Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Media Prime time to overweight We initiate our coverage on media companies MNC Nusantara Citra (MNCN/ Buy/ TP IDR2,700) and Surya Citra Media (SCMA/ Buy/ TP IDR3,870). We like SCMA on the back of its: 1) low gearing and high free cash flow (FCF), 2) robust dividend payout ratio, and 3) stellar ROE compared to peer. For MNCN, we favor the company due to 1) its strong audience share, 2) top notch power ratio, 3) the fact that it is the only TV operator that has integrated studio facilities located in one area in Kebon Jeruk, (MNC studio complex). We also believe MNCN will benefit from the strengthening of the rupiah given its USD debt exposures. Indonesian media: appealing outlook ahead We believe the media industry is well positioned to benefit from the continued expansion of private consumption. Given the large population base (4th populous country in the world) combined with stable income growth of consumers, we believe fast moving consumer goods (FMCG) companies are likely to benefit from this favorable macro backdrop. Furthermore, we expect FMCG companies to gear up their advertisement spending to maximize their position in the market. Even though Indonesia has exhibited high ad spend growth over the past couple of years (16% CAGR during 2011-2016F), we note that the average price for 30-second prime-time spot is relatively inexpensive at only USD5,400/spot compared to peer countries such as Australia, Singapore, Philippines (indicating ample room for growth). Furthermore, existing free-to- air TV operators are likely to benefit from the natural entry barrier given broadcasting license is limited by the regulators. Expecting better revenue in2Q on the back of Ramadhan We project revenue growth for both MNCN and SCTV will jump in 2Q, largely due to the sahur (“pre-dawn meal” which refers to food consumed early in the morning) base effect. As a quick reminder, Ramadhan was held during mid-June to July last year (vs. during the early part of June in 2016). MNCN and SCMA feature popular religious dramas during sahur in Ramadan. We initiate coverage on SCMA with a buy recommendation and a target price of IDR3,870, implying 34.7x 2016F P/E. We think the premium valuation on SCMA is justified, given that SCMA has a strong track record and a solid balance sheet. Our IDR3,870 target price is derived by using a blended calculation of target P/E at 35x and Discounted Cash Flow (DCF) method with 10-year time span. We initiate our coverage on MNCN with a trading buy rating and a target price of IDR2,700, implying 27.5x 2016F P/E. Our target price of IDR2,700 was derived using a blended calculation of target P/E at 28x and Discounted Cash Flow (DCF) method with 10-year time span. Media companies covered in this report Company name Ticker Rating TP (IDR) ROE (%) P/E(x) P/B(x) 2016F 2017F 2016F 2017F 2016F 2017F Media Nusantara Citra MNCN Buy 2,700 14.2 16.6 22.4 17.8 3.1 2.9 Surya Citra Media SCMA Trading Buy 3,870 47.5 47 29.6 25 12.6 10.7 Source: Daewoo Securities Research Overweight (Initiate) Initiation July 29, 2016 PT Daewoo Securities Indonesia Trade Christine Natasya +62-21-515-1140 [email protected]
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Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction. PLEASE SEE
ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Media
Prime time to overweight
We initiate our coverage on media companies MNC Nusantara Citra (MNCN/ Buy/ TP
IDR2,700) and Surya Citra Media (SCMA/ Buy/ TP IDR3,870). We like SCMA on the back
of its: 1) low gearing and high free cash flow (FCF), 2) robust dividend payout ratio, and
3) stellar ROE compared to peer. For MNCN, we favor the company due to 1) its strong
audience share, 2) top notch power ratio, 3) the fact that it is the only TV operator that
has integrated studio facilities located in one area in Kebon Jeruk, (MNC studio complex).
We also believe MNCN will benefit from the strengthening of the rupiah given its USD
debt exposures.
