Media Nusantara Citra Keep Up The Momentum

Maintain BUY with a higher TP of IDR2,300 (from IDR2,150, 16% upside)
The stock has jumped by 62% since Feb 2016 due to a recovery in adex and its low valuation. We foresee higher ad revenue growth for Media Nusantara to 12.6%/10.8% in FY16F-17F respectively. This would be supported by its RCTI TV station, which dominates audience share. Furthermore, the stabilisation of the IDR against the USD could potentially boost earnings growth going forward.

RCTI’s strong audience share trend likely to continue
Media Nusantara Citra’s (Media Nusantara) prime time audience share hit 45.3% (-1% MoM) in Mar 2016 –the highest since 2011, thanks to Rajawali Citra Televisi Indonesia (RCTI) TV station’s strong performance of 31.8% (+3% YTD; -0.6% MoM). We expect RCTI’s audience share to remain strong in FY16F,driven by several programmesincluding its new hit show Anak Jalanan which was first aired in Nov 2015, talent showThe Voice, and the Euro Cup 2016, which will be aired in June.

RCTI the growth driver
We expect Media Nusantara’s FY16F-17Fadvertising (ad) revenue to grow by 12.6%/11.4% respectively from 8.6%/10.8% previously. This would be supported by its leading TV station RCTI, given its strong audience share performance and strong programme line-up. Furthermore, we think that Media Nusantara could benefit from the success of RCTI’s new hit drama Anak Jalanan, as the programme’s higher rate cardhelps lift ad revenue. In addition, the upcoming Euro Cup 2016 could give an additional boost toits ad revenue,just like the Euro Cup 2012 previously.

Raising FY16F earnings assumption
Media Nusantara’s lower-than-expected earnings in FY15 was due toa high forex loss of IDR315bn stemming from its USD250m debt. We are more optimistic onthe IDR this year, with our economist expecting thevalue of the currencyto strengthen to IDR13,000 per USD in FY16. Thus, we raise our FY16F earnings by 9% to IDR1.68trn from IDR1.5trn,as we expect lower forex lossesthis year.

Maintain BUY with a higher TP of IDR2,300 (from IDR2,150, 16% upside)
The stock has jumped by 62% since Feb 2016 due to a recovery in the media industry and its low valuation. We thinkMedia Nusantara could book better ad revenue growth in FY16F-17F and higher earnings growth in FY16F, helped by the stabilisation of the IDR against the USD.

Risks to our call include the value of IDR depreciation against the USD, a slower-than-expected recovery of the Indonesian economy and the renewal of licenses.

Revising FY16F Assumptions
Time to realise gains from new hit drama series
We expect Media Nusantara’s ad revenue to grow by 12.6% and 11.4% in FY16F and FY17Frespectively,from 8.6% and 10.8% previously. This would be supported by RCTI’s strong audience share performance and strong programme line-up. Furthermore, we think that Media Nusantara could benefit from the success of RCTI’s new hit drama Anak Jalanan, as the programme’s higher rate card would help to lift ad revenue. In addition, the upcoming Euro Cup 2016 could give an additional boost toits ad revenue, just like the Euro Cup 2012 previously.

Media industry has recovered since Jan 2016
We think that our revenue growth estimate is supported by a more upbeat environment in the industry, compared to 2015. The fast-moving consumer goods (FMCG) companies that cut back on their advertising expenditure (adex) in FY15 would refocus on gaining market share in FY16 as a result of the improvement in economic conditions.

Mayora has been aggressively advertisingits products likeBakmi Mewah on TV. Furthermore, e-commerce companies have also been aggressively advertisingtheir business on TV, which benefits the industry as a whole. In FY15, e-commerce contributed 10% of total adex for TV.

Higher earnings assumptions on the stabilisation of the IDR
The major reason for the company booking lower-than-expected earnings in FY15 was due to a high forex loss of IDR315bn stemming from its USD250m debt. As we are more optimistic about the value of the IDR this year (RHB economists expectsthe IDR to strengthen to IDR13,000 per USD in FY16), we raise our earnings estimate by 9%to IDR1.68trn from IDR1.5trn on the back of an anticipated softening forex loss.

Media Nusantara’s 4Q15 performance was below expectations
Revenue dragged by slower adex and softer performance from MNCTV, GTV and I-News TV.As the economy came under pressure in FY15 – which resulted in slower revenue growth for the FMCG companies and led them them to cut costs – ad spend took the first hit in being negatively impacted.

Media Nusantara’s FY15 performance was affected by the slowdown in adex growth. In FY15, it reported a topline of IDR6.4trn (-3% YoY) due to the softer performance of three TV stations, ie MNCTV, GTV and I-News TV.

Operating profit in FY15 dropped 16% YoY
As the company launched its new regional TV regional station – I-news TV – in 2015, it increased its staff count. This resulted in higher salary and allowance costs, which climbed 13% YoY. Thus, its operating profit declined to IDR2.19trn (-16% YoY) in the same period.

Net profitdragged by high forex loss
Media Nusantara’s reported 4Q15 earnings of IDR536bn (+44% YoY) implied that it recovered from a loss of IDR47bn in 3Q15. This brought FY15 earnings to IDR1.18trn (-33% YoY) – whichonly represented of 79% and 75% of our and consensus estimates respectively. Earnings were dragged by a high forex loss of IDR314.8bn. If we excluded the forex loss, core profit for FY15 would have been IDR1.5trn.