|Please click here for report: Surya Citra Media: Heading into a better quarter|
|Surya Citra Media (SCMA IJ): BUY
Market Cap: US$2,085m | Average Daily Value: US$2.00m
Last Traded Price: Rp2,060; Price Target: Rp2,600 (Upside 26.2%)
David Arie Hartono +62 2130034936 david.arie
Heading into a better quarter
1H18 earnings in line with our expectation. Surya Citra Media (SCMA) posted 2Q18 earnings of Rp485.3bn (-9.8% y-o-y; +35.1% q-o-q), bringing 1H18 earnings to Rp844bn (+0.7% y-o0y). This represents 50.4%/56.9% of consensus/our estimate – in line with our expectation.
1H18 audience share shows improvement. SCMA’s all-time audience share for 1H18 increased by 2ppts y-o-y to 17.5%. Meanwhile, Indosiar’s (IVM) all-time audience increased by 2.8ppts y-o-y to 14.6%. In 1H18, SCTV’s prime time audience share improved by 2.1ppts to 19.7% due to a number of drama series produced by Sinemart, namely Orang Ketiga, Anak Langit, and Siapa Takut Jatuh Cinta. Furthermore, Indosiar’s 1H18 prime time audience share improved by 2.3ppts to 14.4% on the back of new programmes like Liga Dangdut (LIDA). We believe that the strong improvement of audience share will enable the company to charge for a higher rate card.
Revenue declined due to longer festive holidays. SCMA posted 2Q18 revenue of Rp1.3tr (-6.2% y-o-y; +14.3% q-o-q), bringing 1H18 revenue to Rp2.5tr (+2.6% y-o-y). In 2Q18, SCTV’s revenue declined to Rp754.1bn (-18.5% y-o-y; +30.6% q-o-q); while Indosiar’s revenue also slipped to Rp500.4bn (-1.8% y-o-y; -3.8% q-o-q). The revenue performance of SCMA was broadly in line with market conditions and the audience share changes in the previous year. However, June 2018 experienced a significant and unexpected y-o-y decline due to longer festive holidays.
Content revenue jumped significantly in 1H18. SCMA’s content revenue improved significantly to Rp126.4bn in 1H18 (vs Rp16.8bn in 1H17) as it was able to sell more content to third parties. Previously, content revenue was always eliminated due to more sales to internal parties. The company sold its content to Sinemart21, Netflix, Iflix, and its content library to OTT players. This year, IEG has been able to produce and sell two movies to Netflix at very high margins, as the cost of production is borne by Netflix. We believe that its higher content sales going forward would be able to offset the downtrend in advertising revenue for TV stations
Cost of programming up by 6.7% y-o-y. In 2Q18, SCMA’s cost of programming increased by 6.7% y-o-y to Rp488.8bn (+1.1% q-o-q) mainly due to investments in new and fresh programming on Indosiar (IVM), notably LIDA that featured contestants from all of Indonesia’s provinces, more fresh- run FTV episodes, and the Liga 1 Go-Jek Soccer Championship whose broadcasting kicked off in March 2018. As a result, SCMA’s GPM slipped to 63% in 2Q18 (vs 67.5% in 2Q17).
2H outlook. Management has guided for revenue growth of 25% y-o-y in 3Q18 on the back of (i) Asian Games which could boost August and September audience share numbers, leading to higher revenue in 3Q, and (ii) improvement in audience share numbers on a y-o-y basis, which enables it to charge for a higher rate card.
However, in 4Q18, there will be some challenges in the advertising expenditure (adex) environment. As some of the FMCG companies intend to cut their adex budget for TV and carry out more targeted marketing. Such companies as UNVR, and Procter and Gamble have indicated their plans to cut their adex budget – as both companies posted weak topline and bottomline growth. But we think that the lower adex budget from these two companies would be offset by potentially higher adex from staple consumer companies like MYOR and Garuda Food, as well as online service companies.
Thus, we maintain our BUY call on SCMA with a TP of Rp2,600/share.