Indonesia Media, A Magic Year To Continue

In our view, 3Q16 adex will be soft after the Ramadan season. However, we think 4Q16 adex will accelerate on the back of the Christmas season in December. We maintain OVERWEIGHT on the media sector as:
1. We expect a recovery in Indonesia’s economy;
2. We have seen an improvement in the sales growth of consumer companies – which could benefit the media industry.
In 3Q16, we expect in-line performance in terms of topline and earnings from both Media Nusantara and Surya Citra.

Softer advertising expenditure (adex) in 3Q16. We expect that adex will be soft in 3Q16 after the Ramadan period. However, adex should then quicken in 4Q16 on the back of the December holiday season. We maintain our OVERWEIGHT call on the media sector, on the back of:
i. An expected recovery in Indonesia’s economy;
ii. Improved sales growth of consumer companies, which are major adex players;
iii. Demand exceeding supply. Though there are 10 national free-to-air (FTA) channels, only 20% of airtime can be allocated to advertisers, so there is room for rate card improvement.

Expect a solid 3Q16 from Media Nusantara. We expect Media Nusantara Citra (Media Nusantara) (MNCN IJ, BUY, TP: IDR2,500) to report 3Q16 topline in the range of IDR1.75-1.79trn, on the back of continuous strong audience share performance from its Rajawali Citra Televisi Indonesia (RCTI) TV station, and some revenue from Euro 2016. In 3Q16, we also expect a higher rate card from the renegotiation of new pricing, arising from the previous strong audience share numbers.

We expect a moderate contribution from MNCTV and Global TV (GTV) in 3Q16, due to their unstable audience share performance. Furthermore, the stabilisation of IDR against USD would benefit Media Nusantara, as it would mean less volatility in their earnings. Thus, we expect Media Nusantara to book IDR370-390bn in earnings for 3Q16.

Look forward to a revenue boost from the English Premier League in 4Q16. Media Nusantara has exclusively aired the English Premier League since August 2016, at the cost of USD15m/year. The company has succesfully booked sponsorship revenue from Djarum Group (as the main sponsors) and another 5-6 co-sponsors.

Expect in-line delivery from Surya Citra Media in 3Q16. Despite some concerns over their performance in terms of audience share, we still expect that Surya Citra Media (Surya Citra) (SCMA IJ, BUY, TP: IDR3,300) could generate IDR1.09-1.12trn of revenue and IDR300-340bn in earnings.

In 3Q16, we think that PT Indosiar Visual Mandiri (Indosiar) would be their growth driver on the back of the strong audience share performance from their program line-up, ie Stand Up Comedy, Bintang Pantura 3, and Golden Memories Reunion. Meanwhile, we will not see a huge contribution from its Surya Citra Televisi (SCTV) TV station, due to its unsteady audience share performance.

Maintain OVERWEIGHT. We continue to like Media Nusantara, given:
i. Better margins from cost savings due to completion of three new studios and potential acquisition of a production house;
ii. A strong program line-up in 2H16 to drive its rate card;
iii. Potential higher dividend in FY17F.

Meanwhile, we are positive on Surya Citra on the back of:
i. An expected improvement in SCTV’s audience share from its new drama series and sports content;
ii. Potential additional revenue stream from big screen movies;
iii. Potential higher ad spend from economy recovery.