Indonesian media: appealing outlook ahead
We believe the media industry is well positioned to benefit from the continued
expansion of private consumption. Given the large population base (4th populous
country in the world) combined with stable income growth of consumers, we believe fast
moving consumer goods (FMCG) companies are likely to benefit from this favorable
macro backdrop. Furthermore, we expect FMCG companies to gear up their
advertisement spending to maximize their position in the market. Even though Indonesia
has exhibited high ad spend growth over the past couple of years (16% CAGR during
2011-2016F), we note that the average price for 30-second prime-time spot is relatively
inexpensive at only USD5,400/spot compared to peer countries such as Australia,
Singapore, Philippines (indicating ample room for growth). Furthermore, existing free-to-
air TV operators are likely to benefit from the natural entry barrier given broadcasting
license is limited by the regulators.
Expecting better revenue in2Q on the back of Ramadhan
We project revenue growth for both MNCN and SCTV will jump in 2Q, largely due to the
sahur (“pre-dawn meal” which refers to food consumed early in the morning) base effect.
As a quick reminder, Ramadhan was held during mid-June to July last year (vs. during the
early part of June in 2016). MNCN and SCMA feature popular religious dramas during
sahur in Ramadan.
We initiate coverage on SCMA with a buy recommendation and a target price of
IDR3,870, implying 34.7x 2016F P/E. We think the premium valuation on SCMA is
justified, given that SCMA has a strong track record and a solid balance sheet. Our
IDR3,870 target price is derived by using a blended calculation of target P/E at 35x and
Discounted Cash Flow (DCF) method with 10-year time span.
We initiate our coverage on MNCN with a trading buy rating and a target price of
IDR2,700, implying 27.5x 2016F P/E. Our target price of IDR2,700 was derived using a
blended calculation of target P/E at 28x and Discounted Cash Flow (DCF) method with
Indonesian media: appealing outlook ahead 3 Buy rating for SCMA (TP IDR3,870) and Trading buy for MNCN (TP IDR2,700) 4
Overview of the media industry 5
Private consumption is the backbone for advertisement demand 5 FMCG companies, especially cigarettes companies dominate the TV ad spend 9 TV companies’ biggest revenue comes from PT.Wira Pamungkas Pariwara 11 Ad supply: Limited for TV, yet huge potential for online advertisement 13 Biggest media TV competitor: Online advertisement 15
Surya Citra Media 18
Company Background 18 PT Indonesia Entertainment Group 20 Management team 21 Famous TV shows/drama currently played on SCTV 23 Famous TV shows/drama that is currently playing on Indosiar 24 SCMA investment in iflix 25 Analyzing the Sports content 26 Investment thesis on SCMA 28 Surya Citra Media (Valuations) 34 Surya Citra Media (Ticker SCMA IJ/ Buy/ TP: IDR3,870) 35
Media Nusantara Citra 39
Company Background 39 MNCN’s local content 40 MNC Pictures 40 Talent management 41 MNC Channels 41 MNC’s FTA stations appeal to different audience segments 47 Famous dramas currently played on RCTI 47 Famous dramas that are currently played on GlobalTV 48 Famous dramas that are currently played on MNC TV 49 MNCN charges more premium advertising cost through its quality contents 50 Investment thesis on MNCN 51 Media Nusantara Citra (Valuations) 54 Media Nusantara Citra (Ticker MNCN IJ/ Trading buy/ TP: IDR2,700) 55
Risks to our call 58
Media
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Daewoo Securities Research
Investment summary
Indonesian media: appealing outlook ahead
We believe Indonesia’s TV media industry is well poised to benefit from the continued private
consumption expansion. Given the large population base (Indonesia is the world’s 4th
largest
populous country) combined with stable income growth of consumers, we believe fast moving
consumer goods (FMCG) companies are likely to benefit from this favorable macro backdrop.
Furthermore, we expect FMCG companies to increase their advertisement expenses to maximize
their position in the market. Even though Indonesia has already exhibited high ad spend growth
over the past couple of years (16% CAGR during 2011-2016F), we note that the average price for
30-second prime-time spot is relatively inexpensive at only USD5,400/spot compared to peer
countries such as Australia, Singapore, Philippines (indicating ample room for growth).
