one of Indonesia’s highest commendations, the Adipradana Mahaputera Star. The President of the Republic of Indonesia presented him this medal on 13 August 2010 during ceremonies commemorating Indonesia’s 65th independence.
Commissioner: B.Rudijanto Tanoesoedibjo Mr B.Rudijanto Tanoesoedibjo was born in Jakarta, Indonesia. Mr. Barack graduated in 1979 from Waseda University based in Tokyo, Japan. He has served as President Commissioner for PT Global Mediacom Tbk (MCOM) since 1998 and also currently sits on the Board of Directors for several other companies affiliated with MCOM. He is also PT Plaza Indonesia Realty’s President Director, a position he has held since 2000.
Commissioner: Adam Chesnoff Mr. Chesnoff is a graduate of UCLA’s Anderson School of Business (MBA, 1994). He has served as Commissioner since 12 December 2011, according to decision of Extraordinary General Shareholder Meeting dated 12 December 2011 and stated through Deed of Statement of Meeting No. 49 issued 12 December 2011. As the President and Chief Operating Officer of Saban Capital Group, Inc., Mr. Adam Chesnoff is responsible for overseeing the company’s investment and business activities, including private equity and public market investments.
Mr. Chesnoff is Chairman of the Board of Directors of Partner Communications, a leading telecommunications company in the Middle East. He is also a member of the Board of Directors of Univision, the largest Spanish-language media company in the United States, and Chairman of the Board of Directors of Celestial Tiger Entertainment, owner and operator of pay television channels across Asia. He concurrently sits as member of the Board of Commissioners of MNCN, Indonesia’s largest and only vertically-integrated media company. In addition, Mr. Chesnoff co-formed and directed the investment group that acquired a controlling stake in ProSiebenSat.1 Media AG, Germany’s largest television group. He served as Vice-Chairman of the Board of Directors of ProSiebenSat.1 from August 2003 until March 2007. In 2005-2010, Mr. Chesnoff served on the Board of Directors of Bezeq, a leading incumbent telecommunications company in the Middle East. Prior to becoming President and COO of Saban Capital Group, Mr. Chesnoff spent 5 years at Fox Family Worldwide (FFWW) where he oversaw business development across all global divisions, including television channels, programming, production, international distribution and merchandising. In 1994 to 1995, Mr. Chesnoff worked in the Business Affairs and Corporate Development groups at Sony Pictures Entertainment and Columbia Pictures, where he focused on strategic planning, financial analysis, deal structuring and new business development in the Motion Picture and Television divisions. In 1991, Mr. Chesnoff worked in the Far East where he oversaw the establishment of a garment factory network for export to the United States.
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President commissioner: Rosano Barack Mr Rosano Barack was born in Jakarta, Indonesia. Mr. Barack graduated in 1979 from Waseda University based in Tokyo, Japan. He has served as President Commissioner for PT Global Mediacom Tbk (MCOM) since 1998 and also currently sits on the Board of Directors for several other companies affiliated with MCOM. He is also PT Plaza Indonesia Realty’s President Director, a position he has held since 2000.
Independent Commissioner: Drs. Sutanto Drs. Sutanto was born in Pemalang, he graduated from the Republic of Indonesia’s National Police Academy, AKABRI (1973), Perguruan Tinggi Ilmu Kepolisian (1983), Sus Jur Pa Rengar Hankam in Bandung (1986), Sespimpol, Lembang in Bandung (1990), and Lemhannas (2000). Drs. Sutanto has served as Independent Commissioner since 12 December 2011 following the decision of the Extraordinary General Meeting of Shareholders and Deed of Statement of Meeting Resolution No. 49, December 12, 2011. He also has a highly illustrious career in public service, having served as Chief of Police for the Republic of Indonesia from 2005 to 2008 and Head of the State Intelligence Agency (BIN) from 2009-2010.
