Surya Citra, a Boost From Within

One of Indonesia’s leading TV stations
SCMA has an extensive broadcasting network and is well-known for its prime time mini-series. The Indonesian TV broadcast industry looks promising in view of the increasing income per capita of its population. Advertising rates may grow by 15-20% next year and with over 17k islands and a geographical width of close to 4k miles, free-to-air TV is the best way to reach the general population. Internet penetration in Indonesia is estimated at 15% (around 35m) vs the major TV stations’ 59% (over 138m). TV will continue to dominate in terms of advertising market share.

Higher average audience rating to boost revenue
During the January-September period, SCMA’s average audience rating rose to 16.2% from 15.1%. A higher audience rating gives it a bigger bargaining power to set rate-card tariffs. Notably, its advertising hours are nearing full utilization, while spot bonuses are relatively small. Hence, any future revenue growth will come from higher tariffs rather than volume.

Room for better margins
We see more room for cost efficiency improvement from lower programme costs, which currently account for more than 65% of total expenses, as SCMA is expected to air more in-house programmes. The proportion of the lower cost in-house programmes increased to 40% in 2011 from 35% in 2010. Moving forward, it is targeting to lift the share of in-house programmes to 45% in 2012.

Raising dividend payout ratio
We expect SCMA to continue paying high dividends since its annual capex requirement is a mere IDR60bn, while the cash generated from its operations is enormous and estimated at IDR823bn for FY11. Historically, the company’s dividend payout ratio (DPR) has been high – 72%, 119% and 155% for FY08, FY09 and FY10 respectively. As such, we deem our projected 75% DPR as being “too low”. That said, we are lifting our DPR forecast to 80% from 75%, from which we derive a DPS of IDR221, IDR363 and IDR430 for FY11, FY12 and FY13 respectively.

It’s a BUY
In view of its high ROE and dividend yield, we opine that SCMA deserves to be trading at a premium to other Indonesian media companies. The stock offers a ROE of 45.5%–44.8% for FY12–FY13f (vs its peers’ average ROE of 21.3%–20.7%) and dividend yields of 4.9%–5.8% for FY12–FY13f (vs 1.5%–1.7%). SCMA is trading at a FY12–FY13f PER of 13.8x–12.2x, while other Indonesian media companies are trading at an average PER of 14.0x–1.8x. Our Target Price is IDR9,150, which implies a FY12–FY13f PER of 17.0x–15.0x.