Furthermore, existing free-to-air TV operators are likely to benefit from the natural entry barrier
given broadcasting license is limited by the regulators.
Figure 1. Indonesia ad spending has grown by 16% CAGR in 2011-2016F
Source: Media Partners Asia, Daewoo Securities Research
Figure 2. Average price for 30 seconds prime-time spot
Source: Media Partners Asia, Daewoo Securities Research
80,000
5,400
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Australia Singapore Philippines Thailand Vietnam Malaysia Indonesia
USD/spot
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Media
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Figure 3. Prime time all demography (Free-to-air TV market share)
Source: Nielsen, Daewoo Securities Research
Buy rating for SCMA (TP IDR3,870) and Trading buy for MNCN (TP IDR2,700)
We like Surya Citra Media (SCMA) due to 1) its ability to maintain strong revenue growth despite
lower audience share compared to Media Nusantara Citra (MNCN), 2) better monetization of its
audience shares, and 3) high dividend payout ratio and strong cash position, as well as its stellar
EBITDA margin compared to peers.
MNCN, we favor the company due to 1) its strong audience share, 2) top notch power ratio, 3) the
fact that it is the only TV operator that has integrated studio facilities located in one area in Kebon
Jeruk, (MNC studio complex). We also believe MNCN will benefit from the strengthening of the
rupiah given its USD debt exposures.
Risks to our investment call
Risks to our call include 1) growing internet penetration which should prompt higher demand for
digital advertisement growth and pose threat to the conventional TV ad market, 2) government’s
regulation on cigarettes advertisement (as a quick reminder, cigarette companies command a
large portion of TV operators’ revenue), as well as 3) macroeconomic factors such as weaker-than-
expected Indonesian GDP (Daewoo forecast: 5.1% in 2016F, 5.3% in 2017F), commodity prices,
inflation rate, as well as the rupiah value against other countries.
48%
23%
14%
11%
4%
MNC Group
SCMA
VIVA
Trans group
Others
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Overview of the media industry
Private consumption is the backbone for advertisement demand
Private consumption is a crucial part of Indonesia’s economy
Indonesia’s 1Q16 GDP growth picked up 4.9% YoY. Although 1Q16 GDP growth is below the 2-
year average of c. 5.0% YoY growth, at the same time, we note that 1Q16 GDP print was higher
than the 4.7% YoY growth in 1Q15. Given private consumption is a key growth driver for the
broader economy (accounting for c. 55% of Indonesia’s economic output), we judge private
consumption growth to be an important economic indicator for growth.
We suspect consumers now have greater purchasing power following the sharp decline in
inflation (average CPI: 4.3% YoY in 1Q16 vs. 6.4% YoY in FY15). However, contrary to market
expectations, private consumption growth remained sluggish in 1Q16 (4.9% YoY). Despite fatter
pockets for consumption, we judge that mid-to-higher income households are hesitant to spend.
We attribute this conservative spending to escalating uncertainties related to the macroeconomic
environment.
Nevertheless, we forecast consumption growth to pick up in 2Q16. Our view largely embeds the
Ramadan effect, school holiday and Idul Fitri festive. Furthermore, low inflationary pressures and
potential fund flows into Indonesia from the tax amnesty program should add more momentum
to private consumption, in our opinion. We retain our view that economic growth is likely to hinge
on private consumption. However, we remain positive on the broader economic growth outlook
given 1) strong willingness from the government to pace up its spending initiatives, 2)
implementation of multiple economic packages to bolster the sagging economy and 3)
elimination of bureaucratic hurdles for investments. Yet, we still think the backbone of Indonesia's
economic growth stems from private consumption, evidenced by President Jokowi’s efforts to
enhance the purchasing power.
