Asiamoney’s 2013 Spotlight Best Domestic Equity House 01 December 2016
Indonesia Media Sector: Consumer Discretionary (Overweight)
Henry Wibowo E-mail: [email protected] Phone: +6221 250 5081 (ext.3622)
TV broadcasters: Value emergence Exhibit 1. Indonesia 2016E USD2bn Ad Pie
Content is King, Distribution is Queen: OVERWEIGHT Indonesia Media In line with higher GDP growth of 5.3% in 2017E, we are OVERWEIGHT the Indonesia Media sector, particularly as we see a rebound in adex next year (+10% yoy). Along with the sector’s attractive valuation (2017E: 16x PER, +16% EPS growth), we have a preference for the FTA-TV Platforms (advertising-based, cyclical), but adopt a bearish view on the Pay-TV space (subscription-based) on intensifying competition. We also like companies with good content assets, which should play a crucial role in the transition phase from traditional distribution platforms towards online in the medium-longer term. Thus, we have BUY calls on SCMA and MNCN, and initiate on LINK with a HOLD rating, and on highly-geared BMTR and VIVA at REDUCE. Downside Source: Bahana estimates, Nielsen risks: Macro downturn, weak IDR and online cannibalisation. This report Exhibit 2. FTA TV Market Share – per Group marks the transfer of coverage of Indonesia Media to Henry Wibowo.
TV remains king of Ad Pie with positive adex growth Indonesia’s ad industry is a USD2bn market, growing at an 8% CAGR over 2014-17E, and one of the most underpenetrated in the region (0.2% of GDP, vs. 0.5% for Asia), on our estimates. TV is the best medium for advertisers to seek audience eyeballs, making up 64% of the ad pie (stable from 2010), followed by Print 19% (down from 27% in 2010), Online 12% (up from 1% in 2010), Outdoor 3% and Radio 2%. TV’s muted growth in 2015 was fueled by a macro slowdown (GDP hit a 6-year low at 4.67% in 2Q15), not from online cannibalisation, with TV adex expected to rebound to 8%/10% in 2016/17E.
FTA TV: Oligopolistic market with high barriers to entry
With the National FTA TV license recently renewed in October 2016 for Source: Nielsen (10M16, All-Time Category) another 10 years (2016-26), the existing top-4 big groups will continue to Exhibit 3: Indo media YTD perf. Vs. JCI dominate >95% of the TV market, in our view. Hary Tanoe’s MNCN is the market leader (37.1% audience share), followed by Eddy Sariaatmadja’s SCMA (25.6%), Bakrie’s VIVA (18.6%), Chairul Tanjung’s Trans (15.1%).
Overlooked high-value content assets By 2020, we believe SCMA’s (IEG & Screenplay) and MNCN’s (MNC Pictures & Sinemart) content assets can be worth USD700m/USD1bn, respectively, vs. currently underappreciated at almost 0; this would provide a boost to existing market caps of 30-50%. In our view, unlocking content value will be a key catalyst medium term. Distribution platforms continue to evolve over Source: Bloomberg time (Radio to TV to Online), but content should remain king as a core value driver, especially in Indonesia where the local language is a high barrier.
Exhibit 4. Bahana Indonesia Media Universe Coverage Upside/ Market 17E 17E 17E 17E 17E 17E 3M CP TP Downside Cap EPS Growth PER PBV EV/EBITDA ROE Yield ADTV Stock Rating (IDR) (IDR) (%) (USD M) (%) (X) (x) (x) (%) (%) (USD M) SCMA BUY 2,330 3,000 29% 2,524 17.0 19.1 8.5 13.6 48 3.6 2.6 MNCN BUY 1,735 2,200 27% 1,811 12.0 12.4 2.0 9.2 16 3.1 1.8 LINK HOLD 5,150 5,300 3% 1,161 11.0 17.7 3.1 8.0 19 1.0 0.8 BMTR REDUCE 640 550 -14% 658 13.0 12.2 0.7 3.6 6 4.0 1.1 VIVA REDUCE 252 230 -9% 307 55.0 19.7 2.0 7.6 11 0.0 0.2 Source: Bloomberg, Bahana forecasts; pricing as of 28 November 2016
Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor in making their investment decision. Please see the important disclaimer information on the back of this report
1 December 2016
Table of Content
1. Investment Summary Pg.3 2. Stock preference ladder Pg.4 3. Operational Matrix and Valuation Comps Table Pg.5 4. The Ad Pie transformaton in the past 10 years Pg.7 5. FTA TV – Oligopolistic Market with Strong Entry Barrier Pg.9 6. Correlation of TV Adspend Growth vs. GDP Growth Pg.11 7. Monitoring Audience Shares as Lag Indicator to Revenue Pg.12 8. Advertisers Profile – FMCG dominates Pg.16 9. Ad Spend Trend of Unilever & Indofood Pg.17 10. Unlocking Content Value of SCMA & MNCN Pg.19 11. Balance Sheet comparison – Avoid high gearing companies Pg.22 12. History of the Indonesia Media Sector Pg.23 13. Corporate: SCMA – Initiate with BUY and TP of IDR3,000 Pg.26 14. Corporate: MNCN – Initiate with BUY and TP of IDR2,200 Pg.32 15. Corporate: LINK – Initiate with HOLD and TP of IDR5,300 Pg.38 16. Corporate: BMTR – Initiate with REDUCE and TP of IDR550 Pg.45 17. Corporate: VIVA – Initiate with REDUCE and TP of IDR230 Pg.51
PT Bahana Securities – Equity Research – Indonesia Media 2
1 December 2016
Investment Summary Content is King, Distribution is Queen – OVERWEIGHT Indonesia Media We are OVERWEIGHT the Indonesia Media sector, given our expectation of a rebound in adex in 2017 (in line with the pick up in GDP growth), and supported by attractive We rate Indonesia media valuation levels. We adopt a bullish stance on the FTA-TV Platforms (advertising- sector at OVERWEIGHT. based, cyclical) and a bearish view on the Pay-TV segment (subscription-based). We also like companies with good content libraries, as we believe these will play a crucial role during the transition of distribution platforms to online over the medium-longer term. Hence, we have BUY ratings on SCMA (TP: IDR3,000) and MNCN (TP: IDR2,200), and initiate coverage with a HOLD rating on Link Net (TP: IDR5,300), and REDUCE calls on highly-geared BMTR (TP: IDR550) and VIVA (TP: IDR230).
TV remains king of Ad Pie with positive adex growth Indonesia’s ad industry is a USD2bn market, growing at an 8% 2014-17E CAGR, and is one of the most underpenetrated ad markets in the region at a mere 0.2% of GDP (vs. c.0.5% for Asia), on our estimates. Indonesia’s Gross prime-time TV rate cards is TV remains the king of the now c.USD5k/30secs spot, notably lower vs. USD6k in Malaysia, USD11k in Thailand, USD2bn ad pie with a likely USD16k in Philippines, and USD40k in SG. TV is the best medium for advertisers to 64% split in 2016E, stable seek audience eyeball, accounting for 64% of the ad pie (stable from 2010), followed over the past years, and by Print 19% (down from 27% in 2010), Online 12% (up from 1% in 2010), Outdoor Online (12%) growing fast 3%, and Radio 2%. TV’s muted growth in 2015 was fuelled by the economic slowdown at the expense of Print & (GDP touched a 6-year low at 4.67% in 2Q15, while the USD:IDR exchange rate hit a Radio 17-year high at IDR14,800/USD1 in 3Q15), not from Online cannibalisation, with TV adex expected to rebound to 8%/10% y-y in 2016/17E.
FTA TV: Oligopolistic market with high barriers to entry License for National FTA-TV With the National FTA-TV license recently renewed in October 2016 for another 10 no longer available since years (2016-2026), the existing top-4 big groups should continue to dominate with 2002, creating strong entry over 95% of the TV-broadcasting market. Hary Tanoe’s MNCN is the market leader barriers (ie, oligopoly) (37.1% audience share), followed by Eddy Sariaatmadja’s SCMA (25.6%), Bakrie’s VIVA (18.6%), and Chairul Tanjung’s Trans (15.1%).
Unlocking the value of content asssets
By 2020, we believe that SCMA’s (IEG & Screenplay) and MNCN’s (MNC Pictures & Unlocking content assets in assuming they buy Sinemart given the already existing exclusive relationship between the medium-long term will Sinemart and RCTI) content assets can be worth USD700m and USD1bn, respectively, be key for SCMA and MNCN, (vs. currently underappreciated levels at almost 0), and which we estimate could in our view boost existing market caps by 30-50% if they can be unlocked. In our view, unlocking content value will be the key catalyst over the medium term (see calculation on pg.21-22). With distribution platforms continuing to evolve over time (from Radio to TV, and now to Online), content should remain king as the core value of media companies, especially in Indonesia where the local language barrier is strong.
Undemanding sector valuation The Indonesia Media sector The Indonesia Media sector trades at what we see as an undemanding 2017E PER of is attractive at a 2017E PER 16x with visible 16% EPS growth, on our forecasts. This compares favourably with the of 16x, with 16% EPS market’s 2017E PER of 17x and 12% EPS growth, and also the Indonesia consumer growth in 2017E staples sector (PER of 33x), retail (PER of 22x) on our forecasts, as well as its regional media peers (PER 27x, based on Bloomberg consensus).
Downside Risks
The key risks to our OVERWEIGHT thesis would be: 1) faster-than-expected Cannibalisation from online cannibalisation from online ads, 2) macro downturn, impacting ad-spend growth from ads, a macro downturn and consumer good companies, and 3) weaker rupiah (imported content and USD debt). weak Rupiah are key risks
PT Bahana Securities – Equity Research – Indonesia Media 3
1 December 2016
Stock Preference Ladder
SCMA: Asia’s most profitable media company – BUY with a TP of IDR3,000
We have a BUY rating on Surya Citra Media (SCMA), Indonesia’s most profitable TV broadcaster & content company, with a 12-month TP of IDR3,000 (29% upside SCMA is a BUY with a TP of potential), based on a 2017E PER of 25x. We like SCMA on the back of: 1) its sector- IDR3,000, for 29% upside high ROE of 45% with a strong balance sheet and c.4% yield, 2) Good corporate potential governance with solid management track record, and 3) Attractive valuation post the recent selloff in the shares with a strong 17% y-y EPS growth in 2017E. The stock currently trades at an undemanding 19x 2017E PER, at -2SD below its past-3.5-year mean since the IDKM merger. SCMA is our top media pick and among Bahana’s top- 10 country picks.
MNCN: King of the TV Jungle – BUY and TP of IDR2,200
We also have a BUY rating on Media Nusantara Citra (MNCN) with a 12-month target price of IDR2,200/sh (27% upside potential), based on a 2017E PER of 16x. We like MNCN is a BUY with a TP of MNCN on the back of: 1) Steep valuation discount at the current 2017E PER of 12x (- IDR2,200, for 27% upside 2SD below past-3-year mean, and 50% discount to peers), 2) Strong market share potential gains (10M16 Prime Time Audience share at 44.9%, up from 34.5% in 10M15), and 3) stronger FCF generation (up 7x in 2016E to IDR1tn) with potential dividend boost in 2017 post the peak capex cycle.
LINK: Leading Broadband & Pay TV Provider – HOLD and TP of IDR5,300
We are initiating coverage on Link Net (LINK) with a HOLD rating and 12-month TP of Initiate LINK at HOLD with IDR5,300 (3% upside), based on a DCF valuation (WACC: 10.5%). While we believe TP of IDR5,300 (3% upside that Link Net is sweetly positioned as Indonesia’s leading broadband provider in potential) Indonesia’s tier-1 cities (Jakarta, Surabaya, and Bandung), we see limited downside given its current 2017E PER of 18x (past-3-year average level), especially with growing competition from cash-rich, state-owned Telkom Indihome.
BMTR: Cheap, but for a reason – REDUCE and TP of IDR550
We are initiating coverage on Global Mediacom with a REDUCE rating and 12-month TP of IDR550 (14% downside potential), based on a SOTP valuation and using a 50%
holding-company discount (1.7x higher than historical mean of 30%). We are cautious Initiate BMTR at REDUCE on BMTR on the back of: 1) weak performance of its Pay-TV arm (MSKY) amid fierce with a TP of IDR550 (14% competition and limitation on the satellite-based business model to offer broadband, downside potential) 2) high unhedged USD450m debt exposure (40% Net Gearing) which creates huge
earnings volatility, and 3) weaker-than-expected execution on the new internet- related businesses (dissolvement on WeChat Indonesia JV with Tencent, slower-than- expected rollout on Playmedia broadband).
VIVA: High ANTV growth clouded by weak B/S – REDUCE and TP of IDR230
We are initiating coverage on Visi Media Asia (VIVA), the holding company of ANTV
and TV One, with a REDUCE rating and 12-month TP of IDR230 (-9% downside Initiate VIVA at REDUCE potential), based on 2017E PER of 18x (c.15% discount to sector average of 21x). We with a TP of IDR230 (9% are highly encouraged with VIVA’s ANTV sector-high adex growth post the huge downside) success of their Bollywood Indian drama strategy, nonetheless, we are overall
cautious on VIVA on the back of 1) its weak balance sheet at >160% net gearing with significant unhedged USD230m debt exposure and 2) slower-than-expected execution on balance sheet de-leveraging with continued postponement of debt refinancing, whereby both are causing significant pressure for bottom line to grow.
PT Bahana Securities – Equity Research – Indonesia Media 4
1 December 2016
Operational Matrix and Valuation Comps Table The below operating matrix table is a summary comparison of the 5 Indonesia media companies under our coverage. We have BUY ratings on SCMA (TP: IDR3,000) and MNCN (TP: IDR2,200), a HOLD call on LINK (TP: IDR5,300), and REDUCE ratings on BMTR (TP: IDR550) and VIVA (TP: IDR230). Please go to page 26 onwards for company focus write-ups.
Exhibit.5 Bahana Indonesia Media Universe Coverage Matrix Comps SCMA MNCN LINK BMTR VIVA Name PT Surya Citra Media Tbk PT Media Nusantara Citra Tbk PT Link Net Tbk PT Global Mediacom Tbk PT Visi Media Asia Tbk Bloomberg Tickers SCMA.IJ MNCN.IJ LINK.IJ BMTR.IJ VIVA.IJ Market Cap (28.11.16) Rp33.6tr / US$2.5bn Rp24.6tr / US$1.9bn Rp16.9tr / US$1.2bn Rp9.1tr / US$0.7bn Rp3.9tr / US$0.3bn 3M Trading Liquidity US$2.6m/day US$1.8m/day US$0.8m/day US$1.1m/day US$0.2m/day Bahana Ratings BUY BUY HOLD REDUCE REDUCE Main Business FTA TV and Content FTA TV, Content, Print, Radio Cable Broadband & Pay TV FTA TV, Pay TV FTA TV Majority Owner (9M16) EMTK (60.3%) BMTR (60.8%) KBLV (34%) BHIT (48.9%) PT Bakrie GV (53.7%) Free Float (9M16) 39.6% 39.1% 31.4% 50.5% 45.0% Main Sponsor Eddy Sariaatmadja Hary Tanoesoedibjo James Riady Hary Tanoesoedibjo Bakrie Family Sutanto Hartono David Audy Irwan Djaja Hary Tanoesoedibjo Anindya Bakrie CEO (ex-Microsoft Indo & (12yrs with MNC Group, (8yrs with Lippo's First (CEO of MNC Group) (Son of Aburizal Bakrie) RCTI CEO) Brother in law of HT) Media, ex-KPMG Director) Political Affiliation Neutral Partai Perindo Neutral Partai Perindo Partai Golkar FY15 Revenue Rp4.2tr / US$321m Rp6.4tr / US$488m Rp2.6tr / US$194m Rp10.6tr / US$800m Rp2.1tr / US$160m FY15 EBITDA Rp2.1tr / US$162m Rp2.4tr / US$180m Rp1.5tr / US$110m Rp3.4tr / US$258m Rp628bn / US$48m FY15 Net Profit Rp1.5tr / US$115m Rp1.2tr / US$90m Rp0.64tr / US$48m Rp0.05tr / US$4m -Rp512bn / -US$39m FY15 EBITDA Margin 51% 37% 57% 32% 30% FY16E ROE 43% 15% 19% 6% 10% 9M16 Net Cash Rp791bn / US$60m -Rp2.9tr / -US$221m Rp246bn / US$19m -Rp6.2tr / -US$473m -Rp2.9tr / -US$217m 9M16 USD Debt 0 US$250m US$14m US$432m US$230m 9M16 Net Gearing -19% 30% -6% 40% 126% FY17E PER 19.1x 12.4x 17.7x 12.2x 19.7x FY17E EV/EBITDA 13.6x 9.2x 8.0x 3.6x 7.6x FY17E P/B 8.8x 2.1x 3.1x 0.7x 1.8x FY17E EPS Growth 17% 12% 11% 13% 55% Source: Bahana forecasts, Companies, Bloomberg
Exhibit.6 Indonesia Media – Valuation Comps Table Indonesia Media Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing
(IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Surya Citra Media SC M A .I J BUY 2 ,3 3 0 3 ,0 0 0 29% 2 ,5 2 4 1 7 .0 1 9 .1 1 3 .6 8 .5 1 .1 3 .6 48 48 -1 9
Media Nusantara Citra M N C N .I J BUY 1 ,7 3 5 2 ,2 0 0 27% 1 ,8 1 1 1 2 .0 1 2 .4 9 .2 2 .0 1 .0 3 .1 16 37 8
Link Net LI N K.I J HOLD 5 ,1 5 0 5 ,3 0 0 3% 1 ,1 6 1 1 1 .0 1 7 .7 8 .0 3 .1 1 .6 1 .0 19 59 -3
Global Mediacom BM T R.I J REDUCE 640 550 -1 4 % 6 5 8 1 3 .0 1 2 .2 3 .6 0 .7 0 .9 4 .0 6 18 22 Visi Media Asia V I V A .I J REDUCE 252 230 -9 % 3 0 7 5 5 .0 1 9 .7 7 .6 2 .0 0 .4 0 .0 11 33 162
Sector Weighted Avg 17% 6,461 15.9 16.3 10.1 4.6 1.1 2.9 27.8 43.2 4.2
Source: Bahana forecasts, Company Data, Bloomberg (as per 28 Nov 2016) The Indonesia Media sector is currently trading at a 2017E PER of 16x, much more attractive than the Staples sector at 33x, and Retail at 22x, based on Bahana forecasts. The Indonesia media sector should post decent 2017E EPS growth of 16%, higher than the 8% of staples, but lower than Retail’s at 28%. The Indonesia Media sector has an ROE of 28%, lower than the 56% of the Staples and 49% of retail. When compared to the JCI (Indonesia country index), the Indonesia media sector is currently trading at a similar 2017E PER of 16-17x, but with higher EPS growth of 16% vs. the market’s 12%. When compared to regional media peers, the Indonesia media sector, on our forecasts, is also positioned very attractively with a 2017E PER at 16x (vs. regional peers of 27x), at similar 28% ROE level, but with lower EPS growth of 16% (vs. regional peers of 28.1%, based on the Bloomberg consensus).
Within the Indonesia media sector, our top pick SCMA is currently trading at a 2017E PER of 19.1x with 17% EPS growth, a sector-high 48% ROE, 3.6% dividend yield, and backed by a strong balance sheet (19% net cash to equity). Our second pick, MNCN is currently trading at an undemanding 2017E PER of 12x with 12% EPS growth, 16% ROE, 3.1% yield, and with relatively decent balance sheet (8% net gearing).
PT Bahana Securities – Equity Research – Indonesia Media 5
1 December 2016
Exhibit.7 Valuation Comps– Indo Staples, Indo Retail, Regional Media Indonesia Consumer Staples Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing (IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Unilever Indonesia U N V R.I J BUY 4 0 ,1 0 0 5 0 ,5 0 0 26% 2 2 ,6 6 4 9 .9 4 3 .1 3 0 .7 4 8 .5 4 .4 2 .2 1 1 9 .7 5 1 .3 3 5 .2
Indofood CBP I C BP .I J BUY 8 ,3 5 0 1 0 ,6 0 0 27% 7 ,2 1 3 8 .8 2 6 .5 1 7 .6 5 .1 3 .0 1 .6 2 0 .4 1 3 .9 -2 9 .8
HM Sampoerna H M SP .I J BUY 3 ,8 7 0 4 ,4 0 0 14% 3 3 ,3 4 4 4 .9 3 5 .4 2 5 .8 1 3 .2 7 .2 2 .7 3 7 .6 2 4 .3 -5 .2
Gudang Garam GGRM .I J BUY 6 2 ,7 7 5 8 1 ,0 0 0 29% 8 ,9 4 7 1 1 .1 1 7 .1 1 0 .9 2 .9 1 .5 1 .8 1 7 .3 1 5 .5 4 8 .5
Sari Roti RO T I .I J BUY 1 ,5 4 0 1 ,6 2 0 5% 5 7 8 1 0 .7 2 4 .9 1 3 .3 4 .7 2 .3 0 .7 2 0 .3 2 2 .7 4 0 .3
Mayora Indah M Y O R.I J BUY 1 ,5 3 5 2200 43% 2 ,5 4 2 2 4 .9 2 2 .0 1 3 .9 4 .6 0 .9 0 .8 2 3 .3 1 4 .4 3 6 .1 Charoen Pokphand C P I N .I J HOLD 3 ,3 2 0 3530 6% 4 ,0 3 3 4 .1 1 7 .0 1 0 .2 3 .2 4 .1 1 .8 2 0 .0 1 3 .3 3 4 .7 Sector Weighted Avg 21% 79,321 8.0 33.3 23.5 20.5 5.0 2.2 55.7 29.2 13.9 Source: Bahana forecasts
Indonesia Retail Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing (IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Matahari Department LP P F.I J BUY 1 4 ,2 5 0 1 9 ,1 0 0 34% 3 ,0 8 0 2 1 .1 1 7 .2 1 1 .6 1 4 .4 0 .8 4 .1 8 4 .0 1 6 .8 -8 5 .6
Mitra Adiperkasa M A P I .I J REDUCE 4 ,8 7 0 3 ,9 7 5 -1 8 % 5 9 9 5 9 .8 2 6 .1 6 .4 2 .9 0 .4 1 .5 1 1 .6 9 .4 6 1 .8
Ace Hardware A C E S.I J HOLD 845 975 15% 1 ,0 7 3 1 .6 2 2 .5 1 6 .7 4 .5 1 4 .1 2 .0 2 1 .3 1 5 .5 -2 2 .0
Ramayana Lestari RA LS.I J BUY 1 ,1 4 5 1 ,8 7 5 64% 6 0 2 1 1 .6 1 9 .3 1 5 .7 2 .3 1 .7 3 .0 1 2 .0 5 .7 8 .0 Matahari Putra Prima M P P A .I J BUY 1 ,7 0 0 2 ,2 5 0 32% 6 7 7 9 1 .0 4 1 .5 1 3 .5 4 .0 0 .5 1 .0 1 .4 4 .2 2 1 .1 Sector Weighted Avg 28% 6,031 28.4 22.0 12.6 9.1 3.2 3.0 49.2 13.3 -38.3 Source: Bahana forecasts
Regional Media Peers
Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing (Local C) (Local C) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Media Prima Bhd M P R.M K NA 1 .2 1 NA NA 3 0 0 7 .8 1 0 .9 4 .2 0 .8 1 .4 6 .9 7 .5 2 1 .0 -7 .1
Astro Malaysia A ST RO .M K NA 2 .7 0 NA NA 3 ,1 0 3 5 .4 2 1 .5 9 .0 2 2 .2 4 .0 4 .7 1 0 6 .4 3 2 .7 6 1 9 .9
Sun TV Network SU N T V .I N NA 4 6 4 .8 NA NA 2 ,6 6 8 1 8 .4 1 7 .3 8 .7 4 .6 0 .9 3 .6 7 .7 6 9 .2 -3 4 .7
Zee Entertainment Z.I N NA 4 5 .4 NA NA 6 ,3 9 9 4 3 .9 3 4 .7 2 3 .3 6 .5 0 .8 0 .6 -0 .8 2 8 .2 -2 7 .4
BEC World BE C .T B NA 1 8 .5 NA NA 1 ,0 3 6 1 5 .5 1 9 .7 1 5 .7 4 .8 1 .3 4 .4 2 0 .6 4 0 .3 -1 2 .4 Plan B P LA N B.T B NA 5 .0 5 NA NA 4 9 6 5 7 .2 2 9 .2 1 3 .9 5 .2 0 .5 1 .9 3 7 .5 3 8 .0 -2 9 .6 Sector Weighted Avg 14,002 28.1 26.6 16.0 9.3 1.6 2.6 27.7 38.1 116.1 Source: Bloomberg (as per 28 November 2016)
PT Bahana Securities – Equity Research – Indonesia Media 6
1 December 2016
The Ad Pie transformaton – TV remains King
Indonesia’s advertising industry is a USD2bn market (based on net ad spend), A USD2bn market... highly growing at an 8% 2014-17E CAGR on our forecasts, and is one of the most underpenetrated at 0.2% of underpenetrated advertising market in the region at a mere 0.2% of GDP (vs. ~0.5% GDP with a decent +8% for Asia). Consumer viewing habits in most of the developed markets have clearly 2014-17E CAGR... shifted from the traditional-based media to the digital online platforms, nonetheless, that is not yet the case for Indonesia. TV remains the most favorite media platform here with a 65% share of the advertising pie, staying dominantly stable in the past 10 years. An average Indonesian spends 3-4 hours daily in front of the TV, according to research by Nielsen, among the highest globally.
