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Danareksa Equity Snapshot - MNCN 30 Mei 2018
May 30, 2018 10:04

Media Nusantara (MNCN IJ)

Sluggish 1Q18 performance

 

MNCN booked lower-than-expected 1Q18 revenues and net profits, mainly on the back of weak advertising revenues and higher content costs in 1Q18 compared to 4Q17. This led to gross margins compression in 1Q18 compared to previous quarters, although gross margins were still higher versus 1Q17. MNCN also booked significant forex losses in 1Q18 and a higher tax rate. We are currently reviewing our forecast.

 

Lower-than-expected 1Q18 net profits. MNCN booked sluggish 1Q18 net profits of only IDR274bn (vs. IDR419bn in 1Q17), -34.6% yoy and -17.3% qoq, or reaching only 14.7% of our full year forecast and 15.9% of consensus estimates, far below expectations. This mainly reflects: 1) lower-than-expected revenues in 1Q18 and 2) higher-than-expected 1Q18 content costs, which were much higher than in 4Q17, resulting in lower 1Q18 gross margins compared to the previous quarter, albeit still higher compared to 1Q17. As a result, the 1Q18 operating margin was much lower than in 4Q17, although still better than in 1Q17. MNCN also booked large forex losses in 1Q18, mainly due to its US dollar denominated long-term bank loan (IDR3.3tn), which is equivalent to ~82% of MNCN’s total interest bearing debts. The company also booked a higher tax rate in 1Q18 of 30% (vs. an estimated 25% for FY18F).

 

Lower-than-expected 1Q18 revenues. At the top line, MNCN only booked IDR1.6tn of revenues (vs. IDR1.6tn in 1Q17), -0.4% yoy and -4.1% qoq, or reaching 21.6% of our full year forecast and 21.2% of consensus estimates. This falls short of expectations as in the last 3 years, the 1Q figure was usually around 23% of the full year number, and mainly reflects lower-than-expected 1Q18 advertising revenues. In addition, we also note that MNCN’s audience share in 4Q17 and 1Q18 has trended down from its level in 3Q17. Nonetheless, on a more positive note, the company signaled a pick-up in audience share during Ramadan thanks to good viewing figures for 1) “Dunia Terbalik” and 2) “Amana Wali” which have been aired during prime time and sahur – considered as a prime-time slot during the fasting month.

 

Reviewing our forecast. We are currently reviewing our forecast. The stock’s valuation is cheaper than its peer in the media sector (SCMA) although the latter is our top pick. The risks to our call include: 1) audience share stagnating, 2) higher content and operating costs, and 3) stiffer competition.

 

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