Surya Citra, The Industry Stalwart

BUY, TP Rp3,900
Our Buy recommendation is based on SCMA’s i) strong position in Indonesia’s television network, ii) promising earnings growth, iii) improving profitability, iv) high dividend yield, and v) strong cash position. Our target price of Rp3,900 is premised on 14.9-13.0x FY11-12f PE. The share’s price catalysts include: i) a special dividend, and ii) higher domestic advertising spending.

Highest audience rating
SCMA has an extensive broadcasting network which is well-known for its primetime mini-series. Based on an Nielsen survey, SCMA’s audience rating improved from 13.3% in June to 16.8% in September, thanks to its popular television mini-series and reality programs. SCMA has the highest share for audience of free air television in Indonesia, followed by Trans (15.3%) and RCTI (15.2%).

Promising growth
SCMA has been focusing on improving its operating efficiency, driven by lower programming costs, to boost earnings. The company claims to wield high bargaining power vis-a-vis production houses, owing to tightening competition in the production house sector. In addition, to boost sales, SCMA has lowered its sales discounts, including advertising spot bonuses and agency commissions.

High dividend yield
We believe that SCMA will still pay high dividends given its strong cash position, low debt and low capital expenditure. In the last three years, its dividend payout ratio had increased to 119.4% in FY09 from 73.3% in FY07. Assuming a dividend payout ratio of 75%, based on our calculation, the company’s FY10-12F dividend yield would be 5.3% to 6.0%.