It is admitedly true that Online has been growing at the strongest rate with now 9% TV remains the king of of the pie (vs. 1% in 2010), but this is at the expense of platforms like Radio & Print Indonesia Ad pie at c.65% (Newspaper and magazine), not TV. The best medium platform for an FMCG corporate market share... Online is to do mass advertisement and reach out to Indonesia’s 250m population remains growing fast, but at the via TV, with Online platforms recently being favored by advertisers to do segment expense of print, radio, not targeted marketing (via Facebook / Google). TV
Audience eyeballs for It is also true that Indonesia’s smartphone penetration is relatively high at a c.40% online ads still limited due level, giving a broad audience base for marketing tools like Facebook, Google, or to less developed internet Instagram... Nonetheless, internet broadband penetration remains very low here at infra... with TV remaining 8%; translating to limited options on video advertising (given telco internet speeds best way to advertise to the that are still very slow and choppy here, preventing a smooth video watching mass market (reaching experience), which accounts for a signifcant portion of online ads. 90+% of Indonesia’s 250m population)
Exhibit.8 Advertising Pie Split
Source: Bahana, Nielsen
From the table below, we are expecting a 7% 2014-17E CAGR for TV, which is slightly lower than the blended ad industry of 8% (due to very high growth in Online, but at a much lower base), but still much higher and more resillient compared to the other traditional platforms like Radio, newspaper, magazines, etc.
Exhibit.9 Media Ad Spend – Distribution Platforms Media (Rpbn) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E FY14-17E CAGR TV 3192 4409 5158 5,944 6,954 7,649 9,256 11,292 13,561 15,985 18,410 19,000 20,520 22,572 7% Radio 119 132 158 407 447 492 486 522 570 635 701 700 686 672 -1% Newspapers 1155 1319 1544 1,585 2,140 2,675 3,264 3,956 4,377 4,755 5,255 5,200 5,096 4,994 -2% Magazines 226 266 311 438 556 639 697 743 792 815 874 880 862 845 -1% Cinema 56 61 64 68 71 76 78 82 93 104 116 115 115 115 0% Outdoor 148 182 210 305 366 476 536 590 655 765 855 830 872 915 2% Internet 24 31 38 48 62 81 152 455 878 1,305 1,825 2,550 3,825 4,973 40% Media total 4,920 6,399 7,483 8,794 10,597 12,088 14,468 17,640 20,926 24,364 28,036 29,275 31,976 35,086 8%
PT Bahana Securities – Equity Research – Indonesia Media 7
1 December 2016
Market Share Split 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E TV 65% 69% 69% 68% 66% 63% 64% 64% 65% 66% 66% 65% 64% 64% Radio 2% 2% 2% 5% 4% 4% 3% 3% 3% 3% 3% 2% 2% 2% Newspapers 23% 21% 21% 18% 20% 22% 23% 22% 21% 20% 19% 18% 16% 14% Magazines 5% 4% 4% 5% 5% 5% 5% 4% 4% 3% 3% 3% 3% 2% Cinema 1% 1% 1% 1% 1% 1% 1% 0% 0% 0% 0% 0% 0% 0% Outdoor 3% 3% 3% 3% 3% 4% 4% 3% 3% 3% 3% 3% 3% 3% Internet 0% 0% 1% 1% 1% 1% 1% 3% 4% 5% 7% 9% 12% 14% Media total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% yoy% change 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E TV 32% 38% 17% 15% 17% 10% 21% 22% 20% 18% 15% 3% 8% 10% Radio 11% 11% 20% 157% 10% 10% -1% 7% 9% 11% 10% 0% -2% -2% Newspapers 32% 14% 17% 3% 35% 25% 22% 21% 11% 9% 11% -1% -2% -2% Magazines 22% 17% 17% 41% 27% 15% 9% 7% 7% 3% 7% 1% -2% -2% Cinema 18% 10% 5% 5% 5% 6% 3% 5% 13% 12% 12% -1% 0% 0% Outdoor 158% 23% 15% 45% 20% 30% 13% 10% 11% 17% 12% -3% 5% 5% Internet 28% 25% 25% 25% 30% 30% 88% 200% 93% 49% 40% 40% 50% 30% Media total 33% 30% 17% 18% 21% 14% 20% 22% 19% 16% 15% 4% 9% 10% Source: Bahana forecasts, Nielsen
We are expexting TV adex The TV-Ad industry only grew by 3% in 2015 on the back of economic slowdown and to grow by 8%/10% in plunge in the Rupiah (touched a low of IDR14,800/USD in 3Q15), but has started to 2016/17E, recovering from rebound at 8% in 2016E and is expected to further strengthen by 10% in 2017E, in a muted 3% in 2015 due to our view. the economic slowdown...
PT Bahana Securities – Equity Research – Indonesia Media 8
1 December 2016
National FTA TV – Oligopolistic Market with Entry Barrier
The Government has stopped issuing broadcasting licenses for national FTA TV since The Indonesia National FTA 2002, with currently only 10 private-TV stations in the market that have national TV sector has high barriers coverage, plus one state-owned TV station (TVRI). This license restriction creates a to entry due to limited very strong barrier to entry for new competitors and, thus translates to higher bargaining power to the 10 players. Note that recently there has been the emergence available licenses... of new local-TV stations (such as Net TV, RTV, Kompas TV, iNews TV), but not with a national license. There is a huge difference between local TV and national TV, given the audience eyeball reach of a specific province, vs. the whole Indonesia with a 250m population; this ultimately has an impact on the rate cards charged.
The top-4 media groups From year 2000 onwards (post the President Soeharto era), there have been a series now control c.96% of the of consolidation rounds within the industry. There are currently only 5 groups total TV audience share... a controlling the 10 TV stations, with the top-4 groups controlling over 96% of the TV concentrated oligopolistic audience share. market...
Exhibit.10 Players in Indonesia National FTA TV Indonesia National FTA TV Broadcasters FY15 10M16 All-Time Majority Group Political Rank Station Group Logo Content Focus Revenue Audience Mkt Cap Ownership Share (%) Affiliation (US$M) Share (%) 1 RCTI Local Drama, Talent Show ~US$260m 19.7 MNC Group Hary Partai 5 MNC TV Drama, Variety, Cartoons ~US$100m 11.5 37 ~US$2bn (MNCN.JK) Tanoesoedibjo Perindo 8 Global TV Box Office, Cartoons ~US$70m 5.9
2 SCTV Local Drama, FTV ~US$205m 12.9 Emtek Group Eddy 26 ~US$2.5bn N/A (SCMA.JK) Sariaatmadja 3 INDOSIAR Variety Shows ~US$120m 12.7
6 TRANS 7 Variety Shows ~US$100m 8.6 CT Corp Chairul Tanjung 15 NA N/A 7 TRANS TV Variety Shows ~US$100m 6.5
4 ANTV Viva Group Indian Dramas, Lifestyle ~US$110m 15.1 MDIA: US$0.5bn Partai Bakrie Family 19 9 TV ONE (VIVA.JK) News ~US$60m 3.5 VIVA: US$0.3bn Golkar
Partai 10 METRO TV Media Group Surya Paloh News ~US$50m 2.0 2 NA Nasem
State Owned 11 TVRI SOE News, Government ~US$5m 1.4 1 NA N/A (SOE) ~US$1.2bn 100 100% Source: Bahana, Company
Hary Tanoe’s MNCN is the The market leader within the sector is Hary Tanoe’s Media Nusantara Citra (MNCN king of the TV jungle, IJ), controlling 37% of audience share (All-Time) as per 10M16, via 3 national FTA controlling 37% of market TVs: 1) RCTI (20% market share), 2) MNC TV (12% market share), and 3) Global TV share via 3 national TV (6%). Each of the TV stations are focusing on diffferent programming, with RCTI well stations- RCTI, MNC TV known for local dramas and localised internation talent show (eg. Indonesian Idol, (previously TPI), and Indonesia X Factor), MNC TV focuing on mix of variety shows, drama, and South East Global TV. They recently Asian cartoons, and Global TV focusing more on Box Office / Hollywood movies as well established iNewsTV as as western cartoons. Group CEO Hary Tanoe is also a chairman in his own political their 4th TV station, but not party, called Partai Perindo. with full national coverage
The second biggest player within the space is Eddy Sariaatmadja’s Surya Citra Media Eddy Sariaatmadja’s SCMA (SCMA IJ), controlling 26% of audience share (All-Time) as per 10M16, via 2 national is the second-leading TV FTA TVs: 1) SCTV (13% market share) and 2) Indosiar (13% market share). Each of player, but is the most the TV stations are focusing on different programming, with SCTV well known for local profitable media company dramas and Film Televisions (FTV), and Indosiar famous for variety shows, especially due to its strong in-house local talent show format (eg. Dangdut Academy). The ultimate owner and Group content focus. SCMA has 2 Chairman, Eddy Sariaatmadja, is not affiliated with any political party and has a TV stations: SCTV, Indosiar reputable execution record over the past 15 years within the business community.
PT Bahana Securities – Equity Research – Indonesia Media 9
1 December 2016
The third largest player within the space is Bakrie Family’s Visi Media Asia (VIVA IJ), Bakrie’s VIVA is now the controlling 19% of audience share (All-Time) as per 10M16, via 2 national FTA TV no.3 player after taking stations: 1) ANTV (15% market share) and 2) TV One (4% market share). ANTV has over from Trans Group in been undergoing a succesful transformation in the past 2-3 years, and is now focusing 2014 due to the strong on Indian (bollywood) dramas and lifestyle programming. TV One is Indonesia’s no.1 turnaround of ANTV. Their news channel, well known for airing juicy and punchy news coverage. VIVA is 2nd TV station, TV One, is ultimately owned by the Bakrie Family, affiliated with the Golkar Political Party. the no.1 news channel in Indonesia.
The fourth largest player is Chairul Tanjung’s Trans Media Group (private company), controlling 15% of audience share (all-Time) as per 10M16, via 2 national FTA TVs: 1) Chairul Tanjung’s CT Corp Trans TV (7% market share) and 2) Trans 7 (9% market share). Both are focusing on controls 2 TV stations, similar genres, ranging from lifestyle and variety shows. Chariul Tanjung temporarily Trans TV and Trans 7... serves as the Economic Minister during President SBY’s term in 2013, but is not officially part of any political party.
The last private player is Surya Paloh’s media group, controlling 2% of audience share Surya Paloh, chairman of (all-Time) as per 10M16, via 1 national FTA TV called Metro TV. It is focusing on news Nasdem Political Party, coverage, competing head to head with TV One, but with more audence target of the controls Indonesia’s no.2 middle upper class. Surya Paloh is the chairman of Nasdem Political Party, part of news channel, Metro TV existing President Jokowi’s coalition group.
PT Bahana Securities – Equity Research – Indonesia Media 10
1 December 2016
Correlation of TV adspend and Country GDP growth Indonesia’s TV adex growth Based on the chart plotted below from 1Q13 to 3Q16, there is a strong positive is strongly correlated with correlation between TV ad growth and the contry’s GDP growth at 0.83. The average GDP growth (0.83), usually multiplier in these past c.4 years for TV ad spend is around 2-3x the GDP growth, but growing at a 2-3x multiplier with the TV Adex to drop into negative territory when GDP growth falls below the during normalized stable “psychological” 5% level like back in early mid 2015. We derive our TV adex estimates conditions (when GDP by summing up the TV revenue coming from the 3 listed media groups, namely grows above 5%) MNCN’s 3 TVs (RCTI, MNC TV, GTV), SCMA’s 2 TVs (SCTV, Indosiar), and VIVA’s 2 TVs (ANTV, TV One), which we believe accounts for significant majority of the total TV adex pie in Indonesia.
Based on the latest datapoint in 3Q16, TV Adex grew by +5% YoY, a slowdown as compared to +11% YoY in 2Q16. This is in line with the contracting country GDP growth to 5.02% YoY in 3Q16, down from 5.2% YoY in 2Q16. Consumer purchasing In 3Q16, TV Adex grew at power dropped in 3Q16 on the back of Tax Amnesty phase 1 deadline, whereby +5% YoY, a slowdown from liquidity and cash flow of consumer household were generally drained in order to pay +11% YoY in 2Q16... but for the Tax Amnesty early-bird fees of 2-4% from the total assets declared. As a still considered good given resut, consumer spending was lower, with a trickling down impact on lesser ad spend the lebaran time shift with by the FMCG coporates. Also note that there is a seasonality impact on the 3Q16 TV higher base in 3Q15 ad revenue as Lebaran (Moslem Festival) fell in 2Q in 2016 vs. 3Q in 2015, creating a higher base number for the 3Q16 growth. We believe that the positive +5% YoY TV ad spend growth in 3Q16 was actually good enough, considering the two above reasons.
On the back of an improving economic outlook, stabilizing Rupiah, stronger political We are expecting TV adex grasp from the sitting president, and a low inflation environment, we are expecting TV to grow stronger in 2017, adex to grow at 8% in 2016E and to further grow by 10% in 2017E (from 3% in in line with the continued 2015). The table forecast can be seen in Exhibit 9 on pg.7. recovery in the GDP growth
Exhibit.11 Players in Indonesia National FTA TV
Source: Bahana forecasts, Central Bank, Company Data
PT Bahana Securities – Equity Research – Indonesia Media 11
1 December 2016
Monitoring Audience Shares as Lag Inidicator to Revenue TV audience shares is a key TV audience share is a Nielsen monthly datapoint that is published regularly by the industry datapoint that media companies to illustrate the eyeball market share each TV generated in each needs to be monitored on a month. There are 2 main types of audience shares: 1) Prime Time (From 18:00- monthly basis as a laggard 23:00) and 2) All-Time (All Day). Prime Time market share is separately watched by indicator towards future ad the media community as the revenue generated from those main 5 hours usually revenue... contribute 55-60% of the blended revenue.
As a rule of thumb, there is usually a 1 quarter time lag between audience shares Prime Time is between 6- generated and translation to advertising revenue, as negotiation of rate cards with the 11pm (generally ad agency / advertisers are usually done ranging from 1 day to 6 months. We believe accounting for 55-60% of it is important to monitor the monthly audence shares trend movement to forecast the revenue), while All Time is likely trend on future revenue (usually very positively correlated), although accounting for all day basis sometimes it could not be the case due to anomaly factors. All-Time Audience Shares Exhibit.12 Audience Shares (All-Time) Table – Per TV All Time- 2014 RCTI SCTV IVM TRANSTV MNCTV TRANS7 GTV ANTV TVONE METRO TVRI1 Jan-14 15.3 15.7 8.9 17.3 10.7 8.7 6.6 8.2 4.7 2.5 1.3 Feb-14 14.7 16.3 12.0 14.9 9.6 9.1 6.4 9.1 4.1 2.4 1.2 In 2014, SCMA’s SCTV Mar-14 14.4 14.8 16.4 13.1 9.3 8.9 6.3 9.2 4.0 2.1 1.1 Apr-14 14.9 15.6 14.5 12.6 9.7 9.0 6.5 9.3 4.0 2.4 1.3 made a huge breakthrough May-14 14.1 17.4 13.7 11.7 9.4 9.1 6.6 10.0 3.9 2.6 1.3 and was the no.1 TV station Jun-14 14.1 17.0 11.5 9.6 9.0 7.7 5.9 13.5 6.9 3.3 1.2 with 17.2% All-Time TV Jul-14 15.5 18.3 10.3 9.2 8.2 7.2 5.6 14.1 6.1 3.6 1.6 Audience shares (with their Aug-14 14.8 18.7 12.1 8.4 8.5 8.1 6.0 12.3 5.8 3.5 1.5 flagship “Ganteng Ganteng Sep-14 15.6 18.5 12.9 7.9 9.0 8.1 6.1 13.3 4.0 2.8 1.7 Serigala” drama series), Oct-14 16.3 17.4 10.3 9.2 9.3 8.2 6.3 14.1 4.4 2.8 1.6 followed by MNCN’s RCTI Nov-14 15.9 18.2 10.8 7.8 10.5 8.0 6.0 14.3 4.4 2.5 1.4 Dec-14 15.6 17.9 9.9 7.9 12.0 7.3 6.5 14.3 4.3 2.6 1.3 as no.2 with 15.1% share, and SCMA’s Indosiar as 12M14 15.1 17.2 11.9 10.8 9.6 8.3 6.2 11.8 4.7 2.8 1.4 no.3 with 11.9% 12M13 17.5 16.5 8.3 12.6 10.9 11.4 7.4 7.0 4.7 2.2 1.2 YoY (2.4) 0.7 3.6 (1.8) (1.3) (3.1) (1.1) 4.8 0.1 0.5 0.1
All Time- 2015 RCTI SCTV IVM TRANSTV MNCTV TRANS7 GTV ANTV TVONE METRO TVRI1 Jan-15 16.4 16.1 9.7 8.5 11.8 7.7 6.5 13.6 5.0 3.0 1.4 Feb-15 15.2 14.6 14.4 8.4 12.0 8.1 6.1 13.2 4.0 2.7 1.3 Mar-15 15.4 14.2 15.9 7.6 12.2 8.1 6.4 12.7 3.8 2.4 1.2 In 2015, MNCN’s RCTI was Apr-15 15.9 14.1 16.0 8.0 11.4 8.1 7.5 11.7 3.5 2.2 1.3 back the no.1 TV station May-15 15.6 15.5 14.3 7.3 11.2 8.5 8.2 11.7 3.7 2.2 1.4 with a 16.5% All-Time TV Jun-15 17.2 16.7 11.3 7.6 10.7 7.8 7.8 12.9 3.6 2.3 1.8 Audience shares (with their Jul-15 18.0 17.6 10.3 7.2 10.9 7.3 7.3 13.3 3.8 2.4 1.5 Aug-15 15.7 17.3 11.3 7.9 11.0 8.5 7.2 12.7 4.1 2.5 1.5 flagship “Tukang Bubur Sep-15 15.2 17.3 11.9 8.1 10.7 9.0 6.7 12.8 4.0 2.5 1.5 Naik Haji” drama series), Oct-15 16.0 16.3 14.1 7.8 10.7 8.7 6.7 11.8 3.8 2.5 1.4 followed by SCMA’s SCTV as Nov-15 18.5 15.7 14.7 7.2 11.3 8.1 6.2 11.3 3.3 2.3 1.3 no.2 with 15.7% shares, Dec-15 19.2 13.5 16.6 6.6 11.1 8.0 6.4 11.3 3.2 2.8 1.3 and SCMA’s Indosiar as no.3 with 13.4%. 12M15 16.5 15.7 13.4 7.7 11.3 8.2 6.9 12.4 3.8 2.5 1.4
12M14 15.1 17.2 11.9 10.8 9.6 8.3 6.2 11.8 4.7 2.8 1.4 YoY 1.4 (1.4) 1.4 (3.1) 1.7 (0.1) 0.7 0.6 (0.9) (0.3) 0.0
All Time- 2016 RCTI SCTV IVM TRANSTV MNCTV TRANS7 GTV ANTV TVONE METRO TVRI1 Jan-16 19.1 12.6 12.6 6.9 11.2 8.7 6.8 13.8 3.9 2.7 1.4 As per 10M16, MNCN’s RCTI Feb-16 20.1 11.4 14.9 6.6 10.4 8.7 5.7 14.3 4.0 2.3 1.3 continues to be the no.1 TV Mar-16 19.7 11.3 14.6 6.2 10.4 8.3 5.7 16.4 3.5 2.3 1.4 station with a stonger Apr-16 19.9 11.1 13.6 6.3 11.4 9.0 6.0 15.4 3.6 2.2 1.3 May-16 20.2 12.9 13.3 6.1 11.5 8.9 5.8 15.0 3.0 1.8 1.5 19.7% All-Time TV Jun-16 19.4 15.2 10.9 6.8 13.2 8.8 5.6 13.9 2.8 1.9 1.4 Audience shares (with their Jul-16 19.0 15.5 9.8 7.3 13.4 7.9 5.9 14.8 3.2 1.8 1.2 flagsip “Anak Jalanan” Aug-16 19.1 14.7 12.6 6.8 11.9 8.2 5.6 14.3 3.4 1.8 1.3 drama series), followed by Sep-16 20.6 12.5 12.3 6.5 10.8 9.0 5.7 15.5 3.8 1.8 1.4 VIVA’s ANTV (strong Indian Oct-16 20.2 12.2 12.2 5.7 10.6 8.7 5.7 17.1 4.2 1.8 1.3 back-to-back dramas) as MoM (0.4) (0.3) (0.1) (0.8) (0.2) (0.3) - 1.6 0.4 - (0.1) the surprising no.2 with 10M16 19.7 12.9 12.7 6.5 11.5 8.6 5.9 15.1 3.5 2.0 1.4 15.1% shares, and SCMA’s 10M15 16.1 16.0 12.9 7.8 11.3 8.2 7.0 12.6 3.9 2.5 1.4 SCTV as no.3 with 12.9%. YoY 3.7 (3.0) (0.2) (1.3) 0.2 0.4 (1.2) 2.4 (0.4) (0.4) (0.1) Source: Bahana, Company
PT Bahana Securities – Equity Research – Indonesia Media 12
1 December 2016
Exhibit.13 Audience Shares (All-Time) Monthly Chart– Per Group
The chart on the left here summarizes the TV audience shares (all-time) movement among the 4 groups on a monthly basis, up until Oct 2016. We can see thet MNCN has widened their lead over SCMA since YTD, while VIVA made a strong market share gain from mid of this year.
Source: Bahana, Company Exhibit.14 Audience Shares (All-Time) Quarterly Chart– Per TV The chart on the left here summarizes the TV audience shares (all-time) movement among each of the 10 TV stations on a Quarterly basis...
We can see that RCTI has experienced a strong market share surge in the past 6 quarters, at the expense of SCTV.
Indosiar and ANTV are the 2 best performing turned- around TVs in the past 3-4 years.
Source: Bahana, Company Exhibit.15 Audience Shares (All-Time) Quarterly Chart– Per Group
The chart on the left here summarizes the TV audience shares (all-time) movement among the 4 groups on a Quarterly basis...
MNCN showed the most promising market-share gain in the past couple of years...
Source: Bahana, Company
PT Bahana Securities – Equity Research – Indonesia Media 13
1 December 2016
Prime-Time Audience Shares (18:00-23:00)
Exhibit.16 Audience Shares (Prime-Time) Table – Per TV Prime Time 2014 RCTI SCTV IVM TRANS MNCTV TRANS7 GTV ANTV TVONE METRO TVRI1 Jan-14 17.0 15.2 8.1 23.6 9.4 7.4 6.4 5.4 3.7 2.1 1.1 Feb-14 15.2 16.7 14.7 19.0 8.8 7.5 5.6 5.8 3.2 2.0 1.1 In 2014, SCMA’s SCTV Mar-14 14.1 13.5 22.8 16.0 7.6 7.4 5.7 6.6 3.2 1.9 0.9 made a huge breakthrough Apr-14 15.6 14.2 17.9 16.0 7.5 7.9 5.8 8.1 3.3 2.3 1.1 as no.1 TV station with Mei-14 14.2 19.3 16.2 13.1 7.0 7.4 5.6 10.1 3.2 2.4 1.2 Jun-14 17.4 20.9 12.3 9.2 5.8 6.5 4.7 13.3 4.8 3.5 1.2 18.6% prime time TV Jul-14 18.6 19.9 10.6 7.6 6.5 6.8 5.1 14.7 4.8 3.6 1.6 audience shares, thanks to Agu-14 16.9 20.3 13.3 7.1 6.5 6.9 5.2 14.3 4.6 3.2 1.4 Teen Werewolf “GGS” Sep-14 17.5 21.5 13.5 6.7 7.2 6.6 4.9 14.8 3.1 2.4 1.5 Okt-14 18.2 20.4 9.6 7.6 7.5 6.8 5.6 16.4 3.8 2.5 1.4 drama. MNCN’s RCTI is no.2 Nov-14 18.5 20.8 11.0 6.8 7.1 6.7 5.2 16.1 3.8 2.4 1.3 with 18.6% shares, Des-14 18.3 20.0 10.7 7.2 7.8 5.9 5.3 17.5 3.5 2.3 1.3 followed by SCMA’s 12M14 16.8 18.6 13.4 11.7 7.4 7.0 5.4 11.9 3.8 2.6 1.3 Indosiar as no.3 with 12M13 21.5 13.8 8.7 12.2 12.2 11.6 6.4 6.6 3.8 2.0 1.2 13.4% shares. YoY (4.7) 4.8 4.7 (0.6) (4.8) (4.7) (0.9) 5.4 (0.0) 0.6 0.1
Prime Time 2015 RCTI SCTV IVM TRANS MNCTV TRANS7 GTV ANTV TVONE METRO TVRI1 Jan-15 21.8 16.2 10.3 6.9 7.4 6.3 5.9 17.2 4.0 2.4 1.5 Feb-15 18.0 13.7 18.9 6.0 8.3 5.7 5.3 17.2 2.9 2.3 1.2 Mar-15 18.4 14.2 20.5 5.4 9.1 6.3 5.5 14.1 2.9 2.1 1.1 In 2015, MNCN’s RCTI is Apr-15 17.7 14.5 21.9 5.6 8.5 6.5 7.4 11.3 2.8 2.1 1.3 back as no.1 TV with 20.3% Mei-15 17.6 16.1 18.1 5.1 8.5 7.6 8.7 11.5 3.2 2.2 1.4 prime time TV audience Jun-15 19.1 16.7 12.5 5.7 8.2 7.4 8.5 13.3 3.6 2.5 2.1 Jul-15 19.8 14.8 10.1 6.0 10.0 7.7 7.8 15.2 4.1 2.7 1.5 shares. SCMA’s Indosiar Agu-15 18.2 17.5 11.5 6.2 10.2 7.8 7.1 13.7 3.5 2.5 1.4 made a breakthrough as Sep-15 17.6 17.8 12.2 6.4 9.7 8.5 6.4 13.6 3.7 2.4 1.4 Okt-15 19.7 16.9 16.0 5.5 8.6 7.1 6.4 12.4 3.4 2.4 1.2 no.2 TV with 15.8% prime Nov-15 26.2 14.9 16.7 4.4 8.8 6.7 5.9 9.9 2.6 2.3 1.2 time shares (thanks to duo Des-15 29.8 11.1 21.0 4.0 8.3 5.7 5.9 7.7 2.7 2.5 1.2 combo of D’Academy in
12M14 16.8 18.6 13.4 11.7 7.4 7.0 5.4 11.9 3.8 2.6 1.3 1H16 and D’Academy Asia 12M15 20.3 15.4 15.8 5.6 8.8 6.9 6.7 13.1 3.3 2.4 1.4 in 4Q16). SCMA’s SCTV is YoY 3.5 (3.2) 2.4 (6.1) 1.4 (0.0) 1.3 1.2 (0.5) (0.2) 0.1 no.3 with 15.4% shares. PRIME Time- 2016 RCTI SCTV IVM TRANS MNCTV TRANS7 GTV ANTV TVONE METRO TVRI1 Jan-16 29.7 11.1 14.4 4.8 9.0 7.6 7.0 8.7 3.3 2.8 1.4 Feb-16 30.9 9.5 18.4 4.2 8.1 7.2 5.7 8.6 3.6 2.4 1.2 Mar-16 30.9 9.1 18.2 3.7 7.7 6.6 5.8 11.8 2.8 2.2 1.1 As per 10M16, MNCN’s RCTI Apr-16 29.9 8.9 15.9 4.0 9.1 7.0 6.3 12.3 3.1 2.3 1.1 stood still as no.1 TV with May-16 30.5 11.4 14.5 3.8 8.7 6.8 5.4 12.7 2.7 1.9 1.1 record-high prime time Jun-16 25.9 13.8 8.8 6.3 13.5 7.2 5.0 13.1 2.8 2.1 1.2 Jul-16 27.0 13.2 8.4 7.7 13.1 6.4 5.1 13.0 2.9 1.8 1.1 audience shares of 29.6% Aug-16 29.4 11.8 12.4 6.0 10.5 6.6 5.3 11.5 3.2 1.7 1.2 (thanks to strong drama Sep-16 31.2 10.7 13.1 5.5 8.5 7.4 5.2 11.8 3.2 1.8 1.1 series combo of “Anak Oct-16 30.8 11.7 13.0 4.1 8.0 6.6 5.6 13.4 3.8 1.7 1.1 MoM (0.4) 1.0 (0.1) (1.4) (0.5) (0.8) 0.4 1.6 0.6 (0.1) - Jalanan” and “Anugerah Cinta”). SCMA’s Indosiar is 10M16 29.6 11.1 13.7 5.0 9.6 6.9 5.6 11.7 3.1 2.1 1.2 10M15 18.8 15.8 15.2 5.9 8.9 7.1 6.9 14.0 3.4 2.4 1.4 no.2 with 13.7%, followed Changes 10.8 (4.7) (1.5) (0.9) 0.8 (0.1) (1.3) (2.3) (0.3) (0.3) (0.3) by VIVA’s ANTV as no.3 Source: Bahana Research, Company Data witg 11.7%.