Figure 4. Sluggish consumption growth despite low CPI Figure 5. Population is relatively young
Source: BPS, Daewoo Securities Research
Source: BPS, Daewoo Securities Research
4.4%
4.5%
4.6%
4.7%
4.8%
4.9%
5.0%
5.1%
5.2%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
(YoY)
26%17%
age 25-54,
42% 8%
7%
age 0-14
age 15-24
age 25-54
age 55-64
age 65+
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Media advertisement is a proxy to consumption
We believe Indonesia’s long term growth remains intact, supported by our government’s actions
to boost public expenditure. In addition, young demographic profile (figure 5) and growing
population, higher education and improving infrastructure situation will collectively be key
catalysts for Indonesia’s long term economic outlook.
Given our positive long-term growth outlook for Indonesia, we firmly believe media companies
are likely to benefit as we expect increased demand for advertisement from various industries.
Media advertisement is an impersonal one way mass-communication related to products and/or
services which play an important role in enhancing sales and market share. Hence, we expect the
trend will continue to grow in tandem with consumption spending.
According to Media Partners Asia, Indonesia’s net advertising spending (including rate card
discounts and agency commission) will reach c. USD3,500mn in 2016F, where most of the
spending is expected to be allocated to TV and print media (figure 6). As >70% of advertising
spending is likely to be skewed towards TV, growing audiences for TV is the key determinant of TV
rate card.
Figure 6. Ad spend is focused on TV Figure 7. Free-to-air TV advertising
Source: Media Partners Asia, Daewoo Securities Research
Source: Media Partners Asia , Daewoo Securities Research
Low net Ad spend as % of GDP compared to other countries
Moreover, Indonesia’s net ad spend as a % of GDP is still relatively low compared to neighboring
countries at 0.2% in 2013 and the average price for 30 seconds prime-time spot is relatively cheap
(USD5,400/spot) compared to Australia (USD80,000/spot).
Figure 8. Net Ad spend as % of GDP (2013) Figure 9. Thirty seconds prime time spot
Source: Media Partners Asia, Daewoo Securities Research
Source: Media Partners Asia 2016, Daewoo Securities Research
80,000
5,400
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
USD/spot
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
USDmn
TV
Newspaper
Magazine
Online
Out-Of-Home advertising
Radio
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(USDmn)
0.2%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
Media
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Daewoo Securities Research
Prime time show on TV
TV operators are regulated under the Law number 32 of 2002 on Broadcasting (Law 32/2002)
dividing broadcasters into 1) public broadcasters, 2) private broadcasters, 3) community
broadcaster and 4) subscription-based broadcasters.
In the area of broadcasting, there are several provisions concerning the minimum requirement to
air local contents. For example, broadcast content of private and public TV broadcasters must
contain at least 60% of domestic programs. Therefore, Indonesian TV stations have set up in-
house production facilities to produce local contents. Popular programs which are aired on TV
stations are locally produced dramas which are aired during prime time.
Prime time in Indonesia is considered to be from 18:30 to 22:00. It is imperative for TV
broadcasters to air the most popular movie or the highest rated drama during prime time since it
lifts up the all-time audience shares. In addition, prime time shows are highly profitable since
clients take advantage of the prime time shows to advertise. MNCN’s top TV channel namely, RCTI,
generates around USD6,000 gross rate per episode. The price of an advertising slot is mostly
determined by the number of viewers, with upper ratings leading to higher rates.
Following the prime time hours, “adult” programs are allowed to be broadcasted. In addition,
there is also a midnight prime time during sahur (“pre-dawn meal” which refers to food consumed
early in the morning) during the month of Ramadhan. It usually takes place from 02:30 and end at
the Fajr prayer call which varies from 04:30 to 05:00 in the early morning.
Figure 10. Screen use during the day
Source: Millward Brown, Daewoo Securities Research
MNCN has recorded very strong audience share over the past couple of years (see figure 72),
which led the company to its premium rate card.
Figure 72. RCTI’s audience share has always been astonishing
Source: Nielsen, Daewoo Securities Research
RCTI has the highest power ratio
RCTI has the highest power ratio at 1.4x among all 11 nationwide FTA TV stations as of FY14.