Board of Directors President director: Hary Tanoesoedibjo Mr Hary Tanoesoedibjo was born in Surabaya, Indonesia. His duties and responsibilities as President Director are listed in the GCG chapter of the Board of Directors section. Hary Tanoesoedibjo serves as President Director of both PT Media Nusantara Citra (MNCN) and PT Global Mediacom Tbk (BMTR), a position he has held since 25 March 2004 and 2002 respectively. He founded PT MNC Investama Tbk in 1989, and became its President Director until 2002 and once again in 2009. He continues to hold this post up to the present. Hary Tanoesoedibjo is also President Director of RCTI since 2003, since 2006, he has also taken the role of President Commissioner for PT MNC Sky Vision Tbk (MSKY).
As the founder of MNC Group, he has transformed BMTR and MNCN to become Indonesia’s top media companies by directly overseeing and developing strategies of the holding company and its subsidiaries. Tanoesoedibjo holds a Bachelor of Commerce (Honours) degree from Carleton University (1988) and a Master of Business Administration degree from Ottawa University (1989). Both universities are based in Ottawa, Canada. He actively participates as speaker at various local and international media events, and teaches corporate finance, investment and management strategies in post-graduate programs of several universities.
Director: Kanti Mirdiati Imansyah Mrs Kanti Mirdiati Imansyah was born in Palembang, Indonesia, she graduated from IFS San Diego, USA with an Associate Degree in Fashion Merchandising in 1989. In that same year, she finished her Bachelor’s Degree in Science at La Jolla Academy of Advertising Arts also in San Diego, USA. The General Meeting of Shareholders appointed Mrs. Kanti Mirdiati Imansyah as Director through deed No. 139 dated 29 April 2013. She started her career way back in 1990. Post serving as Sales Group Head at RCTI in 2000, she moved to Trans TV handling the same position. In 2002, she briefly returned to RCTI as Head of Acquisitions and a year later, transferred to TV7 as AVP for Sales and Marketing. Her career in Indonesia’s television industry also brought her to MNCTV where she became Director of Sales and Marketing from 2006 until 2010. The duties and responsibilities of Mrs. Imansyah as Director are enumerated in the GCG chapter of the Board of Directors section.
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Director: Diana Airin Mrs. Airin was born in Jakarta, Indonesia. She obtained her bachelor’s degree in Economic Management from Tarumanegara University in 1995. Mrs. Diana Airin has been serving as Director by virtue of deed No. 106, April 29, 2014 issued during the General Meeting of Shareholders last 29 April 2014. Her career in the media industry extends beyond 15 years with experience ranging from sales and marketing to executive positions.
Her previous appointments include: President Director of PT. Media Nusantara Informasi in 2013, PT. MNC Networks (Radio) in 2013 and PT. Cross Media International in 2013; Managing Director of PT. Media Nusantara Informasi in 2012; Director of Sales Marketing at Seputar Indonesia, SUN TV, High End & High End Teen and Network Magazine in 2010; Deputy Director of Sales and Marketing at Koran Sindo in 2009; General Manager for Sales and Marketing at Media Indonesia and Metro TV in 2001; Vice General Manager for Sales and Marketing at KOMPAS in 2000; Assistant Manager at HSBC Bank in 1998; Sales Manager at PT Hasta Nusa Perkasa in 1996; and Account Executive at FIF Astra Group in 1995. The duties and responsibilities of Mrs. Diana Airin are enumerated in the GCG chapter of the Board of Directors section.
Director: Faisal Dharma Setiawan Mr Faisal Dharma Setiawan was born in Bogor, Indonesia. Mr. Setiawan completed his Master of Management degree in International Business from the Post-Graduate School of Management at Prasetya Mulya in 2003. He also holds a bachelor’s degree in Civil Engineering from Universitas Katolik Parahyangan where he graduated in 1990.