From the table above, we can see that RCTI was the biggest market share gainer as per 10M16 with 29.6% prime time audience shares, up significantly by +10.8ppt YoY from 18.8% in 10M15. RCTI’s prime time drama combinations (Street Kid, Gift of Live, Porridge Seller) continue to dominate and outperform its peers. Meanwhile, the As per latest datapoint in biggest market share loser was SCTV with 11.1% prime time audience shares as per October 2016, the biggest 10M16, down by -4.7ppt YoY from 15.8% in 10M15. SCTV’s drama contents quality MoM gainers were ANTV have deteriorated YTD, with Mgmt continue to find ways via Production house re- and SCTV shuffle in attempt to refresh its lineups to recover back the lost ratings. In the month of October 2016, ANTV managed to gain the highest MoM prime time audience share to 13.4%, becoming the no.2 TV, right after RCTI and above Indosiar. ANTV’s back to back Indian drama series continue to perform well with sticky loyal audience base.
PT Bahana Securities – Equity Research – Indonesia Media 14
1 December 2016
Exhibit.17 Audience Shares (Prime-Time) Monthly Chart– Per Group The chart on the left shows Prime-Time audience share movement per group on a monthly basis.
MNCN has been widening the lead gap with SCMA since 4Q15.
SCMA’s market share seemed to have bottomed in 3Q16 with a recovery expected in 4Q16, especially driven by Indosiar’s D’Acadmey Season 2
Source: Bahana, Company
Exhibit.18 Audience Shares (Prime-Time) Quarterly Chart– Per TV
The chart on the left shows Prime Time Audience Shares chart of the 10 TV stations on a quarterly basis. It can be clearly seen that RCTI has been the most outstanding gainer and clear leader among the prime-time category
Source: Bahana, Company
Exhibit.19 Audience Shares (Prime-Time) Quarterly Chart– Per Group The chart on the left shows the prime time audience share chart of the 4 media groups on a quarterly basis. MNCN seems to be the single biggest market- share gainer, at the expense of everyone else, due to RCTI’s domination
Source: Bahana, Company
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1 December 2016
Exhibit.20 Top 10 TV Shows Sample in Oct-Nov 2016 Saturday, 26 Nov 2016 Friday, 25 Nov 2016 Title TV Genre Session TVR Shares% Title TV Genre TVR Shares% 1 Anak Jalanan RCTI Local Drama Prime Time 5.2 23.2 1 AFF: Singapore v Indonesia RCTI Soccer Prime Time 4.6 18.7 2 Tukang Bubur Naik Haji RCTI Local Drama Prime Time 4.2 17.0 2 Anugerah Cinta RCTI Local Drama Prime Time 4.2 22.6 3 Anugerah Cinta RCTI Local Drama Prime Time 4.1 22.7 3 Anak Jalanan RCTI Local Drama Prime Time 3.7 19.4 4 Mohabbatein ANTV Indian Drama Prime Time 3.9 16.0 4 Lonceng Cinta ANTV Indian Drama Prime Time 3.4 16.1 5 Anandhi ANTV Indian Drama Non Prime Time 3.3 23.7 5 Pangeran 2 SCTV Local Drama Prime Time 3.1 12.2 6 Lonceng Cinta ANTV Indian Drama Prime Time 3.3 16.4 6 Anandhi ANTV Indian Drama Non Prime Time 3.1 23.6 7 Gopi ANTV Indian Drama Non Prime Time 3.1 24.0 7 Gopi ANTV Indian Drama Non Prime Time 3.0 23.6 8 D'Academy Asia S2 Indosiar Variety Shows Prime Time 2.9 14.7 8 D'Academy Asia S2 Indosiar Variety Shows Prime Time 2.8 14.0 9 Tukang Ojek Pengkolan RCTI Local Drama Prime Time 2.7 16.5 9 Mohabbatein ANTV Indian Drama Prime Time 2.8 11.2 10 Pangeran 2 SCTV Local Drama Prime Time 2.6 11.7 10 Thapki ANTV Indian Drama Non Prime Time 2.7 22.3
Friday, 18 Nov 2016 Tuesday, 8 Nov 2016 Title TV Genre TVR Shares% Title TV Genre TVR Shares% 1 Anak Jalanan RCTI Local Drama Prime Time 6.9 26.9 1 Anak Jalanan RCTI Local Drama Prime Time 5.7 23.7 2 Tukang Bubur Naik Haji RCTI Local Drama Prime Time 6.0 22.0 2 Tukang Bubur Naik Haji RCTI Local Drama Prime Time 4.8 17.7 3 Anugerah Cinta RCTI Local Drama Prime Time 5.3 24.6 3 Anugerah Cinta RCTI Local Drama Prime Time 4.4 20.0 4 Pesbukers ANTV Lifestyle Talkshow Non Prime Time 3.8 23.8 4 Indonesia Lawyers Club TV ONE News Talkshow Prime Time 3.8 17.3 5 Anandhi ANTV Indian Drama Non Prime Time 3.6 25.1 5 Pangeran 2 SCTV Local Drama Prime Time 3.2 12.1 6 Lonceng Cinta ANTV Indian Drama Prime Time 3.3 13.9 6 Lonceng Cinta ANTV Indian Drama Prime Time 3.0 14.9 7 Thapki ANTV Indian Drama Non Prime Time 3.3 24.1 7 Thapki ANTV Indian Drama Non Prime Time 3.0 25.6 8 Gopi ANTV Indian Drama Non Prime Time 3.2 23.9 8 Gopi ANTV Indian Drama Non Prime Time 3.0 24.5 9 Pangeran 2 SCTV Local Drama Prime Time 3.0 11.2 9 D'Academy Asia S2 Indosiar Variety Shows Prime Time 2.8 13.5 10 Tukang Ojek Pengkolan RCTI Local Drama Prime Time 2.9 14.5 10 Mohabbatein ANTV Indian Drama Prime Time 2.7 10.4
Friday, 4 Nov 2016 Saturday, 22 Oct 2016 Title TV Genre TVR Shares% Title TV Genre TVR Shares% 1 Anak Jalanan RCTI Local Drama Prime Time 4.5 16.9 1 Anak Jalanan RCTI Local Drama Prime Time 6.7 30.1 2 Anugerah Cinta RCTI Local Drama Prime Time 4.5 20.8 2 Anugerah Cinta RCTI Local Drama Prime Time 5.8 29.4 3 Sport: Myanmar vs Indonesia RCTI Soccer Prime Time 3.6 15.4 3 Tukang Bubur Naik Haji RCTI Local Drama Prime Time 5.1 21.1 4 Thapki ANTV Indian Drama Non Prime Time 3.4 20.8 4 Thapki ANTV Indian Drama Non Prime Time 4.1 27.7 5 Lonceng Cinta ANTV Indian Drama Prime Time 3.1 13.3 5 Pangeran 2 SCTV Local Drama Prime Time 3.5 14.8 6 Gopi ANTV Indian Drama Non Prime Time 2.9 17.3 6 Lonceng Cinta ANTV Indian Drama Prime Time 3.3 15.5 7 Mohabbatein ANTV Indian Drama Prime Time 2.6 9.9 7 Anandhi ANTV Indian Drama Non Prime Time 3.2 21.4 8 Upin & Ipin MNC TV Cartoons Prime Time 2.6 10.1 8 Mohabbatein ANTV Indian Drama Prime Time 3.1 13.1 9 Anandhi ANTV Indian Drama Non Prime Time 2.5 15.8 9 Tukang Ojek Pengkolan RCTI Local Drama Prime Time 3.1 18.5 10 News: Aksi Damai 4 Nov SCTV News Non Prime Time 2.5 15.3 10 Gopi ANTV Indian Drama Non Prime Time 3.1 21.2
Sunday, 23 Oct 2016 Saturday, 8 Oct 2016 Title TV Genre TVR Shares% Title TV Genre TVR Shares% 1 Anak Jalanan RCTI Local Drama Prime Time 6.6 25.9 1 Anak Jalanan RCTI Local Drama Prime Time 7.0 29.9 2 Anugerah Cinta RCTI Local Drama Prime Time 6.5 25 2 Anugerah Cinta RCTI Local Drama Prime Time 6.6 29.1 3 Tukang Bubur Naik Haji RCTI Local Drama Prime Time 5.7 20.3 3 Thapki ANTV Indian Drama Non Prime Time 3.7 27.8 4 Tukang Ojek Pengkolan RCTI Local Drama Prime Time 4 19.4 4 Tukang Ojek Pengkolan RCTI Local Drama Non Prime Time 3.3 18.2 5 Thapki ANTV Indian Drama Non Prime Time 4 22.2 5 Mohabbatein ANTV Indian Drama Prime Time 3.1 12.4 6 Torabika Soccer (L): Sri v Per SCTV Soccer Prime Time 3.8 14.3 6 Anandhi ANTV Indian Drama Non Prime Time 3.0 22.4 7 Gopi ANTV Indian Drama Non Prime Time 3.5 19.3 7 Lonceng ANTV Indian Drama Prime Time 3.0 14.1 8 Parade 2016 Indosiar Variety Shows Prime Time 3.5 16.2 8 Gopi ANTV Indian Drama Non Prime Time 2.9 20.2 9 Doraemon RCTI Cartoons Non Prime Time 3.4 24.8 9 Torabika Soccer: Mad v Per SCTV Soccer Prime Time 2.7 11.9 10 Anandhi ANTV Indian Drama Non Prime Time 3.1 17.5 10 Pangeran 2 SCTV Local Drama Prime Time 2.4 10.5 Source: Bahana Research, Nielsen
We can see from the above tables that MNCN’s RCTI has been the clear outperformer RCTI’s 3 dramas often in producing content programming, especially during the prime time category of 6- dominate the top 3 slots 11pm (which generally accounts for 55-60% of total revenue). RCTI’s 3 drama titles out of the daily top 10... “Anak Jalanan” (Street Kid), “Anugerah Cinta” (Gift of Love), and “Tukang Bubur Naik Haji” (Porridge Seller) often dominates the top 3/10 daily shows, with strong TV ratings of 5-7 points and audience shares of 20-30%. Another rising star that we can observe from the table above is ANTV’s solid momentum gain, airing back to back Indian dramas in both afternoon (non prime time) and dinner evening (prime time) sessions. SCMA’s SCTV still lacks momentul with only 1 program in the top 10 dailies, called “Pangeran S2” (Prince season2), while Indosiar’s D’Academy Asia S2 slowly starting to gain traction in the low top 10s, with better momentum expected in December 2016 as the final stages approach.
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1 December 2016
Advertisers’ Profile in Indonesia Indonesia’s advertisers About 70-80% of Indonesia’s Ad buyers are coming from the FMCG corporates, profile is largely dominated ranging from the Home & Personal Care (H&PC), Food & Beverages (F&B), to the by the Fast Moving Cigaretter players. The advertisers here are still more skewed to the primary sector, Consumer Goods (FMCG) unlike in the US where the main advertisers are mostly coming from the tertiary corporates, accounting for sector like Auto and Financial Sercvices. Here in Indonesia, tertiary sectors like Auto & 70-80% of total Financial services accounts for only around ~3% each within the total pie. An interesting new advertiser profile that recently emerged from late 2015 was actually the internet sector, with Tokopedia (E-Commerce marketplace) and Traveloka (Online Travel Agent) consistently ranked within the top 10 spenders. We believe that the higher internet investements flowing to Indonesia actually help the TV adex sector, contrary to what one might think that Internet tends to have a more negative impact on traditional medium like TV, due to the fact that most of the money flowing in goes to internet categories of E-Commerce, OTA (commission-based model) vs. Social media or video platforms (advertising based).
Within the FMCG category, 60% is now coming from the local FMCGs (the likes of Among the FMCG category, Indofood, Mayora, Wings, etc), with the remaining 40% coming from the multinational the locals are now FMCGs (Unilever, P&G, etc). This trend actually started to reverse only from 2015 dominating at 60% vs. onwards, with previously being dominated more by the multinational FMCGs. The local foreign at 40%... a reverse FMCGs are now spending an average of c.5% of their total revenue for ads & proportion starting from marketing budget, vs. previously c.3% a few years earlier. They are trying to step up 2014 onwards... on their marketing strategy to better compete with the foreign FMCGs who generally spend around 8-12% of revenue for ads & marketing budget.
From the table below, we can observe that FMCG is the clear dominant ad spender, Indonesia’s advertiser ranging from Hair/facial Care products, Coffee, Tea, Instant Noodle, to snacks. Note profile is still mainly that government/political ads usually have the biggest discounts from the gross coming from the primary amount to net, with some of them being almost fully sponsored; thus, they are not sector vs. developed contributing a real impact to the whole pie. As Indonesia is getting more developed, nations with more tertiary we believe that more advertiser categories will come from the tertiary sector like cars, sectors like auto and insurance, and mortgages, and will continue to come in and eventually drive rate financial advertisements cards higher over the long run (TV spot is a zero sum plaform after all, with only 20% (cars, mortgage, insurance, daily limit of ads allowed per day). etc)
Exhibit.21 Advertisers Profile in Indonesia Top 10 Category TV & Print (RpBn- Gross) Category Adex 1H15 Adex 1H16 YoY% 1 Government, Politic Orgnatisation Govt/Politics 2,714 3,800 40% 2 Clove Cigarettes FMCG 2,288 3,500 53% The table on the left shows 3 Communication Equipment & Services Telco 1,969 2,500 27% the top-10 sector 4 Har Care Products FMCG 2,083 2,500 20% categories of advertisers, 5 Coffee, Tea FMCG 1,855 2,300 24% whereby we can see clear 6 Facial Care Products FMCG 1,679 2,200 31% domination by the FMCG 7 Online Services (E-Commerce, Website, Apps) Internet 1,325 2,200 66% corporates like the H&PC, 8 Instant Food, Instand Noodles FMCG 1,550 2,000 29% F&B, and cigarette players 9 Corporate Ads, Social Services Corporate 1,624 1,900 17% 10 Snakcs, Biscuits, Cookies, Cakes FMCG 1,407 1,900 35%
Top 10 Product TV & Print (RpBn- Gross) Adex 1H15 Adex 1H16 YoY% The table on the left shows 1 Dunhill - All Filter Clove Cigarette FMCG 489 489 0 the top 10 corporate 2 Indomie - Instand Noodle FMCG 480 451 -6% advertisers; led by Dunhill 3 Marjan Boudoin - Syrup FMCG 349 366 5% (FMCG- Cigarette), Indomie 4 Pemda Riau Govt/Politics 231 335 45% (FMCG- Noodle), and 5 Traveloka.com - Website Internet 379 326 -14% Marjan Boudoin (FMCG- 6 Tokopedia - Online Shop Internet 188 309 64% Syrup) 7 SGM Eksplor 1 Plus - Growing Up Milk FMCG 202 304 50% 8 Indosat Ooredoo IM3 - Sim Card Telco 303 303 0% Also interesting to see 9 Pepsodent - Toothpaste FMCG 181 302 67% internet players Traveloka (OTA) and Tokopedi (E- 10 Partai Perindo - Political Party Govt/Politics 178 280 57% Source: Bahana, Nielsen. Note: This is using Gross Adex, not Net. commerce) consistently stood at the top 10
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Ad Spend Trend from Unilever & Indofood We monitor ads and Given the strong dominance of the FMCG sector (70-80%) on the advertisers’ profile marketing spending of in Indonesia, we believe it is important to monitor the marketing & advertisement UNVR and ICBP as trends of the top listed FMCG corporates on a quarterly basis. Data extracted from the benchmarks for FMCG financial statements does not give a breakdown of specific TV ad spend, but we corporates believe overall ad and marketing numbers give a useful trend for analytical purposes.
We take the sample of PT Unilever Indonesia Tbk (UNVR IJ) and PT Indofood CBP UNVR is generally the Sukses Makmur Tbk (ICBP IJ) for our analysis, given their market-leader dominant single largest customer for status in most of the Home & Personal Care (H&PC) and Food & Beverages (F&B) both SCMA & MNCN, categories. UNVR is generally the biggest single customer for the TV broadcasters accounting for 10-15% of (accounting for 10-15% of SCMA’s and MNCN’s revenue, respectively) and is the revenue... but with a leading corporate in the foreign FMCG category. Meanwhile, ICBP is the leading proportion gradually corporate in the local domestic FMCG category. The divergence on % of adspend to decreasing with a greater revenue between the foreign vs. local FMCGs are starting to narrow, with the foreign number of FMCG corporates FMCGs gradually reducing their ad-spend budget from 10-12% of revenue to now 7- buying spots, especially the 9%, while the local FMCGs are gradually increasing their ad spend budget from 2-3% local ones... of revenue to now 3-6%.
From the chart of UNVR’s Ad Spend below, we can see that growth for UNVR’s ad budget has started coming down notably since 4Q14 (during the Indonesian UNVR’s Ad spend in 9M16 Presidential Election period), but has gradually recovered to flattish growth in the has reached IDR2.2tn, following quarters. Latest data point as per 3Q16 showed that UNVR spent IDR684bn down -7% YoY, with 3Q16 for ads and marketing, down -10.5% YoY. We believe that this is largely caused by Ad Spend at IDR684bn, the lebaran time shift as lebaran in 2016 happened in 2Q vs. 2015 in 3Q, thus, down -10.5% YoY. creating a higher base for the 3Q16 growth numbers. We are admitedly seeing a more overall conservative approach from the Foreign FMCG names (UNVR, being the benchmark) in regards to Ad Spend (which we believe the global economic uncertainty – Euro Crisis, Brexit, US Election – plays a large role), an interesting reverse trend as compared to the more bullish adspend approach from the local FMCGs.
Exhibit.22 Unilever Indonesia’s Ad Spend Trend
Source: Bahana, Company
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From the chart below, we can see that UNVR’s ad spend as a % of revenue reached 7.3% as per 3Q16 and has actually been hovering around the 6-9% level in the past 2 years, a notable decline vs. 9-12% in 2010-13.
Exhibit.23 Unilever’s Ad Spend as % of Revenue
UNVR’s ad spend as % of revenue was 7.3% as per 3Q16 and has actually been hovering around the 6-9% level in the past 2 years, a notable decline vs. 9-12% in 2010-13
Source: Bahana, Company
From the ICBP Ad spend chart below, we can see that ICBP spent IDR448bn for ads ICBP (Indomie) is the and marketing in 3Q16, up significantly by +34% YoY. This is despite the lebaran leading local FMCG timing shift (2Q in 2016 vs. 3Q in 2015), causing a higher base effect to the 3Q16 YoY Corporate in Indonesia... growth. This shows that ICBP is really stepping up their advertising game to promote both their existing product as well as the new launches, with a bullish confidence level towards domestic economy. ICBP’s ad spend as a % of revenue reached 5.4% in 3Q16, much higer than 2-4% in the past 4 years. Exhibit.24 Indofood CBP (ICBP)’s Ad Spend Trend ICBP’s ad spend in 9M16 reached IDR1.2tn, up +15% YoY, with 3Q16 ad spend itself reaching IDR448bn, up +34% YoY, despite the lebaran shift seasonality factor.
We believe this is fueled by new product launches of its various product segments...
Source: Bahana, Company
Exhibit.25 Indofood CBP (ICBP)’s Ad Spend as % of Revenue ICBP’s ad spend as % of revenue reached a record- high of 5.4% in 3Q16, much higher than the 1-4% level historically...
Our ground checks with Ad agencies further suggest that other local FMCGs like Wings are also stepping up their ad game to close the gap with foreign players.
Source: Bahana, Company
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1 December 2016
Breaking down the content value of SCMA & MNCN
By 2020, we believe that SCMA’s (IEG & Screenplay) and MNCN’s (MNC Pictures & By 2020, we believe SCMA’s assuming they buy Sinemart) content assets can be worth USD700m and USD1bn, content asstes (IEG & respectively, vs. currently underappreciated at almost 0. If compared to the current Screenplay) will be worth market cap of SCMA and MNCN, the content assets would account for 30-50% of the USD700m, with MNCN’s value. Unlocking content values will be a key catalyst in the medium-long term, in our content assets (MNC Pictures & Sinemart) at view. With a distribution platform continuing to evolve over time (Radio to TV to USD1bn Online), content will likely remain the king as core value of media companies,
especially in Indonesia where local language barrier is strong.
How did we arrive the numbers? Due to limited transparency and numbers availability
on the content production house business, note we are using several assumptions that might have a big discrepancy with the actual numbers. We are using assumptions based on color that was given by industry professionals, especially on the assumption of 30% gross margins for Content PH business, leading to our estimate of 15% FCF as a % of revenue for calculating the NPV. We are using a 10% WACC to discount the cash flow and a 15x multiple to value the TV.
Key assumptions we used for SCMA’s content asset valuation: 1) IEG’s revenue equals to 70% of SCMA’s programming expense, 2) Screenplay’s revenue equals to 10% of SCMA’s programming expense, 3) Both IEG and Screenplay are expected to have growing portion of third party revenue (outside SCTV and Indosiar, likely to digital online players), with the split reaching 1:1 by 2026.
Key assumptions we used for MNCN’s content asset valuation: 1) MNCN will acquire Sinemart in the near term, given the already existing exclusive relationship between Sinemart and RCTI in the past 10+ years, 2) Sinemart’s revenue equals to 50% of MNCN’s programming expense, 3) MNC Pictures’ revenue equals to 20% of MNCN’s programming expense, 4) Both Sinemart and MNC Pictures are expected to have growing portion of third party revenue (outside RCTI, MNC TV, Global TV, iNews TV- likely to digital online players), with the split reaching 1:1 by 2026.
The content assets could By the year of 2020 (allowing 3-4 years of ramping up time from now), our calculation potentiall boost SCMA and suggest that SCMA’s content assets (IEG + Screenplay) could be valued at around MNCN’s current market cap USD700m (vs. current market cap of ~USD2.5bn), while MNCN’s content assets (MNC by 30-50%... Pictures + Sinemart) could be valued at around USD1bn (vs. current market cap of ~USD2bn). If can be succesfully realised, we see significnat re-rating potential for both names.
What are MNCN & SCMA currently doing to unlock the content assets? MNCN has publicly disclosed intention to list MNC Pictures (IPO) by 2017 at ~USD100m valuation and possibly using the proceed to acquire a top local Production House (most likely to be Sinemart, in our view). We believe that MNCN can actually unlock more value if they can firstly acquire Sinemart, inject it to MNC Pictures, and then bring MNC Pictures public. Note that Sinemart is the main drama suppliers of RCTI, with flagship drama titles like “Anak Jalanan”, “Anugerah Cinta”, and “Tukang Bubur Naik Haji”. Meanwhile, SCMA did a corporate restructuring in 2015 to park most of their content assets under a new company called PT IEG. Mgmt is grooming IEG to become a leading content player, with plans set in motion to try selling drama / FTV titles to third party buyers or digital players like iFlix or Netflix.