Power ratio shows how well a media company converts ratings to revenue. Power ratio is used to
measure the companies’ revenue performance of a media company in comparison to the share of
audience that it controls. The three variables that are used to calculate include total market
revenue, the revenue of the media company itself, and % of audience share.
A higher power ratio is preferable because it indicates greater amount of revenue received from
the company's audience share. A low power ratio indicates that the company underutilizes its
capacity and there is more room for growth.
Figure 73. Power ratio of 11 nationwide FTA TV stations (as of FY 2014)
Source: Company data, Daewoo Securities Research
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
21.4
16.8
20.3
29.63
0
5
10
15
20
25
30
35
2013 average 2014 average 2015 average Average YT June 2016
SCTV
RCTI
IVM
MNCTV
GTV
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MNCN has integrated studio facilities
MNCN is the only TV operator that has integrated studio facilities located in one area (Kebon
Jeruk, namely MNC studio complex). The construction began in 2014 where MNCN utilized
USD250mn loans to build the four buildings. The new MNC studio complex started functioning in
July 2016, which means it is at the end of its large 3 year-capex period. MNCN is guiding its 2016F
capex for buildings and maintenance of USD60-70mn, and 2017F of USD10-20mn.
The integrated new studio complex which has four new buildings with a total of 28 new studios
and also equipped with HD rating equipment is believed to enhance the on-screen quality (better
lightning, audio sharpness, etc.) and have more production capacity. MNCN expects new studios
will help actors and actresses to with easier shooting with close proximity compared to scattered
studios.
Figure 74. MNC’s lightning equipment
Source: Daewoo Securities Research
Figure 75. MNC studio complex Figure 76. MNC studio
Source: Daewoo Securities Research
Source: Daewoo Securities Research
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Figure 77. MNC studio Figure 78. MNC studio
Source: Daewoo Securities Research
Source: Daewoo Securities Research
Figure 79. MNC studio Figure 80. MNC studio
Source: Daewoo Securities Research
Source: Daewoo Securities Research
More clarity on PT Berkah’s dispute
The dispute over PT Berkah and Ibu Tutut has been the noise over MNCN’s stock price throughout
2014-2015. Yet, in April 2016, the Supreme Court (MA) finally issued a ruling regarding the dispute
between PT Berkah Karya Bersama (PT Berkah) and Siti Hardiyanti Rukmana. The Supreme Court
ruled that Harry Tanoesoedibyo’s Berkah Karya Bersama as the rightful owner of 75% stake in
MNC TV (previously TPI). While Ibu Tutut’s legal team states that there is no verdict on the appeal.
We believe the overhang of the dispute has faded and the ruling is finally in favor of MNC.
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Media Nusantara Citra (Valuations)
We initiate our coverage on MNCN with a trading buy rating and a target price of IDR2,700,
implying 27.5x 2016F P/E. Our target price of IDR2,700 was derived using a blended calculation of
target P/E at 28x and Discounted Cash Flow (DCF) method with 10-year time span.
Our WACC assumption of 10.5% is derived from our estimates on risk free rate (Rf) of 7%, market
risk premium (MRP) of 5%, a terminal growth rate of 3% and equity beta of 1.0x. We believe the
reduction in cost of capital tracks the decline in Indonesian bond yields which further support our
DCF target price.
We like MNCN on the back of its: 1) Strong audience viewers’ performance, 2) lower capex as
MNCN has completed the construction of its integrated studio facilities 3) premium rate card
charged on the back of its high audience share.
