David Arie Hartono
We maintain our BUY call on Surya Citra, with a higher IDR3,700 TP (from IDR3,300, 22% upside). We expect the industry to recover as a result of better FY16 consumption. In such an event, the company may have an advantage due to its strong audience share, which could lead
to better rates. We also anticipate margins to improve from having less USD-based content. We expect earnings to grow at 16%/18% in FY16/FY17.
Recovery in the media industry. We expect consumption to improve from 1H16 onwards, which could lead to a better outlook for the media sector. Surya Citra Media’s (Surya Citra) consistent performance in terms of audience share growth could lead to better advertising (ad) revenue in the event of a recovery for the sector.
We estimate the company to record top line of IDR4.9trn (FY16) and IDR5.6trn (FY17). The top line improvement in FY16 may be supported by both its TV stations – Surya Citra Televisi (SCTV) and Indosiar – for which we assume higher rates and less discounts handed out. This is given their strong audience share on top of wider margins, resulting from the discontinuation of USD-based content and an increase in in-house produced programmes.
Margins expansion on less USD exposure. In 1H15, Surya Citra discontinued the screening of the European Champions League football matches and this has led to better margins in 3Q15. Furthermore, as it is also planning to discontinue broadcasting Barclays Premier League matches in 1H16, we expect its content costs to decrease in FY16, which could improve its margins. We expect EBITDA margins to improve to 50% (FY16) and 51% (FY17). Content from the European Champions League and Barclays Premier League are expensive and only offer a thin profit margin.
Maintain BUY, with a higher IDR3,700 TP (22% upside). We think the market has not priced in the potential improvement in ad revenue for Surya Citra; even though the stock now trades at a premium valuation, we believe it still offers a potential upside in the event of an economic
recovery. Our DCF-based TP implies 31.1x/26.4x FY16/FY17 P/Es.
Risks: i) Indonesia’s economic recovery is slower than expected, and ii) the transition to digital TV.