The Extraordinary General Meeting of Shareholders, held last 30 October 2014, appointed Mr. Faisal Dharma Setiawan as Director through deed No. 126, October 30, 2014. His extensive experience in business and finance comes from several executive positions he held within the manufacturing, pension fund, banking and life insurance sectors. His previous designations include: Assistant General Manager at PT Indo Kordsa Tbk from 2000 to 2009; Director of Pension Funds at Indo Kordsa from 1996-2009; Vice Chief Finance Officer for Strategy and Finance at PT Bank CIMB Niaga Tbk in 2009-2012; Commissioner at PT Asuransi CIGNA in 2009-2011 and at PT CIMB Sunlife in 2009-2012; and Chief Executive Officer at PT Asuransi Jiwa Adisarana Wana Artha from 2012 to 2013. The duties and responsibilities of Mr. Faisal Dharma Setiawan as Director are enumerated in the GCG chapter of the Board of Directors section.
Director: Ella Kartika Mrs. Kartika was born in Palembang, Indonesia. She received her Master of Management degree in Banking and Finance from the University of Indonesia in 2000. On 30 October 2014, the Extraordinary General Meeting of Shareholders adopted a resolution appointing Mrs. Ella Kartika as Director through deed No. 126, October 30, 2014. Her career in the industry has focused on senior roles in television programming and production, as well sales and marketing. In 2008, she was Sales and Marketing Director for PT Global Informasi Bermutu. Two years later, she became the same company’s Programming and Production Director. Then in 2011, under a similar role, she moved to PT Rajawali Citra Televisi Indonesia. She returned to PT Global Informasi Bermutu handling the top post of Managing Director in 2013. Nowdays, she also serves as Commissioner in RCTI and GlobalTV. The duties and responsibilities of Mrs. Ella Kartika as Director are enumerated in the GCG chapter of the Board of Directors section.
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Director: Gwenarty Setiadi Mrs. Gwenarty Setiadi was born in Jakarta, Indonesia. Mrs. Setiadi graduated from the University of Satya Wacana with a bachelor’s degree in agriculture in 1982. Mrs. Gwenarty Setiadi’s distinguished career covers prominent human resources roles in major companies, most notable of which was her stint at Citibank wherein she was VP Head of Outsourcing Management (2004), VP Head of Direct Sales Training Academy and HRRM (2005), and VP Human Resources and General Services (2007). In 2008, she joined MNCN as General Manager of Human Resources and General Services and then a year later rose to the position of Director of Human Resources and General Services at MSKY. She was appointed Director following a decision by the Extraordinary General Meeting of Shareholders which issued deed No. 126 dated 30 October 2014. The duties and responsibilities of Mrs. Gwenarty Setiadi as Director are enumerated in the GCG chapter of the Board of Directors section.
Director: Arya Mahendra Sinulingga He has served as Director of MNC since 27 July 2015, as decided by Extraordinary General Shareholders Meeting dated 27 July 2015 and stated through a Deed of Statement of Meeting No. 93 issued 27 July 2015. Mr. Arya Mahendra Sinulingga serves multiple concurrent roles: Deputy CEO of iNewsTV, Director at MNC Investama, Chief Editor of MNC Group, News Director and Corporate Secretary of GlobalTV, President Commissioner of Sindo Weekly, and Director at MCI.
He previously served as a drainage and marine consultant in Singapore in 1995 and six years later, became a consultant of city planning in North Sumatra. During his four year tenure in North Sumatra, he also acted as Chairman of the Provincial Council. In 2004, he became a member of the Indonesian Broadcasting Commission for North Sumatera. He moved to Jakarta in 2008 to take on various high profile posts: President Director of PT Hikmat Makna Aksara (Sindo Weekly) in 2008-2014, Corporate Secretary of PT Global Mediacom (2008- 2014), Corporate Secretary of PT Media Nusantara Citra Tbk (2010-2014), and Chief Editor of Global TV (2011-2014).
Mr. Sinulingga graduated from the Bandung Institute of Technology (ITB) with a bachelor’s degree in Civil Engineering in 1995. He was born in Kabanjahe, Indonesia. The duties and responsibilities of Mr. Arya Sinulingga as Director are enumerated in the GCG chapter of the Board of Directors section.