Table 7. DCF Assumption Table
Item Details
Cost of Equity 12%
Risk free rate 7.0%
Beta 1.00
Equity risk premium 5%
WACC 10.5%
Terminal growth rate 3%
After tax Cost of Debt 6.84%
Total PV of FCF 16,348
PV of TV 22,160
Total PV of FCF and TV 38,508
Cash 2013 1,967
Debt 2013 3,866
Equity value (in IDRbn) 37,770
Equity value/share 2,646
Source: Daewoo Securities Research
Figure 81. MNCN PE Band
Source: Daewoo Securities Research
-1 Std Dev
Avg PER
+1 Std Dev
-2 Std Dev
+2 Std Dev
10
12
14
16
18
20
22
24
26
28
30
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
( x )
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Media Nusantara Citra (Ticker MNCN IJ/ Buy/ TP: IDR2,700)
Table 8. Forecast and valuations
2014 2015 2016F 2017F
Revenue (IDRbn) 6,666 6,445 7,015 7,925
EBITDA (IDRbn) 2,772 2,447 2,739 3,087
Net profit (IDRbn) 1,761 1,186 1,401 1,760
EPS (IDR/share) 123 83 98 123
DPS (IDR/share) 35 62 42 49
ROE (%) 19.7% 13.2% 14.2% 16.6%
Dividend yield (%) 1.6% 2.8% 1.9% 2.2%
P/E ratio (x) 17.8 26.5 22.4 17.8
P/BV ratio (x) 3.5 3.5 3.1 2.9
EV/EBITDA (x) 11.3 12.7 11.4 10.1
Source: Daewoo Securities Research
Table 9. Income statement projection
2014 2015 2016F 2017F
Revenue 6,666 6,445 7,015 7,925
COGS (2,813) (2,861) (3,037) (3,431)
Gross Profit 3,853 3,584 3,978 4,494
Opex (1,251) (1,390) (1,513) (1,709)
Operating Profit 2,602 2,194 2,465 2,785
Other income/(expenses) (54) (506) (492) (340)
Profit before income tax 2,542 1,681 1,965 2,437
Income tax expenses (660) (404) (472) (585)
Minority interest (121) (91) (91) (91)
Net profit 1,761 1,186 1,401 1,760
EBITDA 2,772 2,447 2,739 3,087
Source: Daewoo Securities Research
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Table 10. Balance sheet projection
IDR bn 2014 2015 2016F 2017F
Assets
Cash and equivalents 3,019 1,525 3,128 3,184
Receivables 2,994 3,020 2,907 3,330
Inventories 1,635 1,593 1,447 1,721
Others 1,022 1,588 995 1,263
Total current assets 8,670 7,727 8,476 9,498
Fixed assets - net 2,659 4,145 4,799 4,762
Long term investments 1,165 1,144 1,144 1,144
Others 701 1,017 816 839
Total non-current assets 4,940 6,748 7,200 7,186
Total assets 13,610 14,475 15,676 16,684
Liabilities and equity
Short-term bank loans and
current maturities
55 117 117 117
Trade payables 403 511 570 629
Others current liabilities 434 412 514 568
Total current liabilities 892 1,040 1,201 1,313
Long term debt 3,135 3,649 3,749 3,949
Others 182 219 229 225
Total non-current liabilities 3,318 3,868 3,978 4,174
Total liabilities 4,210 4,908 5,178 5,487
Minority interests 485 601 601 601
Shareholders' equity 8,916 8,966 9,897 10,596
Source: Daewoo Securities Research
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Table 11. Cash flow statement projection
IDRbn 2014 2015 2016F 2017F
CF from operation
Net profit 1,761 1,186 1,401 1,760
Depreciation/amortization 170 253 274 302
Change in working capitals (812) 123 319 (639)
Others (376) (588) 695 (214)
CF from operation 743 974 2,690 1,209
CF from Investments
Net capex (1,743) (979) (961) (300)
Others (1,018) (321) 201 (23)
CF from investments (2,761) (1,300) (760) (322)
CF from financing activity
Increase/(decrease) in debt 2,667 575 100 200
Increase/(decrease) in equity 368 (3) - -
Dividend payments (497) (888) (593) (701)
Others 30 (109) 132 (364)
CF from financing activity 2,568 (425) (361) (865)
Net changes in cash 551 (752) 1,568 22
Source: Daewoo Securities Research
Table 12. Key Ratios
2014 2015 2016F 2017F
Growth (%)
Revenue 2.2% -3.3% 8.8% 13.0%
EBITDA 2.3% -11.7% 11.9% 12.7%
Net profit 4.1% -32.7% 18.2% 25.6%
Profitability (%)
Gross margin 57.8% 55.6% 56.7% 56.7%
Operating margin 39.0% 34.0% 35.1% 35.1%
EBITDA margin 41.6% 38.0% 39.0% 39.0%
Net margin 26.4% 18.4% 20.0% 22.2%
ROE 19.7% 13.2% 14.2% 16.6%
ROA 12.9% 8.2% 8.9% 10.5%
Leverage (X)
Current ratio 9.7 7.4 7.1 7.2
Quick ratio 6.7 4.4 5.0 5.0
Debt to equity 0.4 0.4 0.4 0.4
Net debt to equity 0.0 0.2 0.1 0.1
Interest coverage 44.7 11.2 8.3 9.0 Source: Daewoo Securities Research
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Risks to our call
The emergence of online advertisement. We believe growing internet penetration trend will
determine the growth of digital advertisement, which would be the main competitor for FTA TV.