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Exhibit.26 SCMA’s Content Asset (IEG + Screenplay) Valuation IDR Billion 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Programming & Broadcasting Exp 1,694 1,643 1,819 2,012 2,238 2,428 2,601 2,788 2,989 3,206 3,431 3,671 3,928 4,203 4,497 Growth % 11% -3% 11% 11% 11% 8% 7% 7% 7% 7% 7% 7% 7% 7% 7%
Programming % Assumption 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% Programming only portion 1,609 1,561 1,728 1,911 2,126 2,306 2,471 2,648 2,840 3,046 3,259 3,488 3,732 3,993 4,272
Split Assumption IEG 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% Screenplay 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Third Party 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Programming Cost Split IEG 1,127 1,093 1,210 1,338 1,488 1,615 1,730 1,854 1,988 2,132 2,282 2,441 2,612 2,795 2,991 Screenplay 161 156 173 191 213 231 247 265 284 305 326 349 373 399 427 Third Party 322 312 346 382 425 461 494 530 568 609 652 698 746 799 854 Total 1,609 1,561 1,728 1,911 2,126 2,306 2,471 2,648 2,840 3,046 3,259 3,488 3,732 3,993 4,272
Revenue assumption from SCTV + Indosiar IEG 1,127 1,093 1,210 1,338 1,488 1,615 1,730 1,854 1,988 2,132 2,282 2,441 2,612 2,795 2,991 Screenplay 161 156 173 191 213 231 247 265 284 305 326 349 373 399 427
Revenue assumption from third party % IEG 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 130% Screenplay 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 130%
Revenue assumption from third party (RpBn) IEG - 109 242 401 595 807 1,038 1,298 1,590 1,919 2,282 2,685 3,135 3,634 3,888 Screenplay - 16 35 57 85 115 148 185 227 274 326 384 448 519 555
Total Revenue IEG 1,127 1,202 1,452 1,739 2,084 2,422 2,768 3,152 3,578 4,051 4,563 5,127 5,747 6,429 6,879 Screenplay 161 172 207 248 298 346 395 450 511 579 652 732 821 918 983
FCF Assumption 15% IEG 169 180 218 261 313 363 415 473 537 608 684 769 862 964 1,032 Screenplay 24 26 31 37 45 52 59 68 77 87 98 110 123 138 147 Total 193 206 249 298 357 415 474 540 613 695 782 879 985 1,102 1,179
Year 0 0 0 0 1 2 6 7 8 9 10 11 12 12 Discount Rate (assuming 10% WACC) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Factor 1.00 1.00 1.00 1.00 0.91 0.83 0.56 0.51 0.47 0.42 0.39 0.35 0.32 0.32 Present Value 357 377 392 305 315 324 332 339 345 351 376 Sum PV 3,813 TV (15x) 5,636 NPV (IDRb) 9,449 USDm 700 Source: Bahana estimates
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1 December 2016
Exhibit.27 MNCN’s Content Asset (MNC Pictures + Sinemart) Valuation IDR Billion 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Programming & Broadcasting Exp 2,806 3,030 3,303 3,567 3,852 4,122 4,411 4,719 5,050 5,403 5,781 6,186 6,619 7,083 7,578 Growth % 5% 8% 9% 8% 8% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%
Programming % Assumption 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% Programming only portion 2,665 2,879 3,138 3,389 3,660 3,916 4,190 4,483 4,797 5,133 5,492 5,877 6,288 6,728 7,199
Split Assumption Sinemart 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% MNC Pictutres 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% Others 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Programming Cost Split Sinemart 1,333 1,439 1,569 1,694 1,830 1,958 2,095 2,242 2,399 2,567 2,746 2,938 3,144 3,364 3,600 MNC Pictutres 533 576 628 678 732 783 838 897 959 1,027 1,098 1,175 1,258 1,346 1,440 Others 800 864 941 1,017 1,098 1,175 1,257 1,345 1,439 1,540 1,648 1,763 1,886 2,019 2,160 Total 2,665 2,879 3,138 3,389 3,660 3,916 4,190 4,483 4,797 5,133 5,492 5,877 6,288 6,728 7,199
Revenue assumption from MNC Group Sinemart 1,333 1,439 1,569 1,694 1,830 1,958 2,095 2,242 2,399 2,567 2,746 2,938 3,144 3,364 3,600 MNC Pictutres 533 576 628 678 732 783 838 897 959 1,027 1,098 1,175 1,258 1,346 1,440
Revenue assumption from third party % Sinemart 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 130% MNC Pictutres 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 130%
Revenue assumption from third party (RpBn) Sinemart - 144 314 508 732 979 1,257 1,569 1,919 2,310 2,746 3,232 3,773 4,373 4,680 MNC Pictutres - 58 126 203 293 392 503 628 768 924 1,098 1,293 1,509 1,749 1,872
Total Revenue Sinemart 1,333 1,583 1,883 2,203 2,562 2,937 3,352 3,811 4,318 4,876 5,492 6,171 6,917 7,738 8,279 MNC Pictutres 533 633 753 881 1,025 1,175 1,341 1,524 1,727 1,951 2,197 2,468 2,767 3,095 3,312
FCF Assumption 15% Sinemart 200 237 282 330 384 441 503 572 648 731 824 926 1,038 1,161 1,242 MNC Pictutres 80 95 113 132 154 176 201 229 259 293 330 370 415 464 497 Total 280 332 395 463 538 617 704 800 907 1,024 1,153 1,296 1,453 1,625 1,739
Year 0 0 0 0 1 2 6 7 8 9 10 11 12 12 Discount Rate (assuming 10% WACC) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Factor 1.00 1.00 1.00 1.00 0.91 0.83 0.56 0.51 0.47 0.42 0.39 0.35 0.32 0.32 Present Value 538 561 582 452 465 478 489 500 509 518 554 Sum PV 5,645 TV (15x) 8,310 NPV IDRb 13,955 USDm 1,034 Source: Bahana estimates
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Balance Sheet Comparison & USD/IDR Sensitivity
Indonesian media companies generate 100% of revenue in Rupiah vs. 10-40% of FTA TV broadcasters have COGS that are USD-linked, which are mainly coming from foreign-content costs. FTA minimal USD COGS portion TV broadcasters like SCMA, MNCN, and VIVA have minimal foreign content at 10-20% at 10-20%, given majority of COGS, given a majority of local programming content, with only few foreign ones of local programming like BPL Soccer, Hollywood, and multinational talent show formats. The Cable content... broadband and Pay TV players (LINK and BMTR’s subsidiary MSKY) have a higher USD COGS portion at 40%, given the majority of Pay TV content that is imported (ie, Cable broadband and Pay purchased from Disney, Time Warner, Fox, etc), further pressured by capex that is TV players have 40% of 60% linked to the USD on imported items like set-top boxes. Given the recent volatile COGS and 60% of Capex USD:IDR currency envorinment (Trump victory, possible US Fed rate hike, Jakarta portion that are USD- Governor election), we are more cautious on companies with high USD-denominated linked... debt, especially when their gearing level is high. We favor companies with stronger balance sheets with minimal FX expsoure. SCMA has the strongest From the table below, we can see that SCMA (Buy, TP: IDR3,000) has the strongest balance sheet among its net gearing at -19%, backed with 0 USD-denominated debt and total net cash of media peers with -19% Net IDR791bn as of 9M16. Link Net is ranked second in terms of balance sheet strength Gearing and Net Cash with -6% net gearing, backed with a relatively low level of USD14m of USD- position of IDR791bn as denominated debt and total net cash position of IDR246bn. Both SCMA and LINK are per 9M16. They have been best positioned among the Indonesia media companies in regards to risk of consistent in paying high strengthening USD themes in 2017. Based on our sensitivity analysis, every 1% dividend (c.80% payout) movement of the USD:IDR from our base case of IDR13,500/USD in 2017E would and generates strong move SCMA’s and LINK’s net profit by 0-2%. 40+% ROE.
On the weakest position, VIVA (REDUCE, TP: IDR230) tops the list with high net geating of 126% (1.26x Net Debt to Equity), accompanied with USD230m of USD- denominated debt and total net cash of negative –IDR2.99tn. Every 1% movement in the USD:IDR from our base case of IDR13,5000/USD in 2017E would move VIVA’s net profit by +/- 12%. Second on the bottom rank is BMTR (REDUCE, TP: IDR550) with VIVA and BMTR have weak net gearing of 40%, accompanied with USD432m of USD-denominated debt and total balance sheets with higher net cash of negative –IDR6.25tn. Every 1% movement of the USD:IDR from our base net gearing and chunky case of IDR13,500/USD in 2017E would move BMTR’s net profit by +/- 11%. USD Debt exposure
MNCN (BUY, TP: IDR2,200) is positioned in the middle with decent net gearing of 30% (0.3x Net Debt to Equity), but also with relatively high USD-denominated debt of USD250m (used for their new studio building capex) and net cash of negative – IDR2.9tn. Every 1% movement of the USD:IDR from our base case of IDR13,500/USD in 2017E would move MNCN’s net profit by +/- 3%. Exhibit.28 Balance Sheet Comparison Table & Earnings Sensitivity Stock Sales Cost USDm Cash USDm Debt 1% IDR Depr to NP (%) Net Gearing Total Cash (RpBn) Total Debt (RpBn) Net Debt (RpBn) Total Equity (RpBn) SCMA 0% 10% 8 0 0% -19% 1,048 257 (791) 4,177 LINK 0% 40% 6 14 -2% -6% 427 181 (246) 3,875 MNCN 0% 20% 2 250 -3% 30% 598 3,517 2,918 9,766 BMTR 0% 30% 13 432 -11% 40% 852 7,099 6,247 15,550 VIVA 0% 20% 0.3 230 -12% 126% 124 2,985 2,861 2,275
Source: Bahana estimates and forecasts
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History of Indo Media & Consolidation of Players
The Indonesia media industry has gone through many ups and downs, from being a tool for independence revolution in the early days of the Republic (1945- 1955) to a The media industry used to partisan press during 1965-1980, and a promising industry in the end of the 1980s. At be a very closed sector, that time, politicians and government officials began to get involved in the business with only friends of former and permits were only given to those related to President Soeharto. Most media at the President Soeharto to be time were an extension of the government and the content was mostly about the given license to operate... government’s activities and institutions. Other media which opposed the government
were most likely to be banned. The press was limited in its criticism towards the government by using a variety of methods: formal and informal censorship, the banning (both temporary and permanent) of publications that overstepped the mark, a strict licensing regime for all news publications, and the monitoring and control of journalists through a state-sponsored journalists’ association.
After Soeharto took power from Soekarno in the late 1960s, the government started to intervene in the media. Strict regulations were put in place to prevent the media from opposing the state’s views. Media companies were owned by either government officials or those who had close relations with Soeharto. The political ideology imposed by the state very much dominated the media. Simply put, the media at that time became the medium through which the government disseminated their views. For example, the press industry had to face a series of bans for their dissenting news about the government – such as the case of Kompas, Tempo, and Sinar Harapan. Some publications were even banned several times. Yet they kept surviving. Another RCTI, the no.1 TV station, example is television. There was only one state-owned television station, TVRI, in used to be controlled by which all content was fully controlled by the government. Bambang Tri, Son of former president Soeharto After private television stations were allowed, the first private TV station, RCTI, was owned by Soeharto’s third child Bambang Trihatmodjo. Then SCTV followed as the second private television station: this was owned by Sudwikatmono, a cousin of Soeharto. While both private stations operated as pay-TV channels in which a decoder and subscription were required for access, Soeharto’s daughter, Siti Hardiyanti Rukmana, was allowed a more privileged position. She started an education television station, TPI, which aired using the state-owned TVRI’s transmissions network and which consequently triggered protests from the other 2 stations. Subsequently, the government allowed it to become FTA.
Two other private stations soon joined the bandwagon: ANTV, which is owned by Bakrie Group, and Indosiar, whose shares are also held by politician Agung Laksono. Similarly, publication permits (SIUPP, Surat Izin Usaha Penerbitan Pers/Press Publication Business Permit) for national news magazines were apparently granted to those who had close connections to the President or the political establishment. Since several bans were implemented during the new order, the government became stricter in issuing permits to make sure that the press was not opposing the government. Golkar, the ruling party at that time, ran Suara Karya newspaper; the Post the downfall of Minister of Information, Harmoko, owned Pos Kota; and an English newspaper Soeharto era and post the (Indonesian Observer) was established by Peter Gontha, a businessman related to AFC, ownerships of TV Bambang Trihatmodjo – Soeharto’s son. During 1998-2000 the government granted assets have slowly almost 1,000 permits for newspapers, although in the long run only a few survived, shifted... now mainly mostly by expanding their coverage or being taken over by other larger groups. controlled by Hary Tanoe and Eddy Sariaatmadja When Soeharto relinquished power in 1998, policies on the press and the media in general were subsequently revisited and revised. New newspapers and other media began to emerge, and those once banned – such as TEMPO — returned to business. This period can be seen as the revival of the media (particularly the press) industry. The broadcasting industry also grew soon afterwards: from the year 2000, a significant number of new TV and radio companies joined the business.
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Hary Tanoe’s MNCN - RCTI officially became under MNCN since 2002 as Hary Tanoe gradually took over Bambang Tri (Soeharto's son)'s Bimantara group post Soeharto's downfall. MNCN started acquiring Global TV's shares since 2001 from the Moslem association ICMI and gained full 100% control in 2004. MNCN acquired 75% stake of MNC TV (previously called TPI) in 2006 from PT Berkah. MNCN then went public in 2007 with three core TV assets
Eddy Sariaatmadja’s SCMA - SCTV officially became 100%-owned by SCMA in April 2002 (led by a number of consortiums); whereby there followed an IPO in the same Hary Tanoe controls 3 TV year. The Sariaatmadja family started by controlling <50% stake of SCMA under stations, Eddy Sariaatmadja EMTK's Abhimata Mediatama, and it gradually increased its stake to 79% by 2005 is at 2, Bakrie at 2, Chairul (purchased substantial stake from Henry Pribadi) and 87% by 2008. EMTK then Tanjung at 2, and Surya acquired 85% stake of Indosiar (IDKM) in 2011 from the Salim group, and merged it Paloh at 1 into SCMA in May 2013.
Bakrie’s VIVA - VIVA acquired Lativi in 2007 from Abdul Latief which then was re- branded into TV One in 2008. VIVA re-acquired ANTV from Rupert Murdoch's Star TV (HK) in 2009. VIVA then went public in 2011. VIVA has publicly announced a potential sale of ANTV in 2013 (MNC, Emtek, and Trans were the three main bidders), but decided to alternatively float 10% of ANTV shares to the public (under MDIA) in 2014.
Chairul Tanjung’s Trans - Trans Group (part of the CT Corp Conglomerate) started its TV business with Trans TV back in 2001. It then acquired TV7 in 2006 from Kompas Gramedia Group, and then rebranded it into Trans7 in the same year.
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______
COMPANY SECTIONS ______
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Surya Citra Media (SCMA.IJ) BUY: Consumer Blue Chip at a Bargain Asia’s most profitable media company – BUY and TP of IDR3,000 We have a BUY on SCMA, We have a BUY rating on Surya Citra Media, Indonesia’s most profitable TV broadcaster our top media pick, with a & content company, and a 12-month target price of IDR3,000 TP (29% upside), based TP of IDR3,000 for 29% on 25x 2017E PER. We like SCMA on the back of its: 1) sector-high ROE of 45% with upside potential strong B/S and c.4% yield, 2) good corporate governance with solid management track record, and 3) attractive valuation post recent oversold pullback with a strong 17% Stock is now attractive at - 2017E EPS growth. The stock is currently trading at an undemanding 2017E PER of 2SD below past-3.5-year 19x, at -2SD below its past-3.5-year mean since the IDKM merger. SCMA is our top mean, with solid 17% EPS media pick and among Bahana’s top-10 country picks. growth for 2017E
Brighter 2017 outlook with strong margin expansion story Retirement of Torabika On the back of recovering GDP growth, stabilizing currency, and a low inflation Soccer and BPL broadcast economy, we are expecting a further recovery on adex, with SCMA to deliver top-line should notably expand growth of 8% in 2017E (improvement from 5% in 2016E), fueled by SCTV +6% margins in 2017 (conservatively assuming flat audience shares) and Indosiar at +10%. We are expecting EBITDA margins to expand to 51% in 2017E from 48% in 2016E, fueled by lower programming costs (-3%YoY) from the retirement of the not-succesful Torabika Soccer (accounting for a massive c.22% of 2016E’s programming cost) and BPL broadcasts. As such, we believe 17% EPS growth next year will likely be achievable (vs. 0% in 2016E), notably higher than the market’s 12%. An improvement of SCTV’s ratings would be a bonus and upside catalyst to our numbers.
Strategies to boost audience share – Rekindle love with MD? We are not ruling out a SCMA generated 25.6% audience share (All-time) in 10M16, down -3.3ppt YoY from potential ressurection of 28.9% in 10M15. This was largely due to SCTV’s weak prime-time TV ratings which lost the SCTV-MD Entertainment audience to RCTI. Management has been trying to introduce new programs since early partnership for 2017E to 2016 but has failed to so. We believe that a potential shuffle of content supplier in refresh content lineups 2017 to top names like Manoj Punjabi’s MD Entertainment (SCTV’s old no.1 supplier from 2007-2010) could be a catalyst to boost back ratings.
Valuation Rationale We value SCMA using 25x We value SCMA using Price to Earnings ratio on 2017E EPS with a target multiple of 2017E PER, based on its 25x, set at mean level from the past-3.5-year PER band, translating to a 50% premium past-3.5-year mean level over its peers average. We believe that the premium is well justified, given SCMA’s sector-high ROE of 45% (more than double vs peers) in 2017E, strong net cash position, and Indosiar’s high growth profile.
Management and Shareholder Profile SCMA is 61% owned by SCMA is majority (61%) owned by PT Elang Mahkota Teknologi Tbk (EMTK.IJ), EMTK and ultimately ultimately controlled by Eddy Sariaatmadja, currently serving as group chairman. controlled by Eddy Singapore’s sovereign fund GIC and Salim Group are also shareholders in EMTK with Sariaatmadja 8%/4% stakes, respectively. SCMA itself is currently led by Sutanto Hartono, a media veteran professional with previous experience including CEO of Microsoft Indonesia and CEO of RCTI. Eddy’s eldest son, Alvin Sariaatmadja, currently sits as CEO of EMTK and Commissioner in SCMA, overseeing a strategical role. Eddy & Alvin are politically neutral businessmen, with a good execution track record in the past (especially in turning around Indosiar).
Downside Risks Downside risk would be Downside risks to our BUY call: 1) Continued weakness in SCTV’s TV ratings, causing falling audience share and lower rate-card revenue in the future, 2) macro downturn and slower GDP growth, 3) weak macro economy faster-than-expected shrinking TV ad pie from online ads.
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Surya Citra Media (SCMA IJ) Year to 31 December 2014 2015 2016F 2017F 2018F PROFIT & LOSS (IDRb) Sales 4,075 4,238 4,467 4,816 5,380 Gross profit 2,591 2,712 2,773 3,172 3,561 EBITDA 2,038 2,142 2,139 2,475 2,787 Depreciation 110 127 140 154 169
EBIT 1,928 2,015 1,999 2,321 2,618 Net interest inc./(expense) (0) 24 40 61 89 Other income/(expense) (1) (0) - - - We are forecasting 2017E top Pre-tax profit 1,927 2,038 2,039 2,382 2,707 line, EBITDA and net profit to Taxes (469) (513) (510) (596) (677) reach IDR4.8tn, IDR2.5tn, and Minority interest (5) (2) - - - IDR1.8tn, respectively Net profit 1,455 1,524 1,529 1,787 2,031
BALANCE SHEET (IDRb) Cash and equivalents 1,249 686 893 820 1,006 Trade receivables 1,270 1,380 1,455 1,568 1,752 Inventories 464 533 591 598 662 Fixed assets 764 962 1,062 1,162 1,362 Other assets 1,001 1,005 939 942 946 Total assets 4,749 4,566 4,941 5,089 5,728 Interest bearing liabilities 350 207 423 - - We expect SCMA to sit on Trade payables 228 155 172 174 193 Other liabilities 683 791 652 654 666 IDR820bn of cash in 2017E, Total liabilities 1,262 1,152 1,248 828 859 with total equity of IDR3.99tn Minority interest 51 267 267 267 267 Shareholders' equity 3,437 3,146 3,426 3,994 4,601
CASH FLOW (IDRb) EBIT 1,928 2,015 1,999 2,321 2,618 Depreciation 110 127 140 154 169 Working capital (367) (207) (38) (119) (221)
Other operating items Operating cash flow 1,198 1,444 1,594 1,821 1,979 Net capital expenditure (193) (305) (240) (254) (369) Free cash flow 1,005 1,139 1,354 1,567 1,610 Equity raised/(bought) - (4) - - - We expect Free Cash Flow to Net borrowings 51 47 (150) - - grow by 16% yoy to IDR1.57tn Other financing (109) (151) 217 (423) - in 2017E Net cash flow 201 (796) 208 (74) 186 Cash flow at beginning 1,046 1,249 686 893 820 Ending cash flow 1,249 686 893 820 1,006
RATIOS ROAE (%) 46% 44% 43% 45% 44%
ROAA (%) 33% 33% 32% 36% 38% Gross margin (%) 64% 64% 62% 66% 66% SCMA has a sector-high 2017E EBITDA margin (%) 50% 51% 48% 51% 52% ROE of 45% with a strong net EBIT margin (%) 47% 48% 45% 48% 49% cash position (-19% net Net margin (%) 36% 36% 34% 37% 38% gearing) Payout ratio (%) 58% 126% 80% 80% 80% Current ratio (x) 3.9 3.3 4.2 4.3 4.7 Interest coverage (x) (14) (18) (19) (23) (29) Net gearing (%) -23% -10% -13% -19% -21% Debts to assets (%) 9% 8% 9% 0% 0% Debtor turnover (days) 114 119 119 119 119 Creditor turnover (days) 39 25 25 25 25 Inventory turnover (days) 79 87 87 87 87
MAJOR ASSUMPTIONS We expect adex to grow by Ad Revenue Growth % 10% 4% 5% 8% 12% 5%/8% in 2016/17E, with the COGS (Content) Growth % 7% 3% 11% -3% 11% EBITDA margin expanding to EBITDA Margin % 50% 51% 48% 51% 52% 51% in 2017E on cost
reductions Source: Company, Bahana forecasts
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Exhibit.29 Financial Summary – PT Surya Citra Media Tbk (SCMA.IJ) Company information 12M high/low (IDR) : 3,500/2,220 12M High/low consensus TP (IDR) : 2,950/3,800 SCMA is a USD2.6bn Majority shareholder (%) : Elang Mahkota Teknologi Tbk (60.3) company with Shares outstanding (mn)/Free float (%) : 14,622/39.6 USD2.5m/day average Mkt. cap. (IDRbn/USDmn) : 34,069 /2,580 trading liquidity 3-m avg.daily t.o.(IDRbn/USDmn) : 33.0/2.5 Bloomberg/Reuters code : SCMA IJ/SCMA.JK Source: Bloomberg
Financial Highlights Year to 31 Dec 2014A 2015A 2016F 2017F 2018F Revenues (IDRbn) 4,075 4,238 4,467 4,816 5,380 EBIT (IDRbn) 1,928 2,015 1,999 2,321 2,618 Net profit (IDRbn) 1,455 1,524 1,529 1,787 2,031 Bahana/consensus (%) 95% 98% EPS (IDR) 100 104 105 122 139 EPS growth (%) 14% 5% 0% 17% 14% SCMA is currently trading at 19.1x 2017E PER with 17% EV/EBITDA (x) 16.5 15.7 15.7 13.6 12.0 EPS growth and 3.6% yield P/E (x) 23.4 22.4 22.3 19.1 16.8 FCFPS (IDR) 69 78 93 107 110 FCF yield (%) 3% 3% 4% 5% 5% BVPS (IDR) 235 215 234 273 315 P/BV (x) 9.9 10.8 9.9 8.5 7.4 DPS (IDR) 51 70 83 83 97 Div. yield (%) 2.2% 3.0% 3.6% 3.6% 4.2% Source: company, Bahana forecasts (as per closing of 28 Nov 2016)
Commentary on 9M16 Results
SCMA booked in 3Q16 net profit of IDR330bn (-31% QoQ, -4% YoY), translating to 9M16 net profit of IDR1.17tn, up slightly by +2% YoY. Based on our 2016E forecast of IDR1.5tr, the 9M16 run-rate stands at 77% (vs. Consensus at 72%). SCMA’s negative EPS growth in 3Q16 was admitedly disappointing (largely fueled by one-off costs of Olympic & Asian Games pre-payment), but we believe the stock has been punished enough post the results announcement on 31 October 2016, with most of the bad news having been priced in. SCMA’s top-line revenue in 3Q16 grew by +4% YoY (with SCTV at -9% YoY and Indosiar at +19% YoY), translating to 9M16 revenue of IDR3.4tn (+7% YoY).
