Media Nusantara Citra Tbk (MNCN) Will Strengthen Intensively Its Content Company Report | Sept 17, 2018 Bottom Line Undermined by Rupiah Depreciation In 2Q18, MNCN posted the growth of 3.5% y-y to IDR2.09 trillion and of 1.8% y-y to IDR362 billion in the revenue and net profit, respectively. The surge in revenue was backed Buy by the incline of 5.8% y-y to IDR2.04 trillion in the revenue posted by the ads. and Dec 2019 TP (IDR) 1,125 content revenues. MNCN succeeded to post a stellar growth in the revenue in light of its downturn audience share in the early of 2018. On the quarter basis, its revenue edged Consensus Price (IDR) 1,396 up 30.3% q-q because its ahead of Idul Fitri local soap operas successfully attracted TP to Consensus Price -19.4% audiences. vs. Last Price +33.9% However, the rupiah’s exchange rate for the U.S. dollar depreciated further whittled Shares data away its bottom line. Since the early of 2018, the loss of foreign exchange rate Last Price (IDR) 840 reached IDR221 billion. 2Q18’s pre tax profit margin also declined to 27.4% (vs. 33.8% in Price date as of Sep 13, 2018 2Q17). 52 wk range (Hi/Lo) 1,655 / 835 Free float (%) 43.1 Spurred by Trend of Upbeat Ads. Expense The ads. revenue increased by 4.17% y-y to IDR3.54 trillion in 1H18. The increase aligned Outstanding sh.(mn) 14,276 with the trend of upbeat ads. expenses on the national basis. According to Nielsen, a Market Cap (IDR bn) 11,992 leading global information & measurement company, 1Q18’s ads. expenses in the mass Market Cap (USD mn) 810 media was buoyant at around 5% y-y (vs. +4% y-y in 1H17). The TV media still dominated Avg. Trd Vol - 3M (mn) 17.1 the biggest ads. expense portion of 82% because the TV’s coverage to Indonesia reached Avg. Trd Val - 3M (bn) 16.4 96%. Foreign Ownership 17.2% To Remain Focus on Strengthening Content Quality Another to the upbeat ads. expenses, the content revenue grew further. In 1H18, the Trade, Services & Investment content revenue climbed by 42% y-y to IDR760.9 billion. In future years, MNCN likely Media, Television improves its content quality and expands its local content to 100% at the end of Bloomberg MNCN IJ 2018. The strategy likely bolsters its top line margin in ahead years. Reuters MNCN.JK Target Price of IDR1,125 We use an estimate of a forward P/E of 10.0x (2.1 SD lower than the last 3-year average). Share Price Performance The target price implies a 2018E P/E of 12.7x. Now, MNCN is traded at a 2018E P/E of 9.9x. Media Nusantara Citra Tbk | Summary (IDR bn) 2017 2018E 2019F 2020F Revenue 7,053 7,368 7,696 8,008 Revenue growth 4.8% 4.5% 4.4% 4.1% EBITDA 3,097 3,357 3,655 3,866 Net Profit 1,453 1,267 1,633 1,827 EPS (IDR) 102 89 114 128 EPS growth 6.2% -12.8% 28.9% 11.9% YTD 1M 3M 12M BVPS (IDR) 687 780 845 910 EBITDA margin 43.9% 45.6% 47.5% 48.3% Abs. Ret. -34.6% -10.2% -28.8% -36.3% NPM 20.6% 17.2% 21.2% 22.8% Rel. Ret. -26.8% -10.1% -26.6% -35.0% ROE 15.1% 9.2% 9.1% 9.1% ROA 9.9% 4.9% 4.9% 4.9% ROIC 12.9% 13.0% 13.0% 12.9% P/E 12.6x 9.9x 7.7x 6.8x P/BV 1.9x 1.1x 1.0x 1.0x EV/EBITDA 7.3x 5.0x 4.5x 4.3x Michael Tjahjadi DPS (IDR) 15 35 49 19 +62 21 797 6202, ext:114 Dividend yield 1.1% 4.0% 5.6% 2.1% [email protected] Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Media Nusantara Citra www.nhsec.co.id Performance Highlights MNCN Quarterly Revenue | 1Q16 - 2Q18 MNCN Quarterly Net Profit | 1Q16 - 2Q18 Source: Company, NHKS Research Source: Company, NHKS Research Margin Ratios | 1Q17 - 2Q18 MNCN Quarterly Ads & Content Revenue | 1Q16 - 2Q18 Source: Company, NHKS Research Source: Company, NHKS Research All-Time Audience Share by Group | Jan ‘17 - Aug ‘18 Prime Time Audience Share by Group | Jan ‘17 - Aug ‘18 Source: Company, NHKS Research Source: Company, NHKS Research Page 22 Media Nusantara Citra www.nhsec.co.id 2Q18 review (IDR bn) 2Q18 2Q17 3Q17 4Q17 1Q18 3Q18E Actual Estimate y-y q-q surprise Revenue 2,016 1,756 1,671 1,602 2,087 2,168 3.5% 30.3% -3.7% 1,815 Gross Profit 1,186 1,130 1,138 939 