Independent director: Charlie Kasim Mr. Kasim comes from Jakarta and he obtained his MBA in Finance from the University of Houston, USA in 1997. Mr. Charlie Kasim moulded his senior role in finance and operations starting with real estate company PT. Bakrie Swasakti Utama wherein he was appointed Commissioner in 2003. Two years later, he became Operational Director at the coal mining company PT. Fajar Bumi Sakti. In 2007, he shifted to PT. Lativi Media Karya (TVOne) as Finance Director and Head of Procurement. In that same year, he took on the role of Chief Finance Officer at PT. Visi Media Asia Tbk (VIVA). In 2011, he expanded his responsibilities in PT Cakrawala Andalas Televisi (ANTV) by becoming its Finance Director, Technical Director, Operational Director and Head of Procurement. Then in 2013, he jumped to PT Rajawali Citra Televisi Indonesia as its Deputy Finance and Technical Director.
Mr. Kasim has served as Independent Director by virtue of deed No. 126, October 30, 2014 issued during the General Meeting of Shareholders held on 30 October 2014. The duties and responsibilities of Mr. Charlie Kasim as Director are enumerated in the GCG chapter of the Board of Directors section.
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MNC’s FTA stations appeal to different audience segments
MNC’s Free-to-air TV (especially RCTI) is the most watched TV which Indonesian people stick to the most, thanks to the quality and variety of the programs. RCTI presents viewers with several popular dramas such as Anak Jalanan, Tukang Bubur Naik Haji, etc. MNC TV offers multiple variety programs such as animation movies and dramas. Initially, PT Cipta TPI received television broadcasting permission on August 1, 1990, and was the first television station that received national broadcasting license. TPI began commercial operation since January 23, 1991. In July 2006, Media Nusantara Citra (MNC) acquired 75% stake of TPI and since then TPI officially merged into one run television under MNC. MNC TV name has been used since October 20, 2010. Global Tv focuses on niche kids and young adults with foreign animation programs (nickelodeon), and Hollywood blockbuster movie during prime time. iNewsTV is a national network with a focus on news, infotainment and sports.
Famous dramas currently played on RCTI
(Anak Jalanan) or Street Kids in English is Indonesian drama aired in RCTI. This drama began airing since October 12, 2015. The soap opera airs every Monday-Saturday 18.00-19.15. (Tukang Ojek Pengkolan) or Ojek at the intersection in English is Indonesian comedy soap opera, aired by RCTI and produced by MNC Pictures. The soap opera airs every Monday-Saturday 17:30.
Figure 65. Anak Jalanan drama Figure 66. Ojek Pengkolan drama
Source: Internet, Daewoo Securities Research Source: Internet, Daewoo Securities Research
RCTI also airs famous TV show, namely Dahsyat, which is not simply serving the most popular music charts and video clips, but funny and hilarious-style hosts also strike the audiences. The show airs every Thursday-Friday at 09.00am and Saturday at 08:30am. Dahsyat now has 20 hosts to alternate on every show.
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Figure 67. Dahsyat TV show
Source: Internet, Daewoo Securities Research
Famous dramas that are currently played on GlobalTV
(Awas Ada Sule) or Watch out, there’s Sule in English is a comedy drama airing every Monday- Friday at 19.00. The sitcom began in 2009, ended in 2010 and is now replayed every day at 03.00am. In this sitcom, Sule acts as a maid in a family. Target audiences are Muslims who eat during sahur time.
Global TV also has a famous infotainment programs such as Obsesi, Fokus Selebriti and Eksis which aris the latest information about actor and actresses’ life. Targeted audiences are women, generally, housewives.
Figure 68. Obsesi Figure 69. Fokus Selebriti
Source: Internet, Daewoo Securities Research Source: Internet, Daewoo Securities Research
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Famous dramas that are currently played on MNC TV
(Super Dede 2) – After the success of its first season, the comedy drama kicked off its second season since April 4, 2016 at 17.00. Target audiences are mid-to-low income households.