Exhibit.30 9M16 Results – PT Surya Citra Media Tbk (SCMA.IJ) Profit & Loss (RpBn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 QoQ YoY 9M15 9M16 YoY Bahana % Cons % Net Revenue 954 1,194 957 982 946 1,226 1,034 1,032 1069 1,271 1,079 -15% 4% 3,206 3,419 7% 4,467 77% 4,620 74% Growth SCTV 657 716 640 704 606 743 677 679 600 711 615 -13% -9% 2,026 1,926 -5% 2,626 Indosiar 303 477 310 333 344 486 360 389 464 560 429 -23% 19% 1,190 1,453 22% 1,841
Operating Expense (531) (530) (567) (526) (529) (598) (571) (525) (586) (644) (643) 0% 13% (1,699) (1,873) 10% (2,468) 76% (2,467) 76% Broadcasting and Programming Exp (375) (347) (401) (364) (383) (418) (396) (330) (387) (457) (482) 6% 22% (1,197) (1,327) 11% General and Admin Exp (139) (194) (171) (162) (154) (187) (187) (173) (192) (196) (157) -20% -16% (528) (545) 3% Other operating income 2 1 4 3 10 7 13 (16) 0 8 (1) 30 8 Other operating expense (20) 10 2 (2) (3) (1) (1) (6) (7) 1 (4) (4) (10)
Operating Income 423 663 390 456 416 628 463 507 483 627 435 -31% -6% 1,508 1,545 3% 1,999 77% 2,153 72% Operating Margin 44% 56% 41% 46% 44% 51% 45% 49% 45% 49% 40% 47% 45% 45% 47%
Other Income / (expense) 3 (1) (0) (2) 8 6 4 6 4 4 4 18 12 -33% Financing requirements (15) (18) (19) (17) (13) (11) (10) (9) (9) (8) (7) (34) (23) Financing income 18 16 18 15 21 17 13 16 12 11 11 52 34 Others - - - (0) (0) 0 (0) 1 - - (0) 1
Income before Tax 425 662 390 454 424 634 467 513 488 630 439 -30% -6% 1,525 1,557 2% 2,039 76% Net Tax Expense (105) (168) (98) (99) (103) (156) (121) (133) (122) (155) (109) (380) (387)
Net Profit (to parents) 318 497 289 346 325 480 343 376 361 476 330 -31% -4% 1,147 1,170 2% 1,529 77% 1,618 72% Net Margin 33% 42% 30% 35% 34% 39% 33% 36% 34% 37% 31% 36% 34% 34% 35% Source: Company, Bahana forecasts
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Valuation Rationale
We value SCMA using Price to Earnings ratio on 2017E EPS with a target multiple of 25x, set at mean level from the past- 3.5-year PER band (post the IDKM merger in May 2013), translating to a 19% premium to the sector average of 21x. We believe that the premium is well justified, given SCMA’s sector-high ROE of 45% in 2017E (more than double vs. peers) and Indosiar’s high growth profile. SCMA is currently trading attractively at 19x one year forward PER, at -2SD below its past-3.5-year mean. This is the lowest that SCMA’s multiple has ever been in the past 3.5 years. We have a BUY call on the stock and it is our top media pick, as well as a top-10 Bahana country pick.
Exhibit.31 One Year Forward PE Band – SCMA
Source: Bahana, Bloomberg (as per 29 Nov 2016)
Exhibit.32 Indonesia Media Valuation Comps Table Indonesia Media Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing
(IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Surya Citra Media SC M A .I J BUY 2 ,3 3 0 3 ,0 0 0 29% 2 ,5 2 4 1 7 .0 1 9 .1 1 3 .6 8 .5 1 .1 3 .6 48 48 -1 9
Media Nusantara Citra M N C N .I J BUY 1 ,7 3 5 2 ,2 0 0 27% 1 ,8 1 1 1 2 .0 1 2 .4 9 .2 2 .0 1 .0 3 .1 16 37 8
Link Net LI N K.I J HOLD 5 ,1 5 0 5 ,3 0 0 3% 1 ,1 6 1 1 1 .0 1 7 .7 8 .0 3 .1 1 .6 1 .0 19 59 -3
Global Mediacom BM T R.I J REDUCE 640 550 -1 4 % 6 5 8 1 3 .0 1 2 .2 3 .6 0 .7 0 .9 4 .0 6 18 22 Visi Media Asia V I V A .I J REDUCE 252 230 -9 % 3 0 7 5 5 .0 1 9 .7 7 .6 2 .0 0 .4 0 .0 11 33 162 Sector Weighted Avg 17% 6,461 15.9 16.3 10.1 4.6 1.1 2.9 27.8 43.2 4.2 Source: Bahana forecasts, Bloomberg (as per 28 Nov 2016)
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Management Team Profile
Exhibit.33 Management Team – PT Surya Citra Media Tbk (SCMA.IJ) Board of Commissioners Name Position Experiece Education
His career path ranged from Aide de Camp to President Soeharto, Vice His academic background includes the Assistant of Security to the Head Staff of Military, Vice Commander to the National Military Academy in Magelang President Centre of Infantry Arms, Commander of Regional Military IV/Diponegoro, in 1965 and the National Defence Raden Soeyono Commissioner Head of Staff of the Armed Forces, Secretary to the Bureau of Aid Agency regular course class XXII. He Coordination to National Stability, and Secretary General of the Defence obtained his Bachelor’s Degree in and Security Department. Economics from Universitas Terbuka.
In 2011, she joined PT Indosiar Karya Media (IDKM) and held the position of President Commissioner and Independent Commissioner of IDKM and Vice President She graduated from the Department of Indosiar. She was appointed as the Company’s Vice President Suryani Zaini Commissioner Economic Laws and Notarial Program of Commissioner and Independent Commissioner in April 2013. Aside from (Independent) the University of Indonesia. holding the position of Vice President Commissioner, she actively participated in various social and educational programs in the community.
Alvin has been serving as the Company’s Commissioner since 2015. Previously, he served as a Director of the Company from 2013 to 2015. He graduated from University of New Previously, he served as a Director of PT Indosiar Karya Media Tbk and Alvin Sariaatmadja Commissioner South Wales, Australia, with a bachelor’s PT Indosiar Visual Mandiri from 2011 to 2013. Alvin currently also sits as degrees in law and finance. the CEO of PT Elang Mahkota Teknologi Tbk (EMTK.IJ), parent company of SCMA
He commenced as 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 He obtained his Bachelor of Arts Degree title includes Non-Executive Independent Director of CIMB Group Holdings in Economics from University of the Independent Berhad, in Malaysia, since 2010, and Vice President Commissioner of PT Philippines, Manila, the Philippines, and Glenn M Surya Yusuf Commissioner Bank CIMB Niaga Tbk. Several governmental roles previously assumed a Master’s Degree in Business from the includes: Chairman of the Assistance Team to the Minister of Finance for Asian Institute of Management, Makati, the Financial Sector Restructuring during the period of October 2001 – the Philippines. 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.
He has over 26 years of 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, Plan B He completed his studies at the Media Public Co. Ltd (Thailand) and Property Guru Pte Ltd (Singapore). University of New South Wales, Sydney, Previously, he served as a Financial Director of PT PP London Sumatra Australia in 1991, earning a Bachelor of Jay Geoffrey Wacher Commissioner Indonesia Tbk from 2004 to 2007 and Investment Director of Carnegie Law and Commerce degree as well as Wylie & Company, Sydney, Australia, from 2000 to 2006. He held various becoming an Associate of the Australia other corporate finance and investment roles in Australia from 1993 to Securities Institute in 1996. 2000 and started his career as a Lawyer of Blake Dawson Waldron, Sydney, Australia, from 1992 to 1993.
Board of Directors Name Position Experiece Education
Sutanto was appointed as the Company’s President Director in 2013. Prior to his appointment, from 2011 to 2013 he served as the President Director He obtained his Bachelor’s Degree in of SCTV, a role for which he was re-appointed in 2015. Previously, he was Chemical Engineering from the the Country General Manager/President Director of PT Microsoft Indonesia University of Notre Dame, Indiana, and Sutanto Hartono President Director and the CEO of Rajawali Citra Televisi (RCTI) since 2008. He served as a obtained his Master of Business Managing Director since 2003 and, at the same time, the Director of Media Administration Degree from University Nusantara Citra (MNC). Prior to this, Sutanto started his career in Sony of California, Berkeley, US. Music Entertainment as the Senior Vice President to the South East Asia Division, and a Senior Associate at Booz Allen & Hamilton, Southeast Asia.
She has been serving as the Company’s Director since 2013. Previously, She was the best graduate of Gadjah she held the position of Programming Director of PT Surya Citra Televisi Mada University in 1990, and in 1992, (SCTV) from 2010 to 2013, Director at PT Rajawali Citra Televisi (RCTI) Harsiwi Achmad Director she secured a scholarship from AIDAB from 2006 to 2010 and General Manager of PT CTPI from 2004 to 2005. Australia to study for a Master’s Degree She started her career in SCTV in various positions in programming at Monash University division since 1997 to 2004.
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 He obtained his Bachelor’s Degree from was the Head of Security Intelligence of the National Police (Kepala Badan Perguruan Tinggi Ilmu Kepolisian (PTIK) Imam Sudjarwo Director Intelijen Keamanan Polri), Head of National Police Security (Badan and his Master of Science Degree from Pemeliharaan Keamanan Polri – Kabaharkam Polri), Head of National the University of Indonesia. 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.
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 She graduated from Tarumanagara at Public Accounting Firm of Prasetio Utomo & Co in 2000, before joining Rusmiyati University with a Bachelor’s Degree in Director Public Accounting Firm of Prasetio, Sarwoko & Sandjaja (Ernst & Young) in Djajaseputra Accounting and owned CPA Indonesia 2002. In 2005, she continued her career at Public Accounting Firm of certificate. Haryanto Sahari & Rekan (PricewaterhouseCoopers). In 2006, she continued her career at PT Johnson Home Hygiene Products (member of SC Johnson Group).
She has been serving as the Company’s Independent Director since 2016. Previously she served as Country Industry Head of Google Indonesia She graduated from Universitas Katolik from March 2013 to October 2015, as Marketing General Manager of PT Parahyangan, Bandung, Indonesia with Mutia Nandika Independent Director Surya Citra Televisi from November 2012 to February 2013, as Education a Bachelor’s Degree in Social Political Lead of PT Microsoft Indonesia from August 2010 to October 2012. She Science, major of International served as Manager Sales, News Producer and Reporter of PT Rajawali Relations. Citra Televisi Indonesia from 2002 to 2010.
Source: Bahana, Company
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1 December 2016
Media Nusantara Citra (MNCN.IJ) BUY: King of the TV Jungle Too cheap to ignore – BUY with IDR2,200 TP We have a BUY on MNCN We have a Buy recommendation on Media Nusantara Citra with a Rp2,200/sh TP (27% with IDR2,200 TP (27% upside potential), based on 2017F PER of 16x. We like MNCN on the back of: 1) Steep upside potential) valuation discount at the current 12x FY17F PER (-2SD below 3yrs mean, 50% discount to peers), 2) Strong market share gain (10M16 Prime Time Audience share at 44.9%, up from 34.5% in 10M15), and 3) stronger FCF generation (up 7x in 2016E to IDR1tr) with potential dividend boost in 2017 post the peak capex cycle.
Better translation of strong TV ratings towards 2017’s Revenue 2016 year end negotiation On the back of recovering GDP growth, stabilizing currency, and low inflation economy, should bode well for RCTI’s we are expecting further recovery on adex, and expect MNCN to deliver top line growth 2017 rate cards, given YTD of +9% in 2017E (improvement from -3%/9% in 2015/16E), fueled by RCTI +12%, strong market share gain MNC TV +4%, and Global TV +5%. Pushbacks on the stock has recently been on inability of mgmt to monetize the group’s strong audience share towards revenue and EBITDA growth. Nonetheless, we believe that year-end negotiaion carries bigger weighting with 2017’s rate cards (especially RCTI’s) likely to grow notably higher next year. During this year’s prime time (6-10pm), almost half (45%) of the TVs in Indonesia were tuned on MNCN’s TV channels, with almost one third (30%) tuned to RCTI.
RCTI as main growth engine, Indonesia’s no.1 TV in the past 2 decades RCTI’s prime time market MNCN’s 10M16 prime time audience share reached 44.9%, up strongly by 10.3 ppt YoY share surged from 34.4% from 34.5% in 10M15. This was largely fueled by RCTI, with its market share growing in 10M15 to 44.9% in +10.8ppt YoY to a record high of 29.6% (from 18.8% in 10M15), with MNC TV stable 10M16 and Global TV slightly down. RCTI currently generates ~US$260m of turnover annually, about 25% higher than no.2 player and notably higher from the remaining peers. RCTI was the first private TV broadcaser in Indonesia, established in the early 1990s, and has been on average ranked no.1 for both audience share and wallet share to date.
Valuation Rationale We value MNCN using We value MNCN using Price to Earnings ratio on 2017F EPS with a target multiple of FY17E PER of 16x vs. 16x, set at mean level from 3yrs PE band and 25% discount from peers average. We Currently at 12x believe that the discount is well justified, given: 1) MNCN’s diversified portfilio which includes low ROE businesses like Radio, Print, and Agency, 2) High USD debt exposure with 24% net gearing position, and 3) Sponsor’s political affiliation to a political party.
Management and Shareholder Profile MNCN is 61% owned by MNCN is majority (61%) owned by PT Global Mediacom Tbk (BMTR.IJ) and ultimately BMTR, with Hary Tanoe as controlled by Hary Tanoesoedibjo, acting as group CEO. US-based Media Family Office, ultimate owner Saban Capital (founded Power Rangers), is also a shareholder with c.5% stake. MNCN is currently led by David Audy as CEO, brother in law of Hary Tanoe with 12 yrs experience within MNC Media group. Hary Tanoe has strong background in the Indonesia capital market; he founded a brokerage securities company in 1980s and started growing his media empire from 2000 onwards post Soeharto’s downfall. Hary is also a chairman of his own Partai Perindo political party.
Downside Risks Downside risks to our Buy call: 1) falling audience share, 2) macro downturn and weaker Rupiah 3) Faster than expected shrinking TV ad pie from online ads.
PT Bahana Securities – Equity Research – Indonesia Media 32
1 December 2016
Media Nusantara Citra (MNCN IJ) Year to 31 December 2014 2015 2016F 2017F 2018F PROFIT & LOSS (IDRb) We expect MNCN to book Sales 6,666 6,445 7,013 7,636 8,410 FY17E Sales/EBITDA/Net Gross profit 3,853 3,584 3,966 4,345 4,822 Profit of EBITDA 2,779 2,379 2,722 3,001 3,343 Rp7.6tr/Rp3tr/Rp1.9tr Depreciation 176 185 198 214 235 respectively EBIT 2,604 2,194 2,524 2,787 3,109 Net interest inc./(expense) 28 (133) (122) (104) (78) Other income/(expense) (11) (65) - - - Pre-tax profit 2,544 1,681 2,401 2,683 3,031 Taxes (660) (404) (600) (671) (758) Minority interest (121) (91) (95) (99) (118) Net profit 1,762 1,186 1,706 1,913 2,155
BALANCE SHEET (IDRb) Cash and equivalents 1,132 398 223 2,064 2,731 Trade receivables 2,994 3,020 3,287 3,578 3,941 Inventories 1,635 1,593 1,697 1,833 1,998 Fixed assets 2,659 4,145 4,745 5,045 5,345
Other assets 3,302 4,190 4,908 5,000 4,434 Total assets 13,609 14,475 14,860 17,521 18,450 Interest bearing liabilities 3,182 3,757 3,596 3,546 3,096 We expect MNCN to sit on Trade payables 244 140 140 140 140 Rp2.1tr of cash, with Rp11.9tr Other liabilities 789 1,011 1,050 1,102 1,164 of equity in 2017E Total liabilities 4,216 4,908 4,786 4,788 4,400 Minority interest 486 601 696 795 912 Shareholders' equity 8,907 8,966 9,378 11,938 13,137
CASH FLOW (IDRb) EBIT 2,604 2,194 2,524 2,787 3,109 Depreciation 176 185 198 214 235 Working capital (1,965) 318 (193) (468) (579) Other operating items (889) (1,079) (921) (989) (1,070) Operating cash flow (74) 1,617 1,608 1,544 1,694 We expect MNCN’s Free Cash Net capital expenditure (1,117) (1,486) (600) (300) (300) Flow to significantly increase Free cash flow (1,191) 131 1,008 1,244 1,394 to IDR1tr in 2016E (from Equity raised/(bought) 256 (266) (680) 1,500 - IDR131bn in FY16E), and to Net borrowings 2,989 553 (119) (50) (450) further increase to IDR1.24tr in Other financing (1,605) (1,179) (358) (853) (276) Net cash flow 448 (760) (149) 1,841 667 2017E Cash flow at beginning 684 1,132 372 223 2,064 Ending cash flow 1,132 398 223 2,064 2,731
RATIOS ROAE (%) 21% 13% 17% 17% 16% MNCN has FY17E ROE of 17%, ROAA (%) 15% 8% 12% 12% 12% with 39% EBITDA margin, and Gross margin (%) 58% 56% 57% 57% 57% 4% Net Gearing EBITDA margin (%) 42% 37% 39% 39% 40% EBIT margin (%) 39% 34% 36% 36% 37% Net margin (%) 26% 18% 24% 25% 26% Payout ratio (%) 36% 50% 50% 50% 50% Current ratio (x) 9.7 7.4 7.3 9.0 9.7 Interest coverage (x) (92) 16 21 27 40 Net gearing (%) 1% 22% 24% 4% -4% Debts to assets (%) 23% 26% 24% 20% 16% Debtor turnover (days) 164 171 171 171 171 Creditor turnover (days) 52 65 65 65 65 Inventory turnover (days) 212 203 203 203 203
MAJOR ASSUMPTIONS Adex Growth % 9% -3% 7% 9% 10% We forecast MNCN’s adex COGS (Content) Growth % -1% 2% 7% 8% 9% revenue to grow 7%/9% in EBITDA Margin % 42% 37% 39% 39% 40% FY16/17E.
Source: Company, Bahana forecasts
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1 December 2016
Exhibit.34 Financial Summary – Media Nusantara Citra (MNCN.IJ) Company information 12M high/low (IDR) : 2,405/1,190 12M High/low consensus TP (IDR) : 3,130/1,950 MNCN is a USD1.8bn Majority shareholder (%) : PT Global Mediacom Tbk (58.3) company with Shares outstanding (mn)/Free float (%) : 14,276/41.7 USD1.6m/day average trading liquidity Mkt. cap. (IDRbn/USDmn) : 24,626/1,824 3-m avg.daily t.o.(IDRbn/USDmn) : 22.0/1.6 Bloomberg/Reuters code : MNCN IJ/MNCN.JK Source: Bloomberg
Financial Highlights Year to 31 Dec 2014A 2015A 2016F 2017F 2018F Revenues (IDRbn) 6,666 6,445 7,013 7,636 8,410 EBIT (IDRbn) 2,604 2,194 2,524 2,787 3,109 Net profit (IDRbn) 1,762 1,186 1,706 1,913 2,155 Bahana/consensus (%) 102% 99% 98% EPS (IDR) 125 84 121 136 153 EPS growth (%) 4% -33% 44% 12% 13% EV/EBITDA (x) 10.0 11.7 10.2 9.2 8.3 MNCN now trades at 12.8x P/E (x) 13.9 20.6 14.3 12.8 11.3 FY17E PER with 12% EPS FCFPS (IDR) (83) 9 71 87 98 growth and 3.5% yield FCF yield (%) -5% 1% 4% 5% 6% BVPS (IDR) 624 628 657 836 920 P/BV (x) 2.8 2.8 2.6 2.1 1.9 DPS (IDR) 43 63 42 61 68 Div. yield (%) 2.5% 3.6% 2.4% 3.5% 3.9% Source: Company, Bahana forecasts
Commentary on the 9M16 Results
MNCN in 3Q16 booked Net Profit of IDR441bn (an improvement from –IDR47bn Net Loss from 3Q15), translating to 9M16 Net Profit of IDR1.44tr (+122% YoY). This is largely due to FX gain (vs. FX loss last year) coming from the unhedged USD250m loan position, as the IDR has strengthened against USD from Jan 2016 to Sep 2016. Looking at the core performance, MNCN in 3Q16 booked Operating Income of IDR592bn (-24%QoQ, +4%YoY), translating to 9M16 Operating Income of IDR1.9tr (+1% YoY). Based on our FY16E Operating Income forecast of IDR2.55tr, the 9M16 numbers translate to a run-rate of 74% (vs. Consensus at 75%). Concerns on MNCN is now focused on Mgmt’s lack of ability to convert the YTD strong audience share gain towards revenue and earnings, as the 9M16 revenue only grew +5%YoY, with Operating income only at +1%YoY, as compared to the Prime Time TV audience share which grew from c.35% in 9M15 to c.45% in 9M16. We believe that the 2016 year-end negotiation with advertisers should position MNCN (especially RCTI) in a much stronger position to set the base for 2017 pricing, with adex revenue and earnings growth likely to follow.
Exhibit.35 9M16 Results– Media Nusantara Citra (MNCN.IJ) Profit & Loss (RpBn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 QoQ YoY 9M15 9M16 YoY Bahana FY16E % Cons FY16E %
Net Revenue 1,496 1,876 1,671 1,622 1,514 1,817 1,700 1,414 1539 2,030 1,696 -16% 0% 5,031 5,264 5% 7,040 75% 7,097 74%
Direct Costs 722 675 731 685 719 667 783 692 657 881 766 -13% -2% 2,168 2,304 6% 3,047 76% 3,066 75%
Gross Profit 774 1,201 940 937 796 1,150 917 722 882 1,148 930 -19% 1% 2,863 2,961 3% 3,993 74% 4,031 73% Gross Margin 52% 64% 56% 58% 53% 63% 54% 51% 57% 57% 55% 57% 56% 57% 57%
General & Admin exp 251 381 371 246 265 375 345 405 364 369 339 -8% -2% 986 1,071 9% 1,443 74% 1,516 71% Operating Income 524 820 569 691 531 775 571 317 518 780 592 -24% 4% 1,877 1,889 1% 2,550 74% 2,515 75% Operating Margin 35% 44% 34% 43% 35% 43% 34% 22% 34% 38% 35% 37% 36% 36% 35%
Non operating expenses (134) (236) (153) (318) (246) (364) (618) 219 (38) (257) (151) -41% -76% (1,228) (447) -64% (817) 55% (838) 53%
Net Profit 389 584 416 373 285 411 (47) 536 480 522 441 -16% NA 649 1,443 122% 1,733 83% 1,677 86% Net Margin 26% 31% 25% 23% 19% 23% -3% 38% 31% 26% 26% 13% 27% 25% 24% Source: Bahana forecasts, Company
PT Bahana Securities – Equity Research – Indonesia Media 34
1 December 2016
Valuation Rationale
We value MNCN using Price to Earnings ratio on 2017E EPS with a target multiple of 16x, set at +0.5SD above its 3.5yrs PE band, translating to 25% discount from sector average of 21x. We believe that the discount is well justified, given: 1) MNCN’s diversified portfilio which includes low ROE businesses like Radio, Print, and Agency, 2) High USD debt exposure with 30% net gearing position, and 3) Sponsor’s political affiliation to a political party. The stock is currently trading at 13x one year forward PER, at -1SD below its 3.5yrs mean. We rate MNCN BUY.
Exhibit.36 MNCN one-year-forward PE Band
Source: Bahana, Bloomberg (as per closing 29 Nov 2016)
Exhibit.37 Indonesia Media Valuation comps table Indonesia Media Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing
(IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Surya Citra Media SC M A .I J BUY 2 ,3 3 0 3 ,0 0 0 29% 2 ,5 2 4 1 7 .0 1 9 .1 1 3 .6 8 .5 1 .1 3 .6 48 48 -1 9
Media Nusantara Citra M N C N .I J BUY 1 ,7 3 5 2 ,2 0 0 27% 1 ,8 1 1 1 2 .0 1 2 .4 9 .2 2 .0 1 .0 3 .1 16 37 8
Link Net LI N K.I J HOLD 5 ,1 5 0 5 ,3 0 0 3% 1 ,1 6 1 1 1 .0 1 7 .7 8 .0 3 .1 1 .6 1 .0 19 59 -3
Global Mediacom BM T R.I J REDUCE 640 550 -1 4 % 6 5 8 1 3 .0 1 2 .2 3 .6 0 .7 0 .9 4 .0 6 18 22 Visi Media Asia V I V A .I J REDUCE 252 230 -9 % 3 0 7 5 5 .0 1 9 .7 7 .6 2 .0 0 .4 0 .0 11 33 162 Sector Weighted Avg 17% 6,461 15.9 16.3 10.1 4.6 1.1 2.9 27.8 43.2 4.2 Source: Bahana forecasts, Bloomberg (as per closing on 28 Nov 2016)
PT Bahana Securities – Equity Research – Indonesia Media 35
1 December 2016
Management profile
Exhibit.38 Board of Commissioners of MNCN Board of Commissioners Name Position Experiece Education Hary was recently appointed as President Commissioner of MNCN since 2016, after previously serving as Hary holds a Bachelor of Commerce CEO. Hary currently also serves as President Director PT Global Mediacom Tbk (BMTR), parent company of (Honours) degree from Carleton University MNCN, since 2002. He founded PT MNC Investama Tbk in 1989, and became its President Director until President (1988) and a Master of Business Hary Tanoesoedibjo 2002 and once again in 2009 to date. Hary is also President Director of RCTI since 2003-2008 and re- Commissioner Administration degree from Ottawa served in the same position in 2010 - present. Since 2006, he has also taken the role of President University (1989). Both universities are Commissioner for PT MNC Sky Vision Tbk (MSKY). Hary is also the chairman of Partai Perindo, a political based in Ottawa, Canada. party he founded in 2015.
Mr. Adam Chesnoff has served as Commissioner since 2011. As the President and COO 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 Adam is a graduate of UCLA’s Anderson Adam Chesnoff Commissioner also a member of the Board of Directors of Univision, the largest Spanish-language media company in the School of Business (MBA, 1994) United States, and Chairman of the Board of Directors of Celestial Tiger Entertainment, owner and operator of pay television channels across Asia. 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.