1,261 1,302 6.3% 34.3% -3.2% 1,193 Gross Margin 58.8% 64.3% 68.1% 58.6% 60.4% 60.1% 1.6% 1.8% 0.3% 65.7% EBIT 720 714 704 528 790 772 9.7% 49.6% 2.3% 770 EBIT Margin 35.7% 40.7% 42.2% 32.9% 37.8% 35.6% 2.1% 4.9% 2.2% 42.4% EBITDA 851 826 800 638 911 905 7.1% 42.9% 0.7% 898 EBITDA Margin 42.2% 47.0% 47.9% 39.8% 43.6% 41.7% 1.4% 3.8% 1.9% 49.5% Net Profit 356 347 332 274 362 392 1.8% 32.3% -7.6% 271 Net Margin 17.7% 19.7% 19.8% 17.1% 17.4% 18.1% -0.3% 0.3% -0.7% 14.9% Source: Bloomberg, NHKS research Earnings revision (IDR bn) 2018E 2019F 2020F Revenue -Revised 7,368 7,696 8,008 -Previous 7,388 7,774 8,087 -Change -0.3% -1.0% -1.0% Gross Profit -Revised 4,682 4,954 5,208 -Previous 4,672 4,916 5,167 -Change 0.2% 0.8% 0.8% Gross Margin -Revised 63.5% 64.4% 65.0% -Previous 63.2% 63.2% 63.9% EBIT -Revised 2,872 3,115 3,282 -Previous 2,808 2,909 3,046 -Change 2.3% 7.1% 7.7% EBIT Margin -Revised 39.0% 40.5% 41.0% -Previous 38.0% 37.4% 37.7% EBITDA -Revised 3,357 3,655 3,866 -Previous 3,312 3,468 3,659 -Change 1.3% 5.4% 5.6% EBITDA Margin -Revised 45.6% 47.5% 48.3% -Previous 44.8% 44.6% 45.2% Net Profit -Revised 1,267 1,633 1,827 -Previous 1,486 1,591 1,729 -Change -14.8% 2.6% 5.7% Net Margin -Revised 17.2% 21.2% 22.8% -Previous 20.1% 20.5% 21.4% Source: NHKS research Page 33 Media Nusantara Citra www.nhsec.co.id MNCN at A Glance MNCN is one of Indonesia-based media companies with the largest number of free-to-air TV portfolios. Its 4 free-to-air TV channels are RCTI, MNCTV, GTV focusing on entertainment, and iNews focusing on news and sports. Another to its free-to-air TV channels, it has 20 pay TV channels. To support its business core, MNCN runs radio, printed media, content production, content library, and talent management businesses. In June 2018, it performed Initial Public Offering (IPO) of its subsidiary running a content business: PT MNC Studios International Tbk (MSIN). MNCN’s Competitiveness in the Asia Pacific MNCN is capable of posting the high revenue, net profit and net profit growth, even it is the best among its peers in the Asia pacific. Indonesia is home to the profit-making media industry, notably television media. In light of Indonesia’s large numbers of populations, the industrialists of fast-moving consumer goods, cigarettes, and e-commerce sectors to make a good use of television as the main media for marketing their products. However, the paradigm shift in the marketing medium from television to digital media is on the rise. Asia Pacific Media Company Market Revenue Net Profit Net Profit Asset Net ROE P/E Company Cap LTM LTM Growth P/BV (USD mn) Margin LTM LTM (USD mn) (USD mn) (USD mn) LTM Indonesia SCMA 1,788 396 332 98 -11.04% 29.6% 32.5% 19.8x 6.3x MNCN 810 1,108 523 97 15.17% 18.5% 14.6% 8.4x 1.1x VIVA 145 569 204 2 -90.11% 1.2% 1.6% 64.6x 1.0x Malaysia Astro Malaysia Holdings 2,264 1,756 1,337 182 21.38% 13.6% 113.14% 12.5x 13.7x Thailand BEC World PCL 430 440 308 (14) N/A -4.5% -6.84% N/A 2.2x MCOT PCL 195 214 77 (79) -207.67% -102.1% -51.28% N/A 1.7x Philippines ABS-CBN Corp 343 1,503 784 53 -11.02% 6.8% 10.65% 6.5x 0.6x GMA Network Inc 337 296 290 43 -20.89% 14.9% 22.57% 11.9x 2.7x Manila Broadcasting Co 127 35 21 2 -42.53% 8.9% 9.94% 69.5x 7.1x India TV18 Broadcast Ltd 976 1,040 229 1 -54.81% 0.6% 0.26% 815.0x 2.1x China Hubei Broadcasting 718 1,454 423 49 3.70% 11.6% 5.43% 15.2x 0.8x Source: Bloomberg Page 44 Media Nusantara Citra www.nhsec.co.id Multiple Valuation Forward P/E band | Last 3 years Dynamic Forward P/E band | Last 3 years Source: NHKS research Source: NHKS research Rating and Target Price Update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus 05/03/2018 Buy 1,550 (Dec 2018) 1,305 1,902 +18.8% -18.5% 07/12/2018 Buy 1,125 (Dec 2018) 905 1,595 +24.3% -29.5% 09/17/2018 Buy 1,125 (Dec 2018) 840 1,396 +33.9% -19.4% Source: NHKS research, Bloomberg Analyst Coverage Rating Closing and Target Price Source: Bloomberg Source: NHKS research NH Korindo Sekuritas Indonesia (NHKS) stock ratings 1.