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Danareksa Equity Snapshot - SCMA, 14 Agustus 2019
August 14, 2019 09:32

Surya Citra Media(SCMA IJ)

Earnings forecastcut toreflecthigher costs


We roll over our valuation and lower our 2020F earnings growth forecast to 8.2%yoy from 11.6%yoy. We make adjustments for possible additional content costs and operational costs in relation to new business in 2019. We also take into account the attempt of KPI (the Indonesia Broadcasting Commission) to intervene in digital media although we see only a minimal impact on SCMA’s digital content given it is in compliance with the current regulations. All in all, we remain positive with the solid performance of each channel depicted in steadily rising audience share and its digital content sold to Netflix. Nonetheless, we cut our target price from IDR 2,350 to IDR 1,900 with WACC of 12.2%.


Higher costs to put pressure on margins. As SCMA is looking at ways to improve the performance of new digital businesses, we expect an increase in operating costs growth to 18.0%yoy and 16.7%yoy for content costs. As a result, we reduce our 2019 operating margin forecast from 38.8% to 36.5% and our 2019 net profit margin forecast from 29.8% to 28.1%.


Intervention from KPI will only have a minimal impact on KPI is currently attempting to intervene in digital media such as Youtube and Netflix and other OTT platforms might be next. However, according to Kominfo, in the context of broadcasting, the available regulation only covers free-to-air broadcasting. However, should KPI’s authority be extended to digital media, the digital content of SCMA might not be affected since the content follows the standards of movies shown in the cinema which are currently regulated by KPI. We are still watching the development of the broadcasting regulation that will be reviewed by Kominfo and KPI. We believe it would take some time before the regulation is issued as the new members of KPI have just been appointed.



TP reduced on the back of a lower valuation. We roll over our valuation, resulting in a lower target price of IDR1,900, implying 11.0x 2020PE, given: 1) additional operating and content expenses for digital media, 2) lower margins due to additional expenses from new business, 3) flat growth in the FTA business. We remain positive on the company’s outlook, however, given: 1) additional advertisement revenues from startup companies and a change in the advertisement approach by consumer staple companies to FTA 2) the high audience share of both SCTV and IVM and 3) increasing revenues generation from digital media and new business.



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