Figure 70. Super Dede season 2
Source: Internet, Daewoo Securities Research
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MNCN charges more premium advertising cost through its quality contents
MNCN has achieved industry leading audience share and revenue, especially RCTI. Established in 1989, RCTI is currently the most watched FTA TV station in Indonesia which has been maintained its number one audience market share in 18 out of 24 years of operation. In addition, MNCN’s revenue is always the highest compared to its competitors even when their audience share stood at second place, thanks to its premium channel, RCTI. We believe MNCN’s creation to some successful dramas and its combination of in-house production and third party partnerships (with SineMart and MD Entertainment) has enabled the company to offer better original contents than its competitors. Currently, the highest cost for production comes from drama series which is around IDR250-300mn per episode.
Figure 71. MNCN vs SCMA advertising revenue
2,000
1,800
1,600
1,400 MNCN 1,200
1,000
800
600 SCMA
400
200
- 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Source: Daewoo Securities Research
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Investment thesis on MNCN Strong audience viewers’ performance
MNCN has recorded very strong audience share over the past couple of years (see figure 72), which led the company to its premium rate card.
Figure 72. RCTI’s audience share has always been astonishing
35
30 29.63
25
21.4 SCTV 20 20.3 RCTI IVM 16.8 15 MNCTV GTV
10
5
0 2013 average 2014 average 2015 average Average YT June 2016
Source: Nielsen, Daewoo Securities Research
RCTI has the highest power ratio
RCTI has the highest power ratio at 1.4x among all 11 nationwide FTA TV stations as of FY14. Power ratio shows how well a media company converts ratings to revenue. Power ratio is used to measure the companies’ revenue performance of a media company in comparison to the share of audience that it controls. The three variables that are used to calculate include total market revenue, the revenue of the media company itself, and % of audience share.
A higher power ratio is preferable because it indicates greater amount of revenue received from the company's audience share. A low power ratio indicates that the company underutilizes its capacity and there is more room for growth.
Figure 73. Power ratio of 11 nationwide FTA TV stations (as of FY 2014)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Source: Company data, Daewoo Securities Research
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MNCN has integrated studio facilities
MNCN is the only TV operator that has integrated studio facilities located in one area (Kebon Jeruk, namely MNC studio complex). The construction began in 2014 where MNCN utilized USD250mn loans to build the four buildings. The new MNC studio complex started functioning in July 2016, which means it is at the end of its large 3 year-capex period. MNCN is guiding its 2016F capex for buildings and maintenance of USD60-70mn, and 2017F of USD10-20mn.
The integrated new studio complex which has four new buildings with a total of 28 new studios and also equipped with HD rating equipment is believed to enhance the on-screen quality (better lightning, audio sharpness, etc.) and have more production capacity. MNCN expects new studios will help actors and actresses to with easier shooting with close proximity compared to scattered studios.
Figure 74. MNC’s lightning equipment
Source: Daewoo Securities Research
Figure 75. MNC studio complex Figure 76. MNC studio
Source: Daewoo Securities Research Source: Daewoo Securities Research
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Figure 77. MNC studio Figure 78. MNC studio
Source: Daewoo Securities Research Source: Daewoo Securities Research
Figure 79. MNC studio Figure 80. MNC studio
Source: Daewoo Securities Research Source: Daewoo Securities Research
More clarity on PT Berkah’s dispute
The dispute over PT Berkah and Ibu Tutut has been the noise over MNCN’s stock price throughout 2014-2015. Yet, in April 2016, the Supreme Court (MA) finally issued a ruling regarding the dispute between PT Berkah Karya Bersama (PT Berkah) and Siti Hardiyanti Rukmana. The Supreme Court ruled that Harry Tanoesoedibyo’s Berkah Karya Bersama as the rightful owner of 75% stake in MNC TV (previously TPI). While Ibu Tutut’s legal team states that there is no verdict on the appeal. We believe the overhang of the dispute has faded and the ruling is finally in favor of MNC.
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Media Nusantara Citra (Valuations)
We initiate our coverage on MNCN with a trading buy rating and a target price of IDR2,700, implying 27.5x 2016F P/E. Our target price of IDR2,700 was derived using a blended calculation of target P/E at 28x and Discounted Cash Flow (DCF) method with 10-year time span.
