Surya Citra Media Recovery Is Underway

We expect Surya Citra’s 2Q16 performance to remain decent due to the Lebaran festival, which should help prop up SCTV’s poor prime time audience share. Moving forward, we anticipate SCTV’s audience share to improve driven by the broadcasting of Indonesian Super League since end-Apr 2016. We maintain our NEUTRAL call and IDR3,300 TP (2% upside) on Surya Citra, as we await a recovery in its audience share in the coming months. Currently, the stock is trading at 27x FY16F P/E.

Expect a better 2Q16 on the back of Lebaran
We expect a better 2Q16 for Indonesian media players as consumption is likely to pick up on a seasonal high in conjunction with the Lebaran festival. Surya Citra Media (Surya Citra) maintains its guidance for 8-10% TV advertising spending in FY16.

Indosiar the growth driver
Indosiar’s 1Q16 revenue improved significantly to IDR463bn (+35% YoY), driven by a higher rate card due to the success of the D’Academy show. Moving forward, we foresee higher contribution from Indosiar given its strong programme line-up in the coming months. Indosiar’s prime time audience share was stable at 18.2% in Mar 2016 (+1% MoM).

Efforts to revive SCTV’s audience share
Surya Citra Televisi’s (SCTV) prime time audience share declined to 9.1% in Mar 2016 – the lowest since 2011. If SCTV’s audience share performance continues to remain poor, we believe this could have a negative impact on 2H16 earnings, while the impact on 2Q16 earnings should be mitigated by the Lebaran festival. On a positive note, management has implemented several strategic moves to improve its prime time audience share performance including reducing re-runs of film TV (FTV) series, introducing more award programmes, and broadcasting the Indonesian Super League, among others.

Maintain NEUTRAL call and IDR3,300 TP
Surya Citra posted decent 1Q16 results with revenue and earnings improving by 13% and 11% YoY respectively. However, we remain cautious on SCTV’s poor prime time audience share performance over the past several months, which may pose earnings risk in the second half of the year if it does not recover. For the second quarter, we think that the audience share performance should be supported by the Lebaran festival (which is a good season for the media industry).

Thus, we maintain our NEUTRAL call on the counter with an unchanged TP of IDR3,300. The stock is currently trading at 27x FY16F P/E. Downside risk to our call would be SCTV’s audience share failing to recover, while the upside risk is improved audience share numbers leading to a higher rate card.

Indosiar saved 1Q16 performance
Surya Citra posted 1Q16 earnings of IDR361.4bn (+11.3% YoY, -3.9% QoQ), representing 21.9%/21.3% of our/consensus estimates respectively. 1Q16 revenue improved 13.1% YoY to IDR1.07trn, driven by Indosiar’s performance. Indosiar’s revenue jumped 35% YoY to IDR463bn in 1Q16, boosted by a higher rate card due to the success of the D’Academy show.

Meanwhile, SCTV’s 1Q16 revenue decreased slightly to IDR599.7bn amid its poor audience share. Opex increased by 24.8% YoY – relating primarily to the restructuring of the group’s content and production business after Indonesia Entertainment Group (IEG) acquired AS Productions in 4Q15.