RHB Indonesia Morning Cuppa - 7 September 2016- (Media, INDF)

Good morning,

Media: Media Nusantara Retains Its Top Spot

We maintain our OVERWEIGHT call on the sector with Media Nusantara as our Top Pick. We continue to like the company as an attractive stock in the sector. We view that it could book better advertising (ad) revenue growth in FY16F-17F from its audience shares domination. This ought to translate into a higher rate card, which would have an impact on 2H16 numbers. Meanwhile, we are waiting for a real recovery in terms of audience shares from Surya Citra - SCTV’s audience share remains low, as it declined by 11% MoM in August.

¨ Rajawali Citra Televisi Indonesia’s (RCTI) 9% MoM improvement in prime time audience shares maintain Media Nusantara Citra’s (Media Nusantara) dominance. In August 2016, RCTI was been able to maintain its first spot in prime time audience share, as it improved 9% MoM to 29.4%. Thanks to its strong programmes line up like Anak Jalanan, Tukang Bubur Naik Haji, and new drama series called Anugrah Cinta. Due to the improvement on RCTI audience shares, Media Nusantara has been able to maintain its dominance in prime time audience shares of 45.2% (flat MoM). We foresee that Media Nusantara will keep its strong dominance in prime time audience share in 2H16 due to its strong programme line up, in our view. We expect a higher rate card from RCTI TV stations in 2H16 as a result of its high audience share.

¨ Improvement in Indosiar prime time audience share helped Surya Citra Media’s (Surya Citra) performance. Surya Citra (SCMA IJ, NEUTRAL, TP:IDR3,300) prime time audience share improved the most in August to 24.2% (or 12% MoM). The improvement was supported by Indosiar, whereby the prime time audience share grew by 48% MoM to 12.4% – we suspect it was due to its Stand Up Comedy Academy 2 programme. Meanwhile, non prime time audience share for Indosiar jumped 22% MoM to 12.7% on the back of the TSC Torabika Super Championship 2016, which is aired live on Indosiar. Meanwhile, Surya Citra Televisi’s (SCTV) prime time audience share declined to 11.8% (or -11% MoM) – as we think that the market share was taken away by RCTI. We view that Indosiar would be a driver for Surya Citra in 2H16 on the back of the former’s good programme line up that could improve the latter’s audience share numbers.

¨ Trans Corp’s audience share declined the most in August. Trans Corp’s prime time audience share declined the most to 12.6% (or -11% MoM) in August. This was due to the poor performance of Trans TV, whereby the prime time audience share declined by 22% MoM – we suspect that the audience share was taken away by Indosiar. Meanwhile, Trans 7’s prime time audience share improved by 3% MoM.

¨ Maintain OVERWEIGHT on the sector, with Media Nusantara as our Top Pick. We continue to like the company as an attractive stock in this sector, given:

i. Better margins from cost savings due to the completion of three new studios and potential acquisition of a production house;

ii. A strong program line up in 2H16 to drive its rate card;

iii. Potentially higher FY17 dividends

¨ Meanwhile, we remain NEUTRAL on Surya Citra as we view that SCTV’s low audience share numbers may pose an earnings risk in the 2H16 if it does not recover. Downside risk to our call for Surya Citra would be SCTV’s audience share failing to recover. On the flip side, its upside risk is improved audience share numbers that leads to a higher rate card. (David Hartono).

Link to report: Media Nusantara Retains Its Top Spot

Link to Daily report: RHB Indonesia Morning Cuppa - 070916

Company Update:

First read: Indofood Sukses’ Minzhong divestment close to deal

Marvelous Glory (MG) offers to buy 82.9% stakes in China Minzhong (MINZ SP) which is owned by Indofood Sukses (Indofood, INDF IJ) priced at SGD1.2/share. The stakes which will be bought is higher than previous MoU which was 52.9%.

Indofood will receive SGD652m proceeds via:

1) SGD416m cash payment

2) SGD236m exchangeable bonds

The proceeds are to lower Indofood debts which were used to finance Minzhong acquisition.

Note that Indofood had received SGD40 for advance payment in October 2015.

In our calculation, Indofood will book SGD65m gain (around 30% of Indofood FY16F earning) from this transaction since average cost to acquire Minzhong is around SGD1.08/share.

We see that this transaction is catalyst for Indofood share price which should unlock Indofood value. Maintain BUY on Indofood with SOP base TP of IDR9,700 implies to 18x/15x FY17/18F P/Es.Note that based on our SOP valuation, Indofood’s fair value is IDR12,000 but we have conservatively excluded the value of China Minzhong and assumed a 15% holding company discount in deriving our TP. (Andrey Wijaya)

Figure 1: Indofood SOP valuation

Division	Company market cap (IDRbn)	Indofood stakes (%)	Indofood shares (IDRbn)	Contribution to total value (%)

Indofood CBP (based on TP IDR10,200)	118,951	80.5%	95,756	91%
Flour (DCF, WACC 9.8%, TG 2%)	453	100.0%	453	0%
Agribusiness (IFAR SP) (closing price 19-Aug-16)	6,489	62.8%	4,075	4%
Distribution (DCF, WACC 9.8%, TG 2%)	187	100.0%	187	0%
Minzhong (MINZ SP) (closing price 19-Aug-16)	6,001	82.9%	4,975	5%

				Per share (IDR)
INDF's fair value (IDRbn)			105,446	12,009
INDF's fair value (excl. Minzhong) (IDRbn)			100,472	11,443