Born in Pemalang, he graduated from the Drs. Sutanto has served as Independent Commissioner since December 12, 2011, following the decision of Republic of Indonesia’s National Police the Extraordinary General Meeting of Shareholders and Deed of Statement of Meeting Resolution No. 49, Academy, AKABRI (1973), Perguruan Tinggi Drs. Sutanto Commissioner December 12, 2011. He also has a highly illustrious career in public service, having served as Chief of Ilmu Kepolisian (1983), Sus Jur Pa Rengar Police for the Republic of Indonesia from 2005 to 2008 and Head of the State Intelligence Agency (BIN) Hankam in Bandung (1986), Sespimpol, from 2009 until 2010. Lembang in Bandung (1990), and Lemhannas (2000). Source: Company (as per 9M16 FS)
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1 December 2016
Exhibit.39 Board of Directors of MNCN Board of Directors Name Position Experiece Education He has been serving as President Director of GlobalTV since 2010, Commissioner of PT Linktone Indonesia since 2015, Commissioner of PT MNC GS Homeshopping since 2012, President Director of PT MNC Lisensi David obtained Bachelor of Commerce International since 2013 and President Director of PT MNC Tencent since 2013. He formerly held various degree in Finance and Information Systems positions at Global Mediacom, namely as Vice President Director of PT Media Nusantara Informasi (2009- David Fernando Audy President Director (2001) and Master of Commerce degree in April 2012), President Director of PT Linktone Indonesia (2011-2015), Head of Investor Relations of MNCN Accounting (2002) from the University of (2007-2009), Senior Manager of Corporate Finance and Personal Assistant to the Group CEO of MNC (2006- New South Wales, Australia. 2007), Procurement Manager of PT Elektrindo Nusantara (2005-2006), and Customer Relations Manager of PT Mobile-8 Telecom Tbk (2003-2005).
Born in Palembang, Indonesia, Kanti graduated from IFS San Diego, USA with an After serving as Sales Group Head at RCTI in 2000, Kanti moved to Trans TV handling the same position. In Associate Degree in Fashion Merchandising Kanti Mirdiati 2002, she briefly returned to RCTI as Head of Acquisitions and a year later, transferred to TV7 as AVP for Director in 1989. In that same year, she finished her Imansyah Sales and Marketing. Her career in Indonesia’s television industry also brought her to MNCTV where she Bachelor’s Degree in Science at La Jolla became Director of Sales and Marketing from 2006 until 2010. Academy of Advertising Arts also in San Diego, USA.
Diana's 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. Born in Jakarta, Indonesia, Diana obtained Media Nusantara Informasi in 2012; Director of Sales Marketing at Seputar Indonesia, SUN TV, High End & her bachelor’s degree in Economic Diana Airin Director High End Teen and Network Magazine in 2010; Deputy Director of Sales and Marketing at Koran Sindo in Management from Tarumanegara University 2009; General Manager for Sales and Marketing at Media Indonesia and Metro TV in 2001; Vice General in 1995. 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.
Born in Bogor, Indonesia, Mr. Setiawan completed his Master of Management His previous designations include: Assistant General Manager at PT Indo Kordsa Tbk from 2000 to 2009; degree in International Business from the Director of Pension Funds at Indo Kordsa from 1996 to 2009; Vice Chief Finance Officer for Strategy and Faisal Dharma Post-Graduate School of Management at Director Finance at PT Bank CIMB Niaga Tbk from 2009 to 2012; Commissioner at PT Asuransi CIGNA from 2009 to Setiawan Prasetya Mulya in 2003. He also holds a 2011 and at PT CIMB Sunlife from 2009 to 2012; and Chief Executive Officer at PT Asuransi Jiwa Adisarana bachelor’s degree in Civil Engineering from Wana Artha from 2012 to 2013. Universitas Katolik Parahyangan where he graduated in 1990.
In 2008, she was Sales and Marketing Director for PT Global Informasi Bermutu. Two years later, she Mrs. Kartika was born in Palembang, became the same company’s Programming and Production Director. Then in 2011, under a similar role, Indonesia. She received her Master of Ella Kartika Director she moved to PT Rajawali Citra Televisi Indonesia. She returned to PT Global Informasi Bermutu handling Management degree in Banking and Finance the top post of Managing Director in 2013. Nowdays, she also serves as Commissioner in RCTI and from the University of Indonesia in 2000. GlobalTV
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 Mr. Sinulingga graduated from the Bandung also acted as Chairman of the Provincial Council. In 2004, he became a member of the Indonesian Arya Mahendra Institute of Technology (ITB) with a Director Broadcasting Commission for North Sumatera. He moved to Jakarta in 2008 to take on various high profile Sinulingga bachelor’s degree in Civil Engineering in posts: President Director of PT Hikmat Makna Aksara (Sindo Weekly) from 2008 to 2014, Corporate 1995. He was born in Kabanjahe, Indonesia. 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).
Indonesian citizen, born in 1987. Angela Herliani Tanoesoedibjo was appointed as Director of the She completed her Bachelor of Arts in Company in September 2016. Joining the company in 2008, Ms. Tanoesoedibjo started her career in Communications (Media Arts and management roles across the Company’s business portfolio with passion in television production. She Productions) at the Sydney University of Angela Tanoesoedibjo Director currently serves as the Managing Director of PT Global Informasi Bermutu (GlobalTV) and Director at PT Technology in 2008, and her Master of MNI Entertainment. Her previous executive positions are Deputy Director of MNC Channels (2013-2014) Commerce in Finance from the University of and Corporate Finance and Business Development Associate of PT Media Nusantara Citra Tbk (2010- New South Wales, Australia, in 2010. 2013).
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 Born in Jakarta, Indonesia. Mrs. Setiadi Management (2004). VP Head of Direct Sales Training Academy and HRRM (2005), and VP Human graduated from the University of Satya Gwenarty Setiadi Independent Director Resources and General Services (2007). In 2008, she joined MNCN as General Manager of Human Wacana with a bachelor’s degree in Resources and General Services and then a year later rose to the position of Director of Human Resources agriculture in 1982. and General Services at MSKY. She was appointed Director of MNCN since October 2014 Source: Company (as per 9M16 FS)
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1 December 2016
Link Net (LINK.IJ) Initiating with HOLD: Growing Competition from Indihome Leading Cable Broadband & Pay TV Provider – HOLD with IDR5,300 TP Initiate LINK with HOLD We are initiating Link Net with a HOLD reccomendation and IDR5,300 TP (3% upside), with IDR5,300 TP (3% using a DCF valuation (10.5% WACC) methodology. LINK generates c.60% of revenue upside potential) from the cable-broadband business (Household & Enterprise), with 35% coming from cable Pay TV, and the remaining 5% from others (Ads, etc). LINK offers a defensive bundling package offering with 93% of its customers subscribing to Broadband+PayTV package, making them immune from the sectoral decline of Satellite-based Pay TV (where no internet bundling is available). While we believe that Link Net is sweetly positioned as a leading player in the Indonesia’s tier 1 cities (Jakarta, Surabaya, Bandung), we see limited share price upside potential at the current stretched 18x FY17F PER (at mean level of 3yrs PE band), especially with growing competition from cash-rich-state-owned Telkom Indihome.
Strong pressure on subscribers and ARPU growth from growing comps APRU is growing LINK’s ARPU was at IDR402-403k/mth (USD30/mth) as per 9M16, down -3% from negatively, pressured by IDR415k/mth (USD31.4/mth) as per FY15 average. 2016 marked the first year of ARPU competition (esp. Telkom downward trend, and we believe this will not be the end with further downtrend more Indihome) likely on the back of aggressive discounting by competitor (esp Telkom Indihome) to win market share. We are now forecasting subscribers (RGU) to grow slower at 12%/10% in FY16/17E from 19%/18% in FY14/15.
Strong net cash balance sheet provide good buffer LINK sits on IDR246bn of As per 9M16, LINK sits on a IDR246bn (USD19m) net cash position at -6% net gearing. net cash in 9M16... a good The strong balance sheet profile provides good buffer during volatile economy, as buffer with potential proven with share buyback action performed earlier this year. LINK can also easily step dividend boost upside up their gearing in the event that management decides on big capex for major expansion to new cities. LINK’s dividend payout ratio is currently c.20%, with a potential upside surprise for mid 2017, given the strong and sustainable net cash balance sheet position, in our view.
M&A Angle could potentially return in 2017-18 post economic recovery We are not ruling out CVC’s News of Lippo and CVC considering selling their combined 67% stake in Link Net potential divestment of its emerged in 2014, with potential bidders including Indosat Ooredoo, XL Axiata, and 34% stake in LINK in MNC’s Global Mediacom. Deal went off on pricing mismatch, coupled with economic 2017/18F when economy downturn in 2015. Nonetheless, we believe that deal could re-emerge in 2017-18F recovers... when the economy improves, especially on CVC exiting its stake, via either one strategic stake sale or gradual block placements similar with how CVC exited Lippo’s LPPF in the past couple of years.
Valuation Rationale We derive LINK’s TP using We use Discounted Cash Flow approach to value Link Net, as we believe it is the most 10.5% WACC suitable method to value the defensive subscription nature of the business. We use WACC of 10.5%, based on 7% risk free rate, 0.8 beta, 9% cost of debt, and 4.5% terminal growth rate. Our 12m TP of IDR5,300/sh translates to FY17E PER and EV/EBITDA of 18.2x and 8.3x respectively.
Management and Shareholder Profile LINK is 34.5% controlled Link Net is 34.5% owned by Lippo Group’s PT First Media Tbk (KBLV.IJ), with CVC by Lippo’s First Media, with Capital’s Asia Link Dewa Pte Ltd owning 34.1% stake, and the remaining 31.4% stake 34.1% by CVC and being public free float. LINK is ultimately controlled by James Riady, CEO of Lippo remaining 31.4% as public Group and son of Mochtar Riady. Irwan Djaya is currently LINK’s CEO, a professional free float with 8yrs experience with Lippo’s First Media and ex corporate finance director with KPMG. James’s son Henry Riady also sits as Director in LINK. CVC is a global PE firm with other Indonesia portfolios including: Matahari Department Store (recently exited), Siloam Hospitals, MAP Aktif Adiperkasa, and Softex Indonesia.
Upside & Downside Risks LINK’s 40% of opex and Upside risks: 1) Relaxing competition with Indihome reducing promotion and discounts, 60% of capex is USD- 2) Stronger Rupiah, 3) Faster than expected home-passed rollout and subscribers’ linked... sensitive towards growth. Downside risks: 1) Intensifyinig competition from Indihome or new players USDIDR movement that will further pressure ARPU, 2) Weaker Rupiah, 3) slower than expected home- passed rollout and subscribers’ growth.
PT Bahana Securities – Equity Research – Indonesia Media 38
1 December 2016
Link Net (LINK IJ) Year to 31 December 2014 2015 2016F 2017F 2018F PROFIT & LOSS (IDRb) Sales 2,136 2,564 2,933 3,241 3,515 Gross profit 1,662 1,994 2,260 2,487 2,686 EBITDA 1,231 1,450 1,697 1,924 2,067 Depreciation (393) (515) (621) (734) (844) We expect LINK to generate EBIT 837 935 1,076 1,191 1,223 Net interest inc./(expense) (38) (57) (4) (5) (7) 2017E Revenue/EBITDA/Net Other income/(expense) (43) (21) - - - Profit of IDR3.2tr/ IDR1.9tr/ Pre-tax profit 756 856 1,072 1,185 1,216 IDR885bn respectively Taxes (198) (217) (271) (300) (308) Minority interest (0) (0) - - - Net profit 558 640 801 885 908
BALANCE SHEET (IDRb) Cash and equivalents 359 325 299 356 681 Trade receivables 177 242 201 222 241 Inventories - - - - - Fixed assets 2,694 3,493 4,417 5,089 5,499
Other assets 513 378 378 378 378 Total assets 3,742 4,438 5,294 6,045 6,799 Interest bearing liabilities 182 101 190 190 190 We expect LINK to generate Trade payables 113 177 209 234 258 2017E cash of IDR356bn, with Other liabilities 413 492 555 555 555 total equity of IDR5.07tr Total liabilities 707 771 954 979 1,002 Minority interest - - - - - Shareholders' equity 3,035 3,667 4,340 5,066 5,797
CASH FLOW (IDRb) EBIT 837 935 1,076 1,191 1,223 Depreciation 393 515 621 734 844
Working capital 58 54 136 4 5 Other operating items (279) (302) (275) (305) (315) Operating cash flow 1,009 1,202 1,557 1,623 1,757 Net capital expenditure (898) (1,181) (1,544) (1,406) (1,255) Free cash flow 111 21 13 217 502 Equity raised/(bought) - - - - - We expect LINK to generate Net borrowings (95) (81) 89 - - positive IDR217bn Free Cash Other financing 14 27 - - - Flow in 2017E Net cash flow (11) (33) (26) 57 325 Cash flow at beginning 370 359 325 299 356 Ending cash flow 359 326 299 356 681
RATIOS ROAE (%) 20% 19% 20% 19% 17% ROAA (%) 16% 16% 16% 16% 14% Gross margin (%) 78% 78% 77% 77% 76% LINK has a 2017E ROE of 19% EBITDA margin (%) 58% 57% 58% 59% 59% with an EBITDA margin of 59% EBIT margin (%) 39% 36% 37% 37% 35% and net gearing of -3% (net Net margin (%) 26% 25% 27% 27% 26% Payout ratio (%) 12% 0% 20% 20% 20% cash) Current ratio (x) 1.0 0.9 0.7 0.8 1.2 Interest coverage (x) 22 16 269 223 175 Net gearing (%) -6% -6% -3% -3% -8% Debts to assets (%) 5% 2% 4% 3% 3% Debtor turnover (days) 30 34 25 25 25 Creditor turnover (days) 87 113 113 113 113 Inventory turnover (days) 0 0 0 0 0
MAJOR ASSUMPTIONS Subscribers Growth % 19% 18% 12% 10% 7% We expect FY16/17E subs ARPU Growth % 13% 3% -3% 0% 0% growth of 12%/10% and ARPU EBITDA Margin % 58% 57% 58% 59% 59% growth of -3%/0% respectively
Source: Company, Bahana forecasts
PT Bahana Securities – Equity Research – Indonesia Media 39
1 December 2016
Exhibit.40 Financial Summary - PT Link Net Tbk (LINK.JK) Company information 12M high/low (IDR) : 5,500/2,875 12M High/low consensus TP (IDR) : 7,700/3,700 LINK is a USD1.2bn company with Majority shareholder (%) : PT First Media Tbk (33.8) USD700k/day average Shares outstanding (mn)/Free float (%) : 3,043/32.7 trading liquidity Mkt. cap. (IDRbn/USDmn) : 15,669/1,187 3-m avg.daily t.o.(IDRbn/USDmn) : 9.6/0.7 Bloomberg/Reuters code : LINK.IJ/LINK.JK Source: Bloomberg
Financial Highlights Year to 31 Dec 2014A 2015A 2016F 2017F 2018F Revenues (IDRbn) 2,136 2,564 2,933 3,241 3,515 EBIT (IDRbn) 837 935 1,076 1,191 1,223 LINK currently trades at Net profit (IDRbn) 558 640 801 885 908 2017E PER of 17.7x with Bahana/consensus (%) 98% 98% 11% EPS growth and 1% EPS (IDR) 183 210 263 291 299 yield EPS growth (%) 54% 15% 25% 11% 3% EV/EBITDA (x) 12.5 10.6 9.1 8.0 7.5 P/E (x) 28.1 24.5 19.6 17.7 17.2 FCFPS (IDR) 37 7 (41) 69 163 FCF yield (%) 1% 0% -1% 1% 3% BVPS (IDR) 997 1,205 1,427 1,665 1,905 P/BV (x) 5.2 4.3 3.6 3.1 2.7 DPS (IDR) 14 0 42 53 58 Div. yield (%) 0.3% 0.0% 0.8% 1.0% 1.1% Source: Company, Bahana forecasts
Commentary on 9M16 Results
Link Net in 3Q16 booked Net Profit of IDR208bn (+0% QoQ, +41% YoY), translating to 9M16 earnings of IDR605bn (+31% YoY). Our full year 2016 foreast for Net Profit is IDR801bn, translating to a 76% run-rate on the 9M16 numbers. The share price has run up post this very strong 3Q16 results, but we believe has been largely priced in at the current share price level. Operationally, LINK booked in 3Q16 EBITDA of IDR434bn (+0% QoQ, +19% YoY), translating to 9M16 EBITDA of IDR 1.27tr (+17% YoY), 74% of Full year conensus forecast.
Exhibit.41 Link Net Quarterly Financials – as per 3Q16 LINK- RpBn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 QoQ YoY 9M15 9M16 YoY Bahana FY16E % Cons FY16E % Revenue 493 523 534 586 600 638 649 677 674 719 752 5% 16% 1,887 2,145 14% 2,933 73% 2,970 72% COGS (106) (115) (121) (132) (131) (137) (147) (156) (143) (146) (167) 15% 14% (414) (456) 10% (673) 68% (692) 66% Gross Profit 387 408 413 454 469 501 502 522 531 573 585 2% 16% 1,473 1,689 15% 2,260 75% 2,278 74%
Selling expenses (40) (32) (31) (41) (42) (42) (39) (46) (41) (49) (45) (123) (135) 9% G&A expenses (71) (71) (70) (74) (82) (89) (98) (105) (93) (94) (106) (270) (293) 9% Depreciation (84) (90) (93) (110) (107) (119) (130) (136) (138) (142) (145) (356) (425) 20% Amortization (3) (4) (4) (5) (5) (6) (6) (6) (7) (7) (7) (17) (20) 20% Other (2) 2 (1) (0) 0 (0) (1) 0 2 3 (0) (1) 5 Opex (200) (194) (199) (230) (236) (256) (274) (294) (277) (289) (303) 5% 11% (766) (869) 13% (1,183) 73% (1,175) 74%
Operating Profit 186 214 214 223 233 245 229 228 254 285 282 -1% 23% 707 820 16% 1,076 76% 1,103 74% EBITDA 274 307 311 338 345 370 364 371 399 433 434 0% 19% 1,079 1,266 17% 1,697 75% 1,713 74%
Finance Charges 3 (24) (18) (18) (24) (18) (36) 6 (7) (10) (9) (79) (26) -67% Finance income 4 5 5 4 3 5 3 4 3 4 4 12 10 -10% share in associates (7) (8) (9) (19) (15) (6) - - - - - (21) -
Pretax profit 186 187 192 191 198 226 196 238 250 278 277 0% 41% 619 804 30% 1,072 75% Tax (48) (47) (49) (54) (52) (57) (48) 158 (62) (69) (68) (158) (199) 26% PATMI 138 139 143 137 145 169 147 178 188 209 208 0% 41% 461 605 31% 801 76% 815 74%
Gross Margin 79% 78% 77% 77% 78% 79% 77% 77% 79% 80% 78% 78% 79% 77% 77% Operating Margin 38% 41% 40% 38% 39% 38% 35% 34% 38% 40% 37% 37% 38% 37% 37% EBITDA Margin 56% 59% 58% 58% 58% 58% 56% 55% 59% 60% 58% 57% 59% 58% 58% Net Margin 28% 27% 27% 23% 24% 26% 23% 26% 28% 29% 28% 24% 28% 27% 27% Source: Company, Bahana forecasts, Bloomberg Consensus
PT Bahana Securities – Equity Research – Indonesia Media 40
1 December 2016
Link Net has homes passed rollout of 1.79m as at end 9M16, an addition of 46k Link Net has 1.79m homes from end of 6M16. The company managed to add brodband internet subscribers by passed as per 9M16 14k in 3Q16, totalling to 506k subscribers as at end 9M16, with stable churn rate of 2.2%. ARPU slightly went up to IDR403k/mth as per end of Sep 2016 from IDR402k in Jun 2016, but is still notably down from IDR415k/mth in 2015 average.
Exhibit.42 Link Net’s Key Datapoints as per 9M16
Source: Company
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1 December 2016
Valuation Rationale
We use Discounted Cash Flow approach to value Link Net, as we believe it is the most suitable method to value the defensive subscription nature of the business. We use WACC of 10.5%, based on 7% risk free rate, 0.8 beta, 9% cost of debt, and 4.5% terminal growth rate. Our 12m TP of IDR5,300/sh translates to FY17E PER and EV/EBITDA of 18.2x and 8.3x respectively. We initiate coverage on Link Net with a HOLD rating.
Exhibit.43 Link Net’s DCF Valuation 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 EBIT*(1-tax) 618 698 804 889 914 1,046 1,190 1,343 1,507 1,702 1,915 2,146 Depreciation 377 492 594 707 814 880 944 998 1,033 1,049 1,068 1,089 Change in NC working capital (58) (54) 3 4 2 11 12 12 12 13 14 15 (-) capex 777 1,291 1,518 1,379 1,225 1,279 1,282 1,217 1,133 1,165 1,198 1,233 FCFF 276 (46) (122) 213 500 635 841 1,112 1,394 1,573 1,770 1,986 disc 1.00 1.11 1.22 1.35 1.49 1.65 1.82 2.02 2.23 2.46 2.72 3.01 PV of FCFF 276 (42) (100) 158 335 385 461 551 626 638 650 660
Rf 7% Terminal Value 11,421 Rm 6% EV 16,018 Beta 0.80 Add Cash 325 Cost of Equity 12% - Debt 193 Cost of Debt 9.0% NPV 16,151 Tax Rate 25% Number of Shares 3.043 After tax cost of debt 6.8% Target Price 5,308 Wd 25% We 75% WACC 10.5% Terminal Growth 4.5% Terminal Multiple 17.3 Source: Company, Bahana estimates and forecasts
Link Net currently trades at 2017E PER of 17.7x, with 11% EPS growth, 19% ROE, and 1% dividend yield. Valuation looks stretched vs. 16.3x of media average, also with lower earnings growth vs. Media average of 16%.
Exhibit.44 Indonesia Media Valuation Table Indonesia Media Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing
(IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Surya Citra Media SC M A .I J BUY 2 ,3 3 0 3 ,0 0 0 29% 2 ,5 2 4 1 7 .0 1 9 .1 1 3 .6 8 .5 1 .1 3 .6 48 48 -1 9
Media Nusantara Citra M N C N .I J BUY 1 ,7 3 5 2 ,2 0 0 27% 1 ,8 1 1 1 2 .0 1 2 .4 9 .2 2 .0 1 .0 3 .1 16 37 8
Link Net LI N K.I J HOLD 5 ,1 5 0 5 ,3 0 0 3% 1 ,1 6 1 1 1 .0 1 7 .7 8 .0 3 .1 1 .6 1 .0 19 59 -3
Global Mediacom BM T R.I J REDUCE 640 550 -1 4 % 6 5 8 1 3 .0 1 2 .2 3 .6 0 .7 0 .9 4 .0 6 18 22 Visi Media Asia V I V A .I J REDUCE 252 230 -9 % 3 0 7 5 5 .0 1 9 .7 7 .6 2 .0 0 .4 0 .0 11 33 162 Sector Weighted Avg 17% 6,461 15.9 16.3 10.1 4.6 1.1 2.9 27.8 43.2 4.2 Source: Bahana forecasts, Bloomberg
PT Bahana Securities – Equity Research – Indonesia Media 42
1 December 2016
Comparing LINK’s valuation vs. Indo telco peers, we can also see from the charts below that LINK’s PER of 18x looks more expensive vs. Average of 17x (also more expensive than TLKM at 16x), with EV/EBITDA of 8x in line with the average for the telco peers.
Exhibit.45 Valuation comparison vs. Indo Telcos
Source: Bahana forecasts, Bloomberg
Lookng at the chart below, Link Net’s one year forward PE (based on bloomberg’s consensus) is currently trading at around mean level of the past historical mean since the major float of shares in Dec 2014. The stock has rebounded from a low of -2SD below mean in Mar 2016, with second leg of rally happened post the strong 3Q16 results announcement in end of Oct 2016. We see limited upside potential for Link Net at current level, thus, our HOLD rating.
Exhibit.46 Link Net PE Band
Source: Bahana, Bloomberg
PT Bahana Securities – Equity Research – Indonesia Media 43
1 December 2016
Management Team Profile
Exhibit.47 BoC of Link Net Board of Commissioners Name Position Experience Education
Appointed as President Commissioner in 2013, Ali started his career at PT Metrodata/Wang Computers on 1979 as technical staff. He later served as director in PT Total Data from 1983- President 1993, PT Telplus Digitalindo and PT Telepoint Nusantara (1993-1999), holds several poisiton in Diploma in Computer Technology from Ali Chendra Commissioner MNC Group, latest as President Director in PT Infracom Telesarana (2009-2012), President Control Data Institute, Canada in 1979 Commissioner at PT SKybee Tbk (2009-2012), President Director in PT Indonesia Media Televisi (2012-now) and Director at PT First Media Tbk (2013-now)
Edward started his career in Home Box Office (HBO) holding several roles such as Technical Director, Vice President of Sales and Marketting, Central Region and latest as Senior Vice President of Network Operations and New Business Development (1974-1989). He later hold several positions at Viacom Inc as Chariman and CEO, Viacom New Media, Chairman and CEO, Viacom Broadcast and latest as Senior Vice President in Technology and Operations, Viacom MBA from Columbia University, New York Edward Daniel Inc (1989-1997). Afterwards, He held several position in Citigroup as Executive Vice President, Commissioner in 1979 and Bachelor of Science in Horowitz FOudner and Chariman, e-Citi, Citigroup (1997-2000), Founder and Chairman, EdsLink LLC (2000- Physics from City College of New York, USA 2005), President and CEO, SES-Americom in SES Luxembourg (2005-2008), Founder and Chairman, EdsLink LLC (2008-now), Founding Investor and Director in The Tennis Channel (2009- now), Co-founder and Director in U.S. Space LCC (2009-now), several position at Encompass Digital Media, last as Co-CEO (2010-now) and Chairman in Fairpoint Communications (2011- now)
Commissioner since 2011, Lorne started his career in Swisscom AG as Head of Swisscom International (1996-2001). Afterthat, he served as Joint Global Head of Telecoms and Head of MBA from IMD, Switzerland in 1995 and Lorne Rupert Commissioner the European Communications Group in UBS (2001-2008), Partner and Head of Telkecoms, Master of Arts in Computer Science from Sommerville Media and Technology in CVC Capital partners (2008-now), Director in Sunrise University of Cambridge, UK in 1989 Communications AG (2010-now) and Director in HongKong Broadband Network (2012-now)
Prior to serving as Independent Commissioner in 2013, Jonathan held several key positions such as President Director of Indosat (1980-1991), Secretary General at Parpostel Department Master of Engineering Science from (1991-1998), Commissioner at PT Indosat (1991-2000), Comissioner in PT Siloam Health Group University of Tasmania, Australia in 1968 Jonathan Limbong Independent (2000-2004), Commissioner at PT Bukit Sentul Tbk (2000-2004), Commissioner at PT Pacific and Bachelor of Electrical Engineering Parapak Commissioner Utama Tbk (2000-2004), President Commissioner at PT AsiaNet (2000-2009), President Communications from University of Commissioner At PT First Media Tbk (2000-2009), PostGraduate Director in UPH (2003-2006) Tasmania, Australia on 1966 and rector/provost at UPH (2006-now) and Independent Commissioner at PT Matahari Department Store Tbk (2009-now)
Prior to serving as Independent Commissioner in 2013, Bintan started his career as Professor at University of Indonesia (1971-2006), source for regional autonomy in ministry of state PhD in Law from Padjajaran University, Bintan Regen Independent apparatus, Source for study development and evaluation at the minsitry of internal affairs Bandung in 1991 and Bachelor of Law Saragih Commissioner (1999-2000), Expert in law for ministry of internal affairs (2002-2003), Independent expert from University of Indonesia in 1970 team in land at ministry of internal affairs, Dean of Law School at UPH (2004-now) and President Commissioner of PT Lippo General Insurance Tbk (2013-now)
Source: Company (as per 9M16 FS)
PT Bahana Securities – Equity Research – Indonesia Media 44
1 December 2016
Exhibit.48 BoD of Link Net Board of Directors Name Position Experience Education
Mr. Djaja started his career with Arthur Andersen in audit and consulting services where he worked for three years. Subsequent to that he worked in KPMG, where he spent seven years in Mr. Djaja is a qualified accountant and senior positions within the corporate finance division. Mr. Djaja is a Vice President Director of holds a CPA Australia, CMA and CGMA Irwan Djaya President Director First Media Group. Within the group he has held senior positions as CFO and President from The Institute of Chartered Director of PT First Media Tbk from 2008 to 2013 and served as CFO of PT Link Net Tbk from Management Accountants in Australia 2011 to 2012. He is currently President Director of PT Indonesia Media Televisi and President and the UK. Commissioner of PT Graha Teknologi Nusantara.
Dicky served as Director since 2011. He is in charge in Operations and Technical. He started his career at PT Bank Perniaghaan Indonesia, latest as Assitant Manager, System Analyst (1984- Bachelor in Computer Studies from Dicky Setiadi Director and Corp 1991). He later held several position at PT Bank Lippo Tbk, latest as managing Director, IT, Unversitaet Des Saarlandes, Germany in Moechtar Secretary Operations, General Affair, Asset Administration, Distribution FInancial Services (1993-2002), 1984 Commissioner at PT Link Net (2009-2011) and Director at PT First Media Tbk (2006-now)
Sigit served as Network Development Director. Prior to this, Sigit started his career in Citibank as Assistant Manager, Credit Card Divisions (1991-1992), Sales manager at Peregrine Sewu Securities (1995-1999), Engagement Manager at Booz Allen Hamilton (1996-1999), Executive Director, Head of Indonesia Investment Banking at Morgan Stanley (1999-2006), Senior MBA from UNSW in 1995 and Bachelor in Sigit Prasetya Director Principal, Head of Southest Asia at Henderson Private Capital (2006-2007), Managing Partner Mathematics from ITB in 1991 of CVC Southeast Asia at CVC Asia Pacific (Singapore) (2007-now), Director at Amtek Ebngineering Ltd (2007-now), Director at PT Matahari Department Store (2010-now), Director at Magnum Berhad (2011-now), and Director at QSR Brands (M) Holdings Sdn Bhd (2012-now)
Andy served the company from 2013, responsible in sales. He started his career as Industrial Engineer at Intel Corp, Oregon (1991-1992), Corporate Finance Officer at PT OCBC Sikap MBA from University of Texas, San Antonio Andy Nugroho Securities (1994-1995) Assistant Manager at PT Peregrine Securities (1995), DIrector of Sales at at 1993 and Bachelor of Science in Director Purwohardono PT SG Securities (1995-2002), Senior Vice President at ABN Amro Bank (2002-2003), President Industrial Engineering from Oregon State Director at Danareksa Securities (2003-2009), President Director at PT Morgan Stanley Asia University in 1991 Indonesia (2009-2013), and as Managing Director at CVC Asia Pacific (2013-now)
Henry served the company as Independent Director since 2013, responsible for the finance division and the human resources division. He started his career as Head of Planning at Bank MBA in Finance from Oregon State Sumitomo Niaga (1990-1993), Head of Finance at American Express TRS (1993-1996), CFO and Henry Jani Liando Independent Director University, USA in 1989. Bachelor in Treasurer at Citibank N.A. (1996-2008), Director at PT Matahari Putra Prima Tbk (2008-2010), Chemical Engineering from ITB in 1987 Commissioner at PT Matahari Department Store (2010-now) and Director at PT Link Net (2011- 2013) Source: Company (as per 9M16 FS)
PT Bahana Securities – Equity Research – Indonesia Media 45
1 December 2016
Global Mediacom (BMTR.IJ) Initiate with REDUCE: Dragged by Pay TV & USD debt Cheap but for a reason – REDUCE with IDR550 TP We are initiating coverage on Global Mediacom with a Reduce call and IDR550 TP (14% downside potential), using a SOTP valuation approach with 50% holding company Initiate BMTR with REDUCE discount (1.7x higher than historical mean of 30%). We are cautious on BMTR on the and IDR550 TP (14% back of: 1) weak performance of its Pay TV arm (MSKY) amid fierce competition and downside potential) limitation on the satellite-based business model to offer broadband, 2) high unhedged USD450m debt exposure (40% Net Gearing) which creates huge earnings volatility, and 3) weaker than expected execution on the new internet-related businesses (dissolvement of WeChat Indonesia JV with tencent, slower than expected rollout on Playmedia broadband). We are also discouraged with recent announcement that BMTR has reduced its stake in MNCN to 60.8% as at end 9M16, down from 65.2% in 6M16, whereby proceeds from placements to the market will be used to grow its Sky Vision Network (SVN); and not closing potental for further placements to finance SVN’s capex as debt alternative will be unlikely (given the already debt exposure).
Most integrated media company... but only FTA TV is doing well BMTR is the holding BMTR is the media holding co. of Hary Tanoe’s MNC Group, owning 61% stake in MNCN company for MNCN and (FTA TV, content), 88% stake in MSKY (Pay TV), and other internet-related businesses MSKY (Letang online games, Playmedia cable broadband, Moviebay). BMTR’s majority of revenue comes from MNCN (60%), followed by MSKY (30%), and others (10%). At the first glance, BMTR appears as a complete package offering exposure to Indonesia’s FTA TV, Pay TV, and Internet sector, nonetheless, we highlight that only the FTA TV (MNCN) is currently doing well, with Pay TV and Internet arms in need of turnaround.
Pay TV and Internet lags behind MSKY is not doing so well MSKY (Pay TV) is facing huge ARPU & Subscribers growth pressure on strong on intense competition, compeittion from new aggresive players within the DTH based Pay sector (Big TV, while internet initiative Orange TV), and also competition from the cable players who can offer significantly (such as recent more attractive cable bundling Pay TV package with internet broadband (Telkom dissolvement of WeChat JV Indihome, First Media’s Link Net). Meanwhile, the internet business expansion is with Tencent) also lags currently facing a notable setback post the JV dissolvement of WeChat Indonesia with behind Tencent earlier this year (losing out to WhatsApp, Line), with remaining bullets left on Letang (China Mobile Game) and Playmedia (Cable Internet broadband).
Sky Vision Network (SVN) Masterplan Major upside catalyst for CEO Hary Tanoe plans to privatize MSKY and merge it with the recently established BMTR in 2017/18 will be broadband company Playmedia; combining both under a new roof PT Sky Vision successful monetisation on Networks (SVN). SVN aims to be Indonesia’s leading player for both Satellite DTH- SVN (new holding company based Pay TV, as well as Cable-based broadband and Pay TV. Hary then plans to raise for MSKY & Playmedia) US$200-300m from SVN (roughly at US$1bn valuation, in our view) via either IPO or strategic partnerhip by 2H17 or 2018. We currently adopt a wait-and-see-approach towards SVN masterplan, given the pending execution risk, but note the significant upside potential for BMTR if it can be realised succesfully.
Valuation Rationale We value BMTR using SOTP We are using an SOTP approach to value BMTR, based on its 61% stake in MNCN (based on its stake in (based on IDR2,200/sh valuation), 88% stake in MSKY (based on IDR700/sh MNCN & MSKY) with valuation), and applying a 50% discount (1.7x higher than historical mean of 30%) to holding co. discount of 50% account for risks from a holding company, balance sheet, and the CEO’s political affiliation.
Management and Shareholder Profile BMTR is 49% controlled by BMTR is 49% owned by PT MNC Investama Tbk (BHIT.JK) and ultimately controlled by MNC Investama (BHIT IJ) Hary Tanoesoedibjo, current CEO of the company as well as the CEO of whole MNC Group. Hary is currently also a chairman of his own Partai Perindo political party.
Upside Risks BMTR is highly sensitive Upside risks on BMTR: 1) Succesful value unlocking of SVN, 2) Stronger Rupiah, 3) towards USDIDR movement Better than expected earnings delivery from MNCN and MSKY.
PT Bahana Securities – Equity Research – Indonesia Media 46
1 December 2016
Global Mediacom (BMTR IJ) Year to 31 December 2014 2015 2016F 2017F 2018F PROFIT & LOSS (IDRb) Sales 10,657 10,573 11,086 12,260 13,547 Gross profit 4,369 4,022 4,587 4,948 5,504 EBITDA 3,914 3,404 3,907 4,200 4,682 We expect BMTR to generate Depreciation 1,239 1,353 1,488 1,637 1,801 2017E Revenue/EBITDA/Net EBIT 2,675 2,050 2,419 2,563 2,881 Net interest inc./(expense) (273) (483) (314) (284) (224) Profit of IDR12.3tr/ IDR4.2tr/ Other income/(expense) (240) (91) (110) (60) (110) IDR1.05tr respectively Pre-tax profit 1,915 615 2,095 2,219 2,547 Taxes (627) (331) (524) (555) (637) Minority interest (585) (231) (554) (613) (677) Net profit 703 52 1,017 1,051 1,233
BALANCE SHEET (IDRb) Cash and equivalents 1,485 631 2,047 2,709 3,402 Trade receivables 3,617 3,913 4,103 4,537 5,013 Inventories 2,039 1,912 1,897 2,134 2,347 Fixed assets 6,299 7,949 8,061 7,473 6,922 We expect BMTR to sit on Other assets 11,924 12,087 11,646 12,021 12,021 IDR2.7tr of cash in 2017E, Total assets 25,364 26,492 27,753 28,875 29,706 largely coming from MNCN’s Interest bearing liabilities 7,172 8,146 6,852 6,352 5,352 Trade payables 1,306 2,117 2,100 2,363 2,599 stronger FCF generation Other liabilities 1,000 935 933 933 933 Total liabilities 9,478 11,198 9,885 9,648 8,884 Minority interest 4,606 4,643 5,198 5,811 6,488 Shareholders' equity 11,280 10,651 12,670 13,416 14,334
CASH FLOW (IDRb) EBIT 2,675 2,050 2,419 2,563 2,881 Depreciation 1,239 1,353 1,488 1,637 1,801
Working capital (2,040) 733 (192) (784) (453) Other operating items (1,387) (1,286) (847) (898) (970) Operating cash flow 487 2,851 2,868 2,518 3,258 Net capital expenditure (2,632) (3,003) (1,600) (1,050) (1,250) Free cash flow (2,145) (152) 1,268 1,468 2,008 Equity raised/(bought) 639 (1,001) 353 - - We expect FCF to notably Net borrowings 2,776 931 (1,293) (500) (1,000) improve in 2016E to IDR1.27tr Other financing (1,314) (631) 1,087 (305) (315) post peak capex cycle in MNCN Net cash flow (44) (854) 1,415 663 693 Cash flow at beginning 1,530 1,485 631 2,047 2,709 Ending cash flow 1,485 631 2,047 2,709 3,402
RATIOS ROAE (%) 7% 0% 9% 8% 9% ROAA (%) 3% 0% 4% 4% 4% Gross margin (%) 41% 38% 41% 40% 41% BMTR’s 2017E ROE is at 8%, EBITDA margin (%) 37% 32% 35% 34% 35% with net gearing of 17% EBIT margin (%) 25% 19% 22% 21% 21%
Net margin (%) 7% 0% 9% 9% 9% Payout ratio (%) 56% 51% 136% 30% 30% Current ratio (x) 4.2 1.5 3.8 4.0 4.1 Interest coverage (x) 9.8 4.2 7.7 9.0 12.9 Net gearing (%) 34% 47% 25% 17% 8% Debts to assets (%) 27% 29% 23% 21% 17% Debtor turnover (days) 115 119 119 119 119 Creditor turnover (days) 68 90 90 90 90 Inventory turnover (days) 118 107 107 107 107
MAJOR ASSUMPTIONS Revenue Growth % 6% -1% 5% 11% 10% We are expecting top line COGS Growth % 15% 4% -1% 13% 10% growth of 5/11% for 2016/17E EBITDA Margin % 37% 32% 35% 34% 35% vs. COGS growth of -1%/13%
respectively...
Source: Company, Bahana forecasts
PT Bahana Securities – Equity Research – Indonesia Media 47
1 December 2016
Exhibit.49 Financial Summary – PT Global Mediacom Tbk (BMTR.IJ) Company information 12M high/low (IDR) : 1,260/610 12M High/low consensus TP (IDR) : 1,636/1,267 BMTR is a USD636m Majority shareholder (%) : PT MNC Investama Tbk (47.8%) company with Shares outstanding (mn)/Free float (%) : 14,199 / 51.6 USD1.1m/day average Mkt. cap. (IDRbn/USDmn) : 8,403/ 636 trading liquidity 3-m avg.daily t.o.(IDRbn/USDmn) : 13.9 / 1.1 Bloomberg/Reuters code : BMTR.IJ/BMTR.JK Source: Bloomberg
Financial Highlights Year to 31 Dec 2014A 2015A 2016F 2017F 2018F Revenues (IDRbn) 10,657 10,573 11,086 12,260 13,547 BMTR currently trades at 8x EBIT (IDRbn) 2,675 2,050 2,419 2,563 2,881 2017E PER, 4.9x Net profit (IDRbn) 703 52 1,017 1,051 1,233 EV/EBITDA, and 0.6x PBR... backed by 3% EPS growth Bahana/consensus (%) - - N/A N/A N/A and a 3.6% yield EPS (IDR) 49.5 3.7 71.6 74.1 86.8 EPS growth (%) 14% -93% 1849% 3% 17% EV/EBITDA (x) 5.3 6.0 5.3 4.9 4.4 2016E EPS growth is very P/E (x) 12.2 164.6 8.4 8.2 7.0 high due to reversal of FX FCFPS (IDR) (151) (11) 89 103 141 loss in 2015 to FX gain in FCF yield (%) -25% -2% 15% 17% 23% 2016 as Rupiah BVPS (IDR) 794 750 892 945 1,010 strengthened P/BV (x) 0.8 0.8 0.7 0.6 0.6 DPS (IDR) 24 25 5 21 22 Div. yield (%) 4.0% 4.1% 0.8% 3.6% 3.7% Source: Company, Bahana forecasts
Commentary on the 9M16 Results
BMTR reported its financials for 9M16 on 30 Sep 2016. The company booked in IDR135bn of Net Profit for 3Q16 (an improvement from –IDR323bn Net Loss in 3Q15), translating to 9M16 Net Profit of IDR737bn (an improvement from – IDR129bn Net Loss in 9M15). Bulk of this improvment lies on FX gain, on the back of the company’s consolidated c.USD500m debt exposure, as Rupiah has notably strengthened against USD from Jan to Sep 2016. Operationally, BMTR booked in 3Q16 Operating Income of IDR578bn (-23% QoQ, +5% YoY), translating to 9M16 numbers of IDR1.83tr (+2% YoY). We are forecasting BMTR to book in FY16E Operating Income of IDR2.4tr, whereby the 9M16 run-rate is at 76%.
Exhibit.50 Latest 9M16 Results – PT Global Mediacom Tbk (BMTR.IJ) BMTR (RpBn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 QoQ YoY 9M15 9M16 YoY Bahana % Sales 2,433 2,844 2,730 2,650 2,656 2,870 2,678 2,368 2,490 2,971 2,744 -8% 2% 8,205 8,206 0% 11,086 74% COGS (1,508) (1,535) (1,631) (1,458) (1,689) (1,662) (1,621) (1,580) (1,504) (1,701) (1,685) -1% 4% (4,971) (4,890) -2% (6,499) 75% Gross Profit 925 1,309 1,100 1,191 968 1,208 1,057 788 986 1,270 1,060 -17% 0% 3,233 3,316 3% 4,587 72% SG&A Expenses (365) (503) (522) (458) (411) (531) (504) (525) (493) (515) (481) -7% -5% (1,446) (1,489) 3% (2,168) 69% Operating Income 560 807 578 733 557 677 554 263 493 755 578 -23% 5% 1,788 1,827 2% 2,419 76% Forex Gain / (Loss) 162 (180) (13) (216) (305) (149) (733) 325 257 93 93 (1,187) 443 Interest Expense (88) (95) (90) (104) (132) (140) (135) (153) (133) (152) (143) -6% 6% (407) (428) 5% Other Income / (Expenses) 165 (304) (120) (501) (269) (275) (958) 67 32 161 (87) (1,503) 106 Net Profit before Tax 724 503 458 233 288 402 (405) 329 525 916 491 -46% NA 285 1,932 578% 2,095 92% Tax Expenses (176) (162) (149) (141) (98) (135) (57) (41) (140) (235) (147) (290) (522) Minority Interest 244 139 125 77 100 162 (139) 108 172 292 209 124 673 Net Profit attributable to Parents 304 202 183 15 90 104 (323) 181 213 389 135 -65% NA (129) 737 929 79%
Gross Margin 38% 46% 40% 45% 36% 42% 39% 33% 40% 43% 39% 39% 40% 41% Operating Margin 23% 28% 21% 28% 21% 24% 21% 11% 20% 25% 21% 22% 22% 22% Net Margin 13% 7% 7% 1% 3% 4% -12% 8% 9% 13% 5% -2% 9% 8% Source: Company, Bahana
PT Bahana Securities – Equity Research – Indonesia Media 48
1 December 2016
Valuation Rationale
We are using an SOTP approach to value BMTR, based on its 61% stake in MNCN (based on IDR2,200/sh valuation), 88% stake in MSKY (based on IDR700/sh valuation), and applying a 50% discount (1.7x higher than historical mean of 30%) to account for risks from a holding company, balance sheet, and the CEO’s political affiliation.
Exhibit.51 BMTR SOTP Valuation SOTP Target Price No of Sh (Bn) %Stake Equity Value (IDR Bn) Businesses FTA TV - MNCN 2,100 14.09 61.0% 18,047 Pay TV - MSKY 700 7.06 88.0% 4,351 Other businesses 0 Total 22,399 Minus Net Debt (7,764) Add Cash 755 Net Equity Value 15,390
No of Shares 14.199 NAV per Share 1,084 Average Discount to SOTP 50% Target Price 547 Source: Bahana estimates, Company
Management Profile
Exhibit.52 Board of Commisioners of BMTR Board of Commissioners Name Position Experiece Education He has served as President Commissioner of PT Global Mediacom Tbk (BMTR) since 1998. Mr. Barack has also served as President Commissioner of PT Media Nusantara Citra Tbk. (MNCN) Born in Jakarta, Mr. Barack graduated in President Rosano Barack since 2004 until 2016. He is a member of the Board of Directors at several companies 1979 from Waseda University based in Commissioner affiliated with BMTR and has been President Director of PT Plaza Indonesia Realty Tbk. since Tokyo, Japan. 2000. Born in Surabaya, Rudijanto is the brother Mr. Rudijanto Tanoesoedibjo has served as the Vice President Commissioner of BMTR as of Mr. Hary Tanoesoedibjo, President formally stated in the Deed of Statement of Meeting No. 16 issued on May 13 of the same year. Director of BMTR. He earned a Bachelor of He concurrently holds several key positions in MNC Group as President Director since 2004 of B. Rudijanto Vice President Commerce degree from Carleton PT MNC Sky Vision Tbk (MSKY), Vice President Commissioner since 2013 of PT Rajawali Citra Tanoesoedibjo Commissioner University, Ottawa, Canada (1987) and Televisi Indonesia (RCTI), Commissioner since 2004 of MNCN, and President Commissioner of Master of Business Administration degree PT MNC Asset Management since 1999. In addition, Mr. Tanoesoedibjo has served as from the University of San Francisco, USA President Commissioner of PT Dos Ni Roha since 2007. (1989)
Mr. M. Idwan Ganie has served as Independent Commissioner of BMTR since 2006. Mr. Ganie holds licenses as an advocate/lawyer and legal consultant for the financial sector. He currently serves as Managing Partner of Lubis, Ganie and Surowidjojo (LGS) law firm, Mr. Ganie is an Indonesian citizen born in Mohamed Idwan Independent Chairman of the Association of Business Competition Law Consultants (PERKUMPUS), Amsterdam, Netherlands in 1955. He Genie Commissioner Chairman of the Indonesian Board of Sports Arbitration (BAKI), member of PERADI (Indonesian obtained his PhD in law from the Advocates Association) and HKHPM (Capital Market Legal Consultants Association), member University of Hamburg, Germany of the panel of arbitrators of Singapore International Arbitration Center (SIAC) and fellow at Singapore Institute of Arbitrators (SIArb).
Mr. Prasetio has been an Independent Commissioner for PT Global Mediacom Tbk since 20 Born in Semarang, Indonesia, Mr. Prasetio May 2015 as decided by the Annual General Meeting of Shareholders which issued deed No. graduated with a degree in Economics 49 dated 20 May 2015. He functioned in the same capacity as Independent Commissioner at from the University of Indonesia in 1973 John Aristianto Independent PT Sarana Menara Nusantara Tbk since 18 November 2009 and PT Bank Permata Tbk (2011- and has attended various executive Prasetio Commissioner 2013). Mr. Prasetio has also served as Deputy President of the Indonesian Chamber of programs abroad such as the Program for Commerce and Industry, and as Chairman of its International Economic Cooperation Management Development at Harvard Department. Business School, USA (1980).
She served as Independent Commissary PT Global Mediacom Tbk since 2015. efore that, she served as Branch Leader at Bank Dagng Nasional Indonesia, Associate Director PT MNC Born in Cirebon, Indonesia in 1959, Mrs. Investama Tbk (1996-1999) and Director of PT MNC Investama Tbk (2000-2002. She also Beti Puspitasari Independent Santoso earned her bachelor’s degree in served as Comittee Public Leader of Asosiasi Perusahaan Efek Indonesia (APEI) (2001-2005), Santoso Commissioner Economics from Parahyangan University and Major Director of PT MNC Kapital Indonesia Tbk (2002-2004). In 2004-2007, she served as Bandung in 1985. Director of PT Rajawali Citra Televisi Indonesia (RCTI) and then as Director of RCTI (2009- 2013) and Vice Major Director of RCTI (2013-2014).
Source: Company (as per 9M16 FS)
PT Bahana Securities – Equity Research – Indonesia Media 49
1 December 2016
Exhibit.53 Board of Directors of BMTR Board of Directors Name Position Experiece Education
Hary Tanoe serves as CEO of Global Mediacon since 2002. Hary was recently appointed as Hary holds a Bachelor of Commerce President Commissioner of MNCN since 2016, after previously serving as CEO of MNCN. He (Honours) degree from Carleton University founded PT MNC Investama Tbk in 1989, and became its President Director until 2002 and Hary (1988) and a Master of Business President Director once again in 2009 to date. Hary is also President Director of RCTI since 2003-2008 and re- Tanoesoedibjo Administration degree from Ottawa served in the same position in 2010 - present. Since 2006, he has also taken the role of University (1989). Both universities are President Commissioner for PT MNC Sky Vision Tbk (MSKY). Hary is also the chairman of Partai based in Ottawa, Canada. Perindo, a political party he founded in 2015.
Handhianto serves as Director on BMTR since 2009. Mr. Kentjono also serves as Born in Semarang, Indonesia, Mr. Kentjono Commissioner of PT Infokom Elektrindo (since 2008), and President Commissioner of PT MNC obtained his BA degree in 1986, MA/MSc Lisensi International (since 2013). Previously, he served as Vice President Director of PT MNC degree in Applied Mathematics and Handhianto Director Sky Vision Tbk (2006-2015), President Commissioner of PT MNC GS Homeshopping (2012- Economics in 1989, MBA degree in S.Kentjono 2014), and Group Director of Rimba Group (1998-2006). He was a Truman Scholar at Maureen International Business in 1991, and PhD Mansfield Center in 1995 and Research Fellow at Washington Education Research Association in Applied Mathematics from University of and the Institute of Transportation Research for Education (1990-1997). Montana based in Missoula, USA in 1993.
Oerianto becomes Director in BMTR since 2012. He previously served as Director of MNCN Born in Jember, Indonesia, Mr. Guyandi (2009-2013), Director of MSKY (2004-2008), Vice President Director of RCTI (2008-2009), Vice earned a Bachelor of Economics degree in Oerianto Director President Director of GlobalTV (2007-2008), Director of PT MNC Investama Tbk (2004-2008) Accounting from University of Indonesia. Guyandi and Director of PT MNC Kapital Tbk (2000-2002). He started his career at Public Accountant He also has engineering qualifications firm Prasetio, Utomo & Co (Arthur Andersen) and Salim Group. from Bogor Agricultural Institution.
