David Arie Hartono
We upgrade Media Nusantara to BUY (from Neutral) with an IDR2,150 TP (from IDR1,850, 31% upside) on the back of an expected recovery in the local economy in 1H16 an anticipated rate card improvement and lessened discount, given RCTI’s strong audience share.
We believe the stock’s valuations are attractive enough, given potential FY16/FY17 earnings growth of 4%/36%.
No more high capex as the studios’ construction is done. Media Nusantara Citra (Media Nusantara) has been able to ramp up the construction of its new studios and also ended its high capex era. In FY16, we estimate for the company to book a higher FCF of IDR1.6trn, which could reduce concerns over its USD250m debt due in FY17. With the completion of the new studios, we expect Media Nusantara to be able to use more in-house productions, which leads to better profitability.
We estimate GPMs of 56.4%/57.7% in FY16/FY17 respectively.
RCTI to be the growth driver. As we expect the media sector to recover this year (on domestic consumption recovery starting 1H16), we anticipate Media Nusantara’s advertising (ad) revenue to grow by 8% (FY16) and 11% (FY17). This would be supported by its leading TV station, Rajawali Citra Televisi Indonesia (RCTI), given that audience share and ad revenues have focused on the top two players (RCTI and SCTV), due to their strong and stable audience share. We have seen
that Media Nusantara now has bargaining power in terms of a higher rate card and discounts offered. We forecast for RCTI ad revenue to grow at 14% in FY16. The Euro 2016 tournament ought also to give an additional ad revenue boost.
We upgrade to BUY (from Neutral) with a higher IDR2,150 TP as we believe the market has not priced in the potential recovery of Media Nusantara; we think the company could book better ad revenue growth in FY16 and FY17 (per above). Furthermore, the stock is trading at -1SD
and a significant discount to Surya Citra Media (Surya Citra) (SCMA IJ, BUY, TP: IDR3,700), on a 2016F P/E basis, which is greater than the 24% historical average discount to the latter.
We also think the share price overhang has been priced in and provides an attractive entry point.
Risks: i) IDR depreciation vs USD – the company has USD250m debt and 20% of content cost is in USD, ii) slower-than-expected domestic economy recovery, and iii) MNCTV’s litigation case.