Indonesia Media, Recovery Is Visible

We maintain OVERWEIGHT on the sector as we believe the consumption recovery is happening. Furthermore, we expect sector adex to grow 12% YoY in FY16 – supported by the FMCG sector and e-commerce companies. According to Nielsen, adex grew 7% YoY last year thanks to the recovery in the local economy in 2H15. This boosted 4Q15 adex by 17% YoY. We prefer Media Nusantara, given its attractive valuation and strong audience share.

Advertising expenditure (adex) grew 7% YoY last year
According to Nielsen, adex in Indonesia rose to IDR118trn from IDR110trn in 2014. This was as the sector recovered from a decline in the early part of 2015 to finish on a strong note thanks to the improvement in the domestic economy, which grew 5% YoY in 4Q15. In 4Q15, adex began to pick up and increased 17% YoY, making it the quarter with the highest growth in the last two years.

Advertising spending (ad spend) in the print media declined last year
According to a Nielsen survey, ad spend for newspapers declined last year, ie the first time in the last 10 years. Last year, the purchase of ad space in 101 newspapers dropped 4% YoY to IDR30.8trn while overall ad spend on television, magazines, and tabloids increased by 7% YoY, largely due to a 12% YoY rise in television advertising. The decline in print and newspaper ads could be attributable to the intense competition with the online media players.

Fast-moving consumer goods (FMCG) and e-commerce players were growth drivers last year
Ad spend for e-commerce grew 44% YoY to IDR3.5trn. Local online company Tokopedia’s adex in television skyrocketed 1,611% YoY to IDR625bn. Meanwhile, ad spend on online flight and hotel booking service provider Traveloka jumped 185% YoY to IDR697bn. The biggest advertisers were still companies from the consumer sector, eg instant noodle brands Indomie and Mie Sedap spent IDR917bn and IDR734bn respectively.

Preview of Media Nusantara’s and Surya Citra’s 4Q15 results
We expect Media Nusantara Citra (Media Nusantara) (MNCN IJ, BUY, TP: IDR2,150) to book a topline of IDR1.75trn-1.79trn on the back of a strong audience share that should lead to a rate card improvement. We expect Surya Citra Media (Surya Citra) (SCMA IJ, BUY, TP: IDR3,700) to record revenue and earnings that are in line with our estimates. For the same period, we expect Surya Citra to book a topline of IDR1.05trn-1.09trn and earnings of IDR350bn-354bn.

FY16 a year of recover
We maintain our OVERWEIGHT call on the local media sector, as we think a recovery in consumption is underway. We continue to see Media Nusantara as attractive due to its lower valuation of 11.3x FY16F P/E and strong audience share growth, which could lead into an improvement in its rate card. Meanwhile, we maintain our BUY call on Surya Citra despite its poor performance in growing audience share in the past few months. We think that the company may continue to modify SCTV’s content in order to improve its performance.