However, we think the digital advertising trend will not be an immediate risk for TV operators
given that Indonesia is still lack of the broadband infrastructure.
Unexpected regulatory risks. Investors may have to anticipate unexpected risks such as
restrictions on broadcasting operations, licenses, transition to digital TV, etc.
Government’s stance on tobacco control. We think that government’s regulation on cigarettes
advertisement is quite a huge risk for TV companies as they contribute sizeable portion of TV
companies’ revenue. For example, broadcasting tobacco advertising on television is only allowed
from 9:30pm until 5:00am, and smoking warnings are also shown at the end of the advertisement,
such as "Smoking can cause mouth cancer, heart attack, impotency and pregnancy and fetal
disorders". Since 2014, the Indonesian government halted the branding of cigarettes as "light" or
"mild" on smoking packages and decided to place graphic images of the adverse long-term
effects of excessive smoking. Currently, tobacco advertising is still allowed, but showing the
cigarette packaging is forbidden.
Global and macroeconomic factors. As TV companies generate revenue from FMCG companies,
there are several factors that would determine how they spend their A&P expense. Economic
growth, commodity prices, inflation rate, Federal Reserve’s policy rate as well as the rupiah
exchange rate are key determinants to the FMCG’s S&P spending. We believe any significant
changes to the macroeconomic backdrop may significantly alter the strategies of FMCG
companies A&P spending.
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APPENDIX 1
Important Disclosures & Disclaimers
Analyst Certification
The research analysts who prepared this report (the “Analysts”) are registered with and are subject to Indonesian securities regulations. They are neither
registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the
subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. PT Daewoo Securities Indonesia
policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do
not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received
any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this
report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in
this report but, like all employees of PT Daewoo Securities Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which
includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the
time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or PT Daewoo
Securities Indonesia except as otherwise stated herein.
Disclaimers
This report is published by PT Daewoo Securities Indonesia (“Daewoo”), a broker-dealer registered in the Republic of Indonesia and a member of the
Indonesian Stock Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such
information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness,
accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Indonesian language. If
this report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available
to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising
from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to
effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have
substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this
report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive
or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or
reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and
their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or
sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each
case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject
companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and
value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any
investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur
Distribution
United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other
persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant
Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its
contents.
United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional
investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance
thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that
they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed
herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The
securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or
sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.
Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong
Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for
distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws
of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person.
All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or
its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its
affiliates to any registration or licensing requirement within such jurisdiction.
Stock Ratings Industry Ratings
Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving
Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes
Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening
Sell : Relative performance of -10%
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material
development.
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of
future earnings.
* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic
conditions.
Disclosures
As of the publication date, PT Daewoo Securities Indonesia and/or its affiliates do not have any special interest with the subject company and do not own
1% or more of the subject company's shares outstanding.
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Daewoo Securities International Network
PT. Daewoo Securities Indonesia Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc.