Media and Broadband, Bittersweet Performance
We expect Surya Citra and Link Net to report a good performance in 3Q15
Surya Citra will be buoyed by normalising Unilever contribution, higher audience share and margin improvement, while Link Net will be supported by higher number of new subscribers. We are cautious on Media Nusantara’s 3Q15 performance on a potential slip in audience share due to a lack of investment in new TV programmes, as well as the IDR volatility. Similarly, we do not expect MNC Sky Vision’s 3Q15 performance to improve given the softer number of new subscribers and IDR volatility.
Surya Citra’s 3Q15 results expected to be in line
We expect Surya Citra’s 3Q15 revenue to pick up from 3Q14’s low base when the company lost revenue contribution from Unilever. We expect stronger 3Q15 revenue contribution of IDR1.1trn (+18% YoY, -9% QoQ) and earnings of IDR390bn-400bn – on the back of Unilever revenue contribution and improved advertising spending from fast-moving consumer goods (FMCG) companies, especially from Indofood (INDF IJ, BUY, TP: IDR7,380) and Wings Group.
We estimate that margin is likely to expand as Surya Citra no longer broadcasts the costly USD-based content – Champions League – and this could lead to potential earnings upside. Furthermore, the company’s audience share has been improving since Apr 2015, driven by new programmes like Pangeran, Madun, Bintang Pantura, and Elif.
Cautious on Media Nusantara Citra’s (Media Nusantara) 3Q15 results
We expect Media Nusantara to report sluggish 3Q15 earnings of IDR360bn-370bn on the back of a higher forex loss. Since early FY15, the IDR volatility has been a drag on its earnings. In terms of sales, we expect the company to report moderate revenue of IDR1.6trn (-1.3% YoY, -9% QoQ) on the back of weak audience share in the past few months. Furthermore, any negative results from the ongoing litigation case could lead to further selldown of the stock, in our view.
Higher new subscriber number to drive Link Net’s 3Q15 performance
For 3Q15, we think that Link Net will likely report a higher number of new subscribers of 18,000-20,000 in its broadband and pay-TV segment. This should offset the muted average revenue per user (ARPU) growth amid weak purchasing power and competition. We expect Link Net to report better YoY earnings in 3Q15 in the range of IDR155bn-165bn and topline of IDR670bn (+25% YoY, +5% QoQ).
No signs of improvement for MNC Sky Vision in 3Q15
Given softening purchasing power due to Indonesia’s economic slowdown, we do not expect a higher number of additional subscribers in 3Q15 for MNC Sky Vision. We expect its ARPU to remain under pressure and its revenue to come in at IDR800bn (-7% YoY, +3% QoQ) in 3Q15. Furthermore, we do not foresee earnings to turn positive in 3Q15 due to a high forex loss and rising interest expense.
Surya Citra has the most efficient CPRP
Due to highly-rated new TV dramas such as Pangeran and Madun for SCTV and Piala Presiden for Indosiar, Surya Citra offers the most efficient cost per rating point (CPRP) for advertisers during prime time. In the current economy, we believe that FMCG companies prefer to advertise in media companies that have higher audience share ratings and the most efficient CPRP.
Maintain BUY on Surya Citra and Link Net; NEUTRAL on Media Nusantara and SELL on MNC Sky Vision. We maintain our BUY call on Surya Citra. Our DCF-based TP of IDR3,300 is derived from 10.7% WACC and 3% TG, implying 25.8x/21.3x FY16F/FY17F P/Es respectively. Surya Citra is our preferred stock given its growth profile, lean balance sheet and minimum USD exposure.
We maintain our BUY call on Link Net
Our DCF-based TP of IDR6,250 is derived from 11.6% WACC and 3% TG, implying 16.4x/12.7x FY16F/FY17F P/Es respectively. Link Net is one of our preferred stocks given its growth potential, good balance sheet and minimum USD exposure.
We maintain our NEUTRAL call on Media Nusantara
Our DCF-based TP of IDR2,100 is derived from 10.8% WACC and 3% TG, implying 13.6x/12.1x FY16F/FY17F P/Es respectively. We remain NEUTRAL on the stock in view of its slower growth (dependent on RCTI TV station), high USD exposure and the MNCTV litigation case.
We maintain our SELL call on MNC Sky Vision
Our DCF-based TP of IDR1,100 is derived from 10.0% WACC and 3% TG, implying 10.7x/9.6x FY16F/FY17F EV/EBITDAs respectively. We remain negative on the pay-TV industry given: i) high competition, ii) pay-TV has no competitive advantage over free-to-air (FTA) TV in Indonesia), iii) ARPU is still under pressure, and iv) high USD exposure.
Historically, media companies’ 3Q15 results are lower compared to 2Q15 results mainly due to the Ramadhan season in 2Q15. During the Ramadhan season, media companies typically have better advertising revenue given the extra two hours of prime time slots in the morning (ie 4am-6am).