Our WACC assumption of 10.5% is derived from our estimates on risk free rate (Rf) of 7%, market risk premium (MRP) of 5%, a terminal growth rate of 3% and equity beta of 1.0x. We believe the reduction in cost of capital tracks the decline in Indonesian bond yields which further support our DCF target price.
We like MNCN on the back of its: 1) Strong audience viewers’ performance, 2) lower capex as MNCN has completed the construction of its integrated studio facilities 3) premium rate card charged on the back of its high audience share.
Table 7. DCF Assumption Table Item Details Cost of Equity 12% Risk free rate 7.0% Beta 1.00 Equity risk premium 5% WACC 10.5% Terminal growth rate 3% After tax Cost of Debt 6.84% Total PV of FCF 16,348 PV of TV 22,160 Total PV of FCF and TV 38,508 Cash 2013 1,967 Debt 2013 3,866 Equity value (in IDRbn) 37,770 Equity value/share 2,646 Source: Daewoo Securities Research
Figure 81. MNCN PE Band
( x ) 30
+2 Std Dev 28
26
+1 Std Dev 24
22
Avg PER 20
18
-1 Std Dev 16
14 -2 Std Dev 12
10 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source: Daewoo Securities Research
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Media Nusantara Citra (Ticker MNCN IJ/ Buy/ TP: IDR2,700)
Table 8. Forecast and valuations 2014 2015 2016F 2017F Revenue (IDRbn) 6,666 6,445 7,015 7,925 EBITDA (IDRbn) 2,772 2,447 2,739 3,087 Net profit (IDRbn) 1,761 1,186 1,401 1,760 EPS (IDR/share) 123 83 98 123 DPS (IDR/share) 35 62 42 49 ROE (%) 19.7% 13.2% 14.2% 16.6% Dividend yield (%) 1.6% 2.8% 1.9% 2.2% P/E ratio (x) 17.8 26.5 22.4 17.8 P/BV ratio (x) 3.5 3.5 3.1 2.9 EV/EBITDA (x) 11.3 12.7 11.4 10.1 Source: Daewoo Securities Research
Table 9. Income statement projection 2014 2015 2016F 2017F Revenue 6,666 6,445 7,015 7,925 COGS (2,813) (2,861) (3,037) (3,431) Gross Profit 3,853 3,584 3,978 4,494 Opex (1,251) (1,390) (1,513) (1,709) Operating Profit 2,602 2,194 2,465 2,785 Other income/(expenses) (54) (506) (492) (340) Profit before income tax 2,542 1,681 1,965 2,437 Income tax expenses (660) (404) (472) (585) Minority interest (121) (91) (91) (91) Net profit 1,761 1,186 1,401 1,760 EBITDA 2,772 2,447 2,739 3,087 Source: Daewoo Securities Research
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Table 10. Balance sheet projection IDR bn 2014 2015 2016F 2017F Assets Cash and equivalents 3,019 1,525 3,128 3,184 Receivables 2,994 3,020 2,907 3,330 Inventories 1,635 1,593 1,447 1,721 Others 1,022 1,588 995 1,263 Total current assets 8,670 7,727 8,476 9,498 Fixed assets - net 2,659 4,145 4,799 4,762 Long term investments 1,165 1,144 1,144 1,144 Others 701 1,017 816 839 Total non-current assets 4,940 6,748 7,200 7,186 Total assets 13,610 14,475 15,676 16,684 Liabilities and equity Short-term bank loans and 55 117 117 117 current maturities Trade payables 403 511 570 629 Others current liabilities 434 412 514 568 Total current liabilities 892 1,040 1,201 1,313 Long term debt 3,135 3,649 3,749 3,949 Others 182 219 229 225 Total non-current liabilities 3,318 3,868 3,978 4,174 Total liabilities 4,210 4,908 5,178 5,487 Minority interests 485 601 601 601 Shareholders' equity 8,916 8,966 9,897 10,596 Source: Daewoo Securities Research
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Table 11. Cash flow statement projection IDRbn 2014 2015 2016F 2017F CF from operation Net profit 1,761 1,186 1,401 1,760 Depreciation/amortization 170 253 274 302 Change in working capitals (812) 123 319 (639) Others (376) (588) 695 (214) CF from operation 743 974 2,690 1,209 CF from Investments Net capex (1,743) (979) (961) (300) Others (1,018) (321) 201 (23) CF from investments (2,761) (1,300) (760) (322) CF from financing activity Increase/(decrease) in debt 2,667 575 100 200 Increase/(decrease) in equity 368 (3) - - Dividend payments (497) (888) (593) (701) Others 30 (109) 132 (364) CF from financing activity 2,568 (425) (361) (865) Net changes in cash 551 (752) 1,568 22 Source: Daewoo Securities Research
Table 12. Key Ratios 2014 2015 2016F 2017F Growth (%) Revenue 2.2% -3.3% 8.8% 13.0% EBITDA 2.3% -11.7% 11.9% 12.7% Net profit 4.1% -32.7% 18.2% 25.6% Profitability (%) Gross margin 57.8% 55.6% 56.7% 56.7% Operating margin 39.0% 34.0% 35.1% 35.1% EBITDA margin 41.6% 38.0% 39.0% 39.0% Net margin 26.4% 18.4% 20.0% 22.2% ROE 19.7% 13.2% 14.2% 16.6% ROA 12.9% 8.2% 8.9% 10.5% Leverage (X) Current ratio 9.7 7.4 7.1 7.2 Quick ratio 6.7 4.4 5.0 5.0 Debt to equity 0.4 0.4 0.4 0.4 Net debt to equity 0.0 0.2 0.1 0.1 Interest coverage 44.7 11.2 8.3 9.0 Source: Daewoo Securities Research
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Risks to our call
The emergence of online advertisement. We believe growing internet penetration trend will determine the growth of digital advertisement, which would be the main competitor for FTA TV. However, we think the digital advertising trend will not be an immediate risk for TV operators given that Indonesia is still lack of the broadband infrastructure.
Unexpected regulatory risks. Investors may have to anticipate unexpected risks such as restrictions on broadcasting operations, licenses, transition to digital TV, etc.
Government’s stance on tobacco control. We think that government’s regulation on cigarettes advertisement is quite a huge risk for TV companies as they contribute sizeable portion of TV companies’ revenue. For example, broadcasting tobacco advertising on television is only allowed from 9:30pm until 5:00am, and smoking warnings are also shown at the end of the advertisement, such as "Smoking can cause mouth cancer, heart attack, impotency and pregnancy and fetal disorders". Since 2014, the Indonesian government halted the branding of cigarettes as "light" or "mild" on smoking packages and decided to place graphic images of the adverse long-term effects of excessive smoking. Currently, tobacco advertising is still allowed, but showing the cigarette packaging is forbidden.
Global and macroeconomic factors. As TV companies generate revenue from FMCG companies, there are several factors that would determine how they spend their A&P expense. Economic growth, commodity prices, inflation rate, Federal Reserve’s policy rate as well as the rupiah exchange rate are key determinants to the FMCG’s S&P spending. We believe any significant changes to the macroeconomic backdrop may significantly alter the strategies of FMCG companies A&P spending.
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APPENDIX 1
Important Disclosures & Disclaimers Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% * 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 Daewoo 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.
Disclosures As of the publication date, PT Daewoo 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.
Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with 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. PT Daewoo Securities Indonesia policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. 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 Daewoo 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 Daewoo Securities Indonesia except as otherwise stated herein.
Disclaimers This report is published by PT Daewoo Securities Indonesia (“Daewoo”), a broker-dealer registered in the Republic of Indonesia and a member of the Indonesian Stock 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 Daewoo 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 Indonesian language. 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. Daewoo, 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 Daewoo 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 Daewoo. Daewoo, 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. Daewoo 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
Distribution United Kingdom: This report is being distributed by Daewoo 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 Daewoo 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 Daewoo 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 Daewoo 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 Daewoo 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 Daewoo 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 Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
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