David becomes Director in BMTR since 2012. He serves as President Director of GlobalTV since 2010, Commissioner of PT Linktone Indonesia since 2015, Commissioner of PT MNC GS Homeshopping since 2012, President Director of PT MNC Lisensi International since 2013 and David obtained a Bachelor of Commerce President Director of PT MNC Tencent since 2013. He formerly held various positions within degree in Finance and Information David Fernando Director the MNC Media group, namely as Vice President Director of PT Media Nusantara Informasi Systems (2001) and Master of Commerce Audy (2009-April 2012), President Director of PT Linktone Indonesia (2011-2015), Head of Investor degree in Accounting (2002) from the Relations of MNCN (2007-2009), Senior Manager of Corporate Finance and Personal Assistant University of New South Wales, Australia. to the Group CEO of MNC (2006-2007), Procurement Manager of PT Elektrindo Nusantara (2005-2006), and Customer Relations Manager of PT Mobile-8 Telecom Tbk (2003-2005).
Syafril Nasution becomes Director of BMTR since 2015. Since 2009, he has served as Director of Corporate Affairs of PT Rajawali Citra Televisi Indonesia and President Director of PT Indonesia Air Transport. He is also the Vice President Commissioner of PT Media Nusantara Born in Medan on 17 April 1961, Mr. Informasi (appointed in 2013) and also Director of PT MNC Toll Road. Previously, he took on Nasution graduated with a degree in the role of Corporate Secretary of PT Media Nusantara Citra Tbk (2014-2015), President Syafril Nasution DIrector Corporate Economics (1985) from Sekolah Director of PT MNC Infrastruktur Utama (2013-2014), President Commissioner (2013-2014) Tinggi Ilmu Ekonomi Perbanas (STIE and President Director (2010-2013) of PT Sun Televisi Networks, President Director of PT Perbanas). Hikmat Makna Aksara (2009-2011), Vice President Director of PT Media Nusantara Informasi (2008), President Director of PT Media Nusantara Indonesia (2008-2013) and President Director of PT Media Nusantara Press (2008-2009).
His legal experience has covered several high profile designations: Senior Vice President Legal Counsel Group of CEO at PT Media Nusantara Citra Tbk (2011-2015), Legal Deputy Director and Born in Malang, Indonesia, on 25 February Christopher Corporate Secretary of PT Mobile-8 Telecom Tbk (2005-2008) and Legal General Manager of PT Director 1967, he belongs to the Civil Law class of Taufik Siswandi Natrindo Telepon Selular (Axis) (2005). In PT Excelcomindo Pratama Tbk, he served as 1992 from Trisakti University. Corporate Lawyer (1999-2005), Manager of Plant Property Acquisition (1998-1999), and Lawyer (1996-1998).
Born in Surabaya, Mrs. Pudjiastuti earned Indra Pudjiastuti has served as Director at BMTR since 2008. Indra used to work at Citibank her Master of Business Administration Indonesia for more than 7 years, first as Human Resources Director and then as Credit Risk (MBA) degree specializing in marketing Indra Pudjiastuti Independent director Operations Director. She also served as Principal Consultant at Pricewaterhouse Coopers from Strathclyde Graduate Business (PwC) and as GM of Learning and Development at PT Excelcomindo Pratama Tbk. School (SGBS) based in Glasgow, UK in 1992. Source: Company (as per 9M16 FS)
PT Bahana Securities – Equity Research – Indonesia Media 50
Visi Media Asia (VIVA.IJ) Initiate with REDUCE: Awaiting Succesful Debt Refinancing High ANTV’s growth clouded by high gearing– REDUCE with IDR230 TP Initiate VIVA with REDUCE We are initiating coverage on Visi Media Asia, holding company of ANTV and TV One, and IDR230 TP (9% with REDUCE reccomendation and IDR230 TP (-9% downside potential), based on downside potential) FY17E PER of 18x (c.15% discount to sector average of 21x). We are highly encouraged with VIVA’s ANTV sector-high adex growth post the huge success of their bollywood Indian drama strategy, nonetheless, we are overall cautious on VIVA on the back of 1) its weak B/S at >160% Net Gearing with significant undhedged USD230m debt exposure and 2) slower-than-expected execution on B/S de-leveraging with continued postponment of debt refinancing; whereby both are causing significant pressure on bottom line from growing.
ANTV and its Bollywood Empire ANTV is now the no.2 TV in VIVA managed to secure 10M16 TV Audience share (All-Time) of 18.6%, up +2ppt YoY Indonesia based on from 16.6% in 10M15 and up significantly from the 11-12% level in 2013. This is audience market share, largely thanks to ANTV’s succesful content turnaround with a new focus on Indian thanks to Indian bollywood Bollywood drama series (dubbed in Local language), all the way from afternoon non- drama dominance prime time, until the evening prime-time (6-11pm) slots. ANTV became Indonesia’s strongest growing TVs among the 11 National FTA TV broadcasters with +49% adex growth in 3Q16 and +24% in 9M16.
Balance Sheet De-leveraging is Key; But when? We will turn more positive VIVA has net gearing of >160% for FY17E, highest among peers, on the back of its low on VIVA if mgmt can equity base, coupled with high USD230m debt exposure. VIVA’s bottom line is further successfully execute the burdened with the notably high interest rate at c.20% IRR for its USD debt, with debt refinancing to remove further pressure from FX loss given USDIDR’s volatile FX movement in the past few the lofty interest burden years. As such, it is crucial for management to re-finance at soonest. Management is and FX loss volatility on already in talks with BNI and BRI to re-finance the USD loan with a c.Rp2.5tr combined bottom line IDR loan syndication at ~13% interest at the ANTV & TV One levels, nonetheless, realisation of the deal kept on getting postponed from the original September 2016 deadline due to specific required clause by the bank (i.e. personal guarantee commitment by sponsor). We are cautious on VIVA until we can see more clarity on the execution on refinancing plan, as the current B/S profile could create big obstacle for future earnings growth and thus preventing share price from re-rating.
ANTV’s M&A Angle VIVA plans to sell 5-20% VIVA has previously disclosed its intention to sell ANTV in 2013 with potential bidders stake of ANTV to a strategic including MNCN, SCMA, Trans. Nonetheless, the plan pivoted, with VIVA ended up buyer and use the proceed bringing ANTV (MDIA.IJ) public with 10% free float in 2014. In order to de-leverage to de-leverage B/S B/S and improve earnings, VIVA is currently further exploring potential stake sale of ANTV, but this time only 5-20%. Nonetheless, we believe it will be hard to find buyers for such size, with most of the exising media moguls only willing to buy when they get majority control.
Valuation Rationale VIVA plans to sell 5-20% We value VIVA using FY17E PER of 18x, at c.15% discounts from media peers of 21x, stake of ANTV to a strategic which we believe is warranted, given its high gearing profile, along with the sponsor’s buyer and use the proceed (Bakrie Family) political affiliation, but also taking into account their high growth to de-leverage B/S profile.
Management and Shareholder Profile VIVA is majority owned by the Bakrie family, with Erick Thohir (brother of Boy Thohir, CEO of Adaro Energy) owning minority stake in ANTV. VIVA is currently ran by Anindya VIVA is majority controlled Bakrie as CEO, son of political Aburizal Bakrie (Ical), ex-chairman of Partai Golkar and by the Bakrie family presidential candidiate of the 2014 election.
Upside Risks Upside risks: 1) Succesful Debt refinancing, 2) Succesful ANTV share divestment, 3) Futher improvement in audience share
Visi Media Asia (VIVA IJ) Year to 31 December 2014 2015 2016F 2017F 2018F PROFIT & LOSS (IDRb) Sales 2,273 2,109 2,383 2,799 3,286 Gross profit 1,526 1,391 1,558 1,850 2,242 EBITDA 866 628 721 932 1,232 VIVA is expected to generate Depreciation (94) (106) (119) (133) (146) 2017E Revenue of IDR2.8tr, EBIT 772 523 603 799 1,086 Net interest inc./(expense) (562) (583) (369) (370) (387) EBITDA of IDR932bn, and Net Other income/(expense) 203 (96) (29) (32) (35) Profit of IDR211bn Pre-tax profit 375 (346) 355 397 664 Taxes (202) (136) (195) (159) (266) Minority interest (29) (30) (24) (28) (32) Net profit 144 (512) 136 211 367
BALANCE SHEET (IDRb) Cash and equivalents 463 65 624 592 256 Trade receivables 965 588 665 781 1,260 Inventories 209 366 425 489 537 VIVA’s debt is expected to Fixed assets 941 857 1,007 1,207 1,407 remain high if MDIA stake Other assets 3,585 4,329 4,245 4,152 4,160 Total assets 6,162 6,206 6,966 7,221 7,621 divestment can not be realized Interest bearing liabilities 2,902 3,009 4,000 4,000 4,000 to de-leverage balance sheet Trade payables 106 245 281 324 356 Other liabilities 511 795 798 800 801 Total liabilities 3,519 4,049 5,080 5,123 5,157 Minority interest 439 464 58 58 58 Shareholders' equity 2,204 1,693 1,829 2,040 2,406
CASH FLOW (IDRb) EBIT 772 523 603 799 1,086 Depreciation 94 106 119 133 146
Working capital (751) 958 (11) (43) (503) Other operating items (562) (815) (593) (561) (688) Operating cash flow (446) 771 117 328 42 Net capital expenditure (441) (1,092) (269) (333) (346) Free cash flow (888) (321) (152) (5) (304) Equity raised/(bought) (20) 1 - - - VIVA is likely to remain in Net borrowings 148 108 991 - - negative FCF territory Other financing 407 (185) (280) (28) (32) Net cash flow (353) (398) 559 (32) (336) Cash flow at beginning 816 463 65 624 592 Ending cash flow 463 65 624 592 256
RATIOS ROAE (%) 6% -21% 7% 11% 16% ROAA (%) 3% -8% 2% 3% 5% Gross margin (%) 67% 66% 65% 66% 68% EBITDA margin (%) 38% 30% 30% 33% 37% VIVA’s ROE is expected to grow EBIT margin (%) 34% 25% 25% 29% 33% to 7% this year and 11% in Net margin (%) 6% -24% 6% 8% 11% Payout ratio (%) 0% 0% 0% 0% 0% 2017E Current ratio (x) 2.9 1.4 2.9 2.8 2.9 Interest coverage (x) -1.3 -0.9 -1.5 -2.0 -2.7 Net gearing (%) 92% 136% 179% 162% 152% Debts to assets (%) 47% 48% 57% 55% 52% Debtor turnover (days) 155 102 102 102 140 Creditor turnover (days) 52 124 124 124 124 Inventory turnover (days) 103 188 188 188 188
MAJOR ASSUMPTIONS Ad Revenue Growth % 46% -7% 13% 17% 17% We expect VIVA to generate COGS (Content) Growth % 78% -4% 15% 15% 10% 13%/17% adex growth in EBITDA Margin % 38% 30% 30% 33% 37% FY16/17E
Source: Company, Bahana forecasts
Exhibit.54 Financial Summary – PT Visi Media Asia Tbk (VIVA.IJ) Company information 12M high/low (IDR) : 190 / 450 12M High/low consensus TP (IDR) : NA VIVA is a USD314m Majority shareholder (%) : PT Bakrie Global Ventura / 53.7% company with Shares outstanding (mn)/Free float (%) : 16,464 / 45% USD200k/day average trading liquidity Mkt. cap. (IDRbn/USDmn) : 4,149 / 314 3-m avg.daily t.o.(IDRbn/USDmn) : 2,600 / 0.2
Bloomberg/Reuters code : VIVA.IJ / VIVA.JK Source: Bloomberg
Financial Highlights Year to 31 Dec 2014A 2015A 2016F 2017F 2018F Revenues (IDRbn) 2,273 2,109 2,383 2,799 3,286 EBIT (IDRbn) 772 523 603 799 1,086 Net profit (IDRbn) 144 (512) 136 211 367 Bahana/consensus (%) NA NA VIVA currently trades at EPS (IDR) 9 (31) 8 13 22 2017E PER of 19.7x with EPS growth (%) 31% -455% -127% 55% 74% 55% EPS growth and 0% EV/EBITDA (x) 8.1 11.2 9.8 7.6 5.7 yield P/E (x) 28.7 (8.1) 30.6 19.7 11.3 FCFPS (IDR) (54) (19) (9) (0) (18) FCF yield (%) -21% -8% -4% 0% -7% BVPS (IDR) 134 103 111 124 146 P/BV (x) 1.9 2.5 2.3 2.0 1.7 DPS (IDR) 0 0 0 0 0 Div. yield (%) 0% 0% 0% 0% 0% Source: Company, Bahana forecasts
Valuation Rationale
We value VIVA using a 2017E PER of 18x, at c.15% discount from sector average of 21x, which we believe is warranted, given its high gearing profile, along with the sponsor’s (Bakrie Family) political affiliation, but also taking into account their high growth profile. Our target price of IDR230/sh translates to -9% downside potential from the current share price level. VIVA is currently trading at 20x FY16E PER, with 55% EPS growth, 11% ROE, and notably weak balance sheet with 162% net gearing.
Exhibit.55 Indonesia Media Valuation Table Indonesia Media Upside / 2017E BBG Market Name Rating Price TP EPS EV/ EBITDA Net Ticker Downside cap PER PBV PEG Yield ROAE Growth EBITDA Margin Gearing
(IDR) (IDR) (%) (USDmn) (%) (x) (x) (x) (x) (%) (%) (%) (%)
Surya Citra Media SC M A .I J BUY 2 ,3 3 0 3 ,0 0 0 29% 2 ,5 2 4 1 7 .0 1 9 .1 1 3 .6 8 .5 1 .1 3 .6 48 48 -1 9
Media Nusantara Citra M N C N .I J BUY 1 ,7 3 5 2 ,2 0 0 27% 1 ,8 1 1 1 2 .0 1 2 .4 9 .2 2 .0 1 .0 3 .1 16 37 8
Link Net LI N K.I J HOLD 5 ,1 5 0 5 ,3 0 0 3% 1 ,1 6 1 1 1 .0 1 7 .7 8 .0 3 .1 1 .6 1 .0 19 59 -3
Global Mediacom BM T R.I J REDUCE 640 550 -1 4 % 6 5 8 1 3 .0 1 2 .2 3 .6 0 .7 0 .9 4 .0 6 18 22 Visi Media Asia V I V A .I J REDUCE 252 230 -9 % 3 0 7 5 5 .0 1 9 .7 7 .6 2 .0 0 .4 0 .0 11 33 162
Sector Weighted Avg 17% 6,461 15.9 16.3 10.1 4.6 1.1 2.9 27.8 43.2 4.2 Source: Bahana forecasts
Management Team Profile
Exhibit.56 Board of Commissioners of VIVA Board of Commissioners Name Position Experiece Education
Indonesian citizen, born in Jakarta in 1970. He previously served as Vice President Commissioner of VIVA since July 2014. He has served as the President Director of Erick Thohir received an A.A. degree Intermedia Capital Tbk. since 2013, President Commissioner of PT Redal Semesta, majoring in Communication from Glendale Commissioner of PT Asia Global Media, and PT Viva Media Baru since May 2012; College, California, USA in 1990, a B.A. President President Commissioner of PT Entertainment Live and Commissioner of PT Mahaka degree majoring in Advertising from Erick Thohir Commissioner Media Tbk. since 2008 and Director of PT Trinugraha Thohir since 1994. He has also American College, California, USA in 1991, served in several strategic positions including Commissioner of Berau Coal from 2006 and an M.B.A. degree majoring in Marketing to 2010, President Director of PT Beyond Media from 2008 to 2011, and President from National University, California, USA in Director of PT Lativi Mediakarya from 2007 to 2012. In addition, he was appointed as 1993. Chairman of the Indonesia Olympic Committee (KOI) for the 2015-2019 period.
Indonesian citizen, born in Jakarta in 1951. Currently, he has served as a Omar Luthfi Anwar earned his Bachelor Commissioner of PT Bakrie Capital Indonesia since 2008, and Commissioner of PT degree from Universitas Indonesia in 1981 Omar Luthfi Cakrawala Andalas Televisi since 2002. During his career, he has held several senior Commissioner and an M.B.A. degree from Golden Gate Anwar positions including as CEO of PT Cakrawala Andalas Televisi from 1998 to 2002, University, USA majoring in Banking and Director of PT Bakrie Capital Indonesia from 2002 to 2008, and Director at PT Bank Finance in 1988. Nusa Nasional from 1994 to 1998. He began his career at Pertamina in 1971.
Indonesian citizen, born in Jakarta in 1968. He has concurrently served as Commissioner of PT Mahaka Media Tbk. and Commissioner of PT Lativi Mediakarya Rosan Perkasa Roeslani received his since 2008, Commissioner of Mitra Global Telekomunikasi since 2004, Commissioner Bachelor of Science degree in Business of Kemang Jaya Raya since 2003 and President Director of Recapital Advisors since Administration from Oklahoma State 1996. He previously served as Commissioner of Saratoga Investama Sedaya from University, USA in 1992. He earned an M.B.A. Rosan Perkasa 2004 to 2013, President Commissioner of Bank BTPN from 2005 to 2007, President Commissioner degree majoring in International Business Roeslani Commissioner of Recapital Securities from 2002 to 2003, Commissioner of Sriboga cum laude and an M.A. majoring in Business Raturaya from 2003 to 2008, Commissioner of Kaltim Prima Coal from 2003 to 2007, Communication and Public Relations cum Commissioner of Arutmin Indonesia from 2001 to 2007, President Commissioner of laude from Antwerpen European University, Recapital Asset Management from 2002 to 2003, President Director of Berau Coal from Belgium, in 1994. 2010 to 2013, President Director of Berau Coal Energy Tbk. from 2010 to 2013 and Director of Bumi PLC from 2010 to 2013.
Indonesian citizen, born in Semarang in 1952. He was previously Data Processing Mr. Raden Mas Djoko Setiotomo received his Raden Mas Independent Manager of Schlumberger Overseas SE and Data Processing Supervisor of degree from Technische Universitat Berlin, Djoko Setiotomo Commissioner Schlumberger EUR London and South East Asia Computing Center Manager of Germany majoring in Informatics in 1976. Schlumberger Technical Center in Singapore from 1982 to 1989.
Indonesian citizen, born in Semarang in 1952. He has served as an Independent Setyanto Prawira Santosa received his Commissioner of VIVA since 2011. From 1992 to 1996, he served as the President Bachelor degree from the Faculty of Director of PT Telkom Tbk. He then served as a member of People’s Consultative Economics, Padjadjaran University in 1971, a Assembly (MPR) of the Republic of Indonesia, representing business sector from 1997 Master of Economics degree from Michigan Setyanto Independent to 1999. In 1998, he served as a Deputy Minister of State-Owned Enterprises for State University, East Lansing, United States Prawira Santosa Commissioner Manufacturing Industry and Distribution Channels until 2000. From 2005 to 2010, he of America in 1978 and a Doctoral degree served as a Commissioner of PT Indosat Tbk. He is currently a tenured lecturer at Cum Laude from Gadjah Mada University, Padjadjaran University for undergraduate up till post graduate programs in the field of Yogyakarta majoring in Interdisciplinary Economics. Studies in 2007.
Source: Company (as per 9M16 FS)
Exhibit.57 Board of Directors of VIVA Board of Directors Name Position Experiece Education
Currently, he also serves as CEO of PT Bakrie Global since 2012, President Commissioner of PT Lativi Mediakarya since 2007, as President Commissioner of PT Cakrawala Andalas Televisi since 2009, as President Commissioner of PT Bakrie Anindya Novyan Bakrie received his Bachelor Sumatera Plantations Tbk. since 2012, as President Commissioner of PT Intermedia of Science degree majoring in Industrial Anindya Novyan Capital Tbk. since 2013, and as President Director of PT Bakrie Telecom Tbk. since Engineering from Northwestern University, President Director Bakrie 2013. He is the founder of Bakrie Center Foundation (BCF), Vice Chairman of the Illinois, USA and earned his M.B.A. degree Indonesian Chamber of Commerce and Industry (KADIN), APEC Business Advisory from Stanford Graduate School of Business- Council (ABAC) Co-Chair representing Indonesia, Board of Trustees member of California, USA in 2001. Eisenhower Fellowship and sits on the Board of the International Council of Harvard University’s Belfer Center for Science and International Affairs.
He earned a Bachelor of Science degree in Indonesian citizen, born in Jakarta in 1971. He has concurrently served President Civil Engineering (Construction) from the Commissioner of PT Digital Media Capital since 2015, Commissioner of PT Bakrie University of Southern California, USA in Global Ventura since 2013, Commissoner of PT Intermedia Capital Tbk. since 2012, 1993, Master of Engineering degree in Deputy President Director of PT Visi Media Asia Tbk since 2011, Commissioner of PT Robertus Structural Engineering minoring in Business Vice President Director Cakrawala Andalas Televisi since 2009, Commissioner of PT Lativi Mediakarya since Bismarka Administration at Cornell University, USA in 2007, Director of PT Arutmin Indonesia and PT Kaltim Prima Coal since 2007, Director 1994, and a Master of Business at PT Bakrie Finance since 2002, Director at Capital Managers Asia Pte. Ltd. Since Administration degree in Finance, Investment 2001, and Director at Great Asian Holding Pte. Ltd. since 1996. He has also held and Banking from the University of Wisconsin- numerous other senior management positions. Madison, Wisconsin, USA in 1995.
Indonesian citizen, born in Jakarta in 1979. He has a filial relationship with Anindya Anindra Ardiansyah Bakrie earned his Novyan Bakrie, Director of VIVA. Currently he also serves as President Director of PT Bachelor of Science degree in Finance and Anindra Lativi Mediakarya, President Director & CEO of PT Viva Media Baru, and Director of PT International Business from Georgetown Ardiansyah Director Bakrie Global Ventura. Previously he also served as Commissioner of PT Viva Media University, Washington DC, USA in 2001, and Bakrie Baru from 2008 to 2012, and Commissioner of PT Asia Global Media from 2009 to an M.B.A. in Finance from Bentley, McCallum 2012. Graduate School of Business, USA in 2005.
Indonesian citizen, born in Jakarta in 1969. He concurrently serves in various strategic Otis Hahyari received his Master of Arts positions including Corporate Programming Director PT Lativi Mediakarya and degree in Management from San Diego State Operational Director PT Cakrawala Andalas Televisi since 2013. Previously he was Otis Hahyari Director University, USA in 1995 and a Master of Programming Director of PT Cakrawala Andalas Televisi from 2009 to 2012, Sales and Science degree in Finance from Lancaster Programming Director of PT Lativi Mediakarya from 2007 to 2010, and Managing University, United Kingdom in 1996. Director of PT Pasaraya Toserjaya from 2000 to 2003.
Indonesian Citizen, born in Riau in 1962. He has also served as a Director of Asia Global Media since 2013 and a Commissioner of PT Digital Media Asia since 2015. He M. Sahid Mahudie obtained his Bachelor of served as Vice President of PT Bakrie Global Ventura (formerly PT CMA Indonesia) Economics in Accounting degree from the M. Sahid from 2006 to 2013, President Director of PT Semesta Marga Raya from 2003 to 2007, Sekolah Tinggi Ilmu Ekonomi Indonesia Director Mahudie Finance Director of PT Austral Byna from 2002 to 2003 and Chief Financial Officer of (STEI) in 1988 and his Master of Law degree PT Tipperary Indonesia from 2000 to 2003. He served as the Vice Chairman of the in Business Law from the University of Permanent Commission on Tax for the Indonesian Chamber of Commerce (KADIN- Padjadjaran, Bandung, in 2014. Central) from 2012 until 2015, and was reappointed for the period 2015- 2019.
Irish Citizen, born in Ireland, 1967. He is the founder of PT Wellington Capital Advisory, a consulting firm with operational base in Jakarta and Singapore which focuses on the TMT sector. He has also served as a Non-Executive Board Member of David Burke earned a Bachelor of Business the British Chamber of Commerce in Indonesia since 2008 until the present. He has Administration degree majoring in Business served as CEO of PT Komet Infra Nusantara (January 2014 – March 2015), Senior Economics from the London School of David Burke Director Executive Vice President of PT Telekomunikasi Indonesia Tbk. (2006 – 2011), COO PT Economics in 1988 and B.Sc. majoring in Broadband Multimedia Tbk. (2004 – 2006), President Director/Founder of PT Indonesia Business Administration from Trinity College Media Technologies (2000 – 2004), President Director/COO of PT M-Web Indonesia, a in 2002. subsidiary of PT Indonesia Media Technologi (2000 – 2003), COO of Indoexchange.com (1999 – 2000), and VP Business Development of Bank Bira Group (1995 – 1999).
Indonesian citizen, born in Pekanbaru in 1968. He concurrently serves as Secretary General of the Association of Indonesian Private Broadcasting, Secretary General with Indonesian Advertising Board, and Vice Chairman of the Permanent Broadcasting Neil R. Tobing received his Master of Law Commission of the Indonesian Chamber of Industry and Commerce (KADIN) for the (LLM) specializing in Media and Information Neil R. Tobing Independent Director 2015-2019 period. He has held various key positions including Director of PT Redal Technology Laws and M.Com. International Semesta until 2015, Deputy Director of Legal and Programming Services of PT Business from the University of New South Cakrawala Andalas Televisi from 2009 to 2011, Director of Legal and Compliance of Wales, Sydney, Australia. Quantum Multimedia Communication Pty. Ltd., Melbourne, Australia, from 2003-2009, and Director of PT Bakrie Electronics from 2000-2003.
Source: Company (as per 9M16 FS)
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