In this briefing:
- SCMA (SCMA IJ) – Biting the Digital Bullet – On the Ground in J-Town
- China Tower: Changing Our View to Positive. Low Cost Expansion Should Generate Better Returns
- Naspers: Profitability Improvements Continue
- GMO Internet Inc. – Limited Downside as Crypto Business Weighs Little on Consolidated Performance
- SCC (SCC TB): Potential Beneficiary from US-China Trade War
1. SCMA (SCMA IJ) – Biting the Digital Bullet – On the Ground in J-Town
The conclusion from a recent meeting with the management of Surya Citra Media Pt Tbk (SCMA IJ) in Jakarta was that the company is ready to grasp the nettle of moving a significant focus towards the digital space. That said, it is clear that Free-to-Air business is still very much alive and kicking and will be the core driver for some time to come.
Media Partners Asia suggests that the advertising revenues for the Free-to-Air TV industry in Indonesia can grow +5.6% CAGR between 2017-2023.
Internet companies are driving growth at the margin but also make-up 2/3rds of the 15% of total spend on digital advertising, which suggests only 5% lost from TV.
Surya Citra Media Pt Tbk (SCMA IJ) is on the cusp of a significant move into the digital advertising and content space through Vidio.com, Kapanlagi.com, as well as its payments gateway Dana.
The company will also enter a new advertising medium of outdoor billboards, where it will seek to consolidate the industry through acquisitions, with the aim of controlling 50% of this market.
Surya Citra Media Pt Tbk (SCMA IJ) remains the best media proxy for advertising in Indonesia. It has seen its two main Free-to-Air stations SCTV and Indosiar command number 1 & 2 audience share positions over the last two months, giving an overall prime-time audience share YTD of 35%. The company estimates that the core business can probably achieve growth of +10% over the next two years. The real kicker to growth for the company will come from its significant move into the digital and content space through a series of acquisitions, mainly from its parent Elang Mahkota Teknologi Tbk (EMTK IJ). These transactions are will be done at arm’s length so as to avoid any corporate governance concerns. According to CapIQ consensus, the company is trading on 16.7x FY19E PER and 15.1x FY20E PER, with forecast EPS growth of 8.6% and 10.6% for FY19E and FY20E respectively. The company also has a dividend yield of 3.9% for FY19E and generates an ROE of 32%.
2. China Tower: Changing Our View to Positive. Low Cost Expansion Should Generate Better Returns
At the time of the IPO we were quite negative on China Tower (788 HK) prospects. However, in recent calls and meetings our view has changed and become more constructive. Chris Hoare now believes that China Tower is managing to generate co-location growth outside the Master Services Agreement (MSA) and at a much lower level of capital intensity (perhaps up to 50%) than indicated in the IPO. Management has also proven to be more open to shareholders than expected and with lower capex, higher FCF generation we upgrade to a BUY with a HK$1.60 target price. The stock has started to move as the market has begun to understand the more positive outlook. It will be interesting to see if China Tower is allowed to retain these benefits long term.
Summary China Tower forecasts:
3. Naspers: Profitability Improvements Continue
Following David Blennerhassett‘s recent StubWorld note, we wanted add a bit more detail on the non Tencent Holdings (700 HK) part of Naspers (NPN SJ). In any discussion of Naspers, this tends to get overlooked but in fact, Naspers has generally done quite well in these businesses, by building them, monetizing them, and in some cases selling them. Alastair Jones believes that, given moves to unbundle the pay-TV assets in 2019, there is scope for the NAV discount to narrow. The current low/negative valuation for the unlisted assets ignores their significant value.
Naspers valuation:
4. GMO Internet Inc. – Limited Downside as Crypto Business Weighs Little on Consolidated Performance
GMO Internet is currently trading at JPY1,485 per share which is just 7.6% above its 12-month low of JPY1,380 per share. The Group’s share price reached an all-time high of JPY3,020 in June 2018, however, it has declined by more than 50% since then following the company’s poor performance in its cryptocurrency and mining related segment led by stagnant crypto prices coupled with negative news on issues concerning advertising fraud in its Online Advertising & Media segment. This was further exacerbated by news that there will be delays in shipments of two bitcoin mining rig lines with refunds already issued in November. However, we believe, the downside is limited as the weaknesses of its crypto related business will weigh little on the consolidated earnings of the business. GMO’s business is structured in a way that its two main segments, namely, the Internet Infrastructure and Online Advertising and Media businesses are not prone to much volatility with recurring revenues. Therefore, we believe the negativity surrounding the company is exhausted and we expect the company to continue its strong growth trajectory.
5. SCC (SCC TB): Potential Beneficiary from US-China Trade War
- Share price is less volatile, cheap on a PE basis, and good chance of target-price upgrade relative to its sector
- Plans for cement export to US buyers as they face higher prices from China as a result of trade war
- Gross margin support from comparatively lower cost as SCC has secured 80% of its coal requirement for 2019 in face of rising coal prices
- SCC trades in line with Thai Materials at 19CE* 9.6% ROE/PB
- Risk: Lower than expected cement price, uncertainty regarding US-China trade war
* Consensus Estimates
