In this briefing:
- Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
- Surya Citra Media (SCMA IJ) – Digital Revolution in the Spring – On the Ground in J-Town
1. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
In the past month, positive announcements from both sides stoked hopes for a trade deal between the US and China. Meanwhile, global security deteriorated, with two more regions finding themselves on a brink of war. A major terrorist act in Kashmir provoked a sharp increase in tensions between India and Pakistan. Venezuela’s opposition leader has called for foreign powers to intervene after deadly clashes on the Colombian border. On the other hand, investors should be relieved by the relatively calm situation in Nigeria where incumbent president Buhari won the election last weekend. In Brazil, newly elected president Bolsonaro hopes to push through radical pension reform.
2. Surya Citra Media (SCMA IJ) – Digital Revolution in the Spring – On the Ground in J-Town
A meeting Surya Citra Media Pt Tbk (SCMA IJ) in Jakarta found management in a relatively ebullient mood. The share price performance has been slightly perplexing the fact that its digital strategy is close to coming to fruition, with upcoming acquisitions representing a positive catalyst.
The company will move forward on acquiring controlling stakes in digital streaming player www.vidio.com, internet company www.kapanlagi.com, and out of home media advertising player EYE Indonesia.
Total revenues from the digital and non-TV space will grow from less than 5% of SCMA’s total revenue to nearly 20% of the total, making it the biggest player in both free-to-air and a major player in digital adverting in Indonesia.
Vidio.com is especially interesting given how fragmented that market is currently. Iy=t already has 22m active users viewing its sport and local content but is looking to bring in a major global player to help finance original content and bring in more international content.
Internet companies represent the biggest and fastest growing advertising customers outside FMCG. They are increasingly paying above market rates for up to two-hour exclusive slots on prime time, where they air their own programming which allows them to engage with the audience.
The recent Kraft Heinz Co (KHC US) debacle may signal the end of zero-based budgeting, which may mean global players such as Unilever Indonesia (UNVR IJ) start to spend more on advertising. in the meantime, local FMCG players remain more aggressive on advertising their products on TV.
Surya Citra Media Pt Tbk (SCMA IJ) remains the best quality proxy to the advertising market in Indonesia. The upcoming acquisitions in the digital space represent strong potential catalysts for the stock, which have not yet been factored into valuations. Its core business continues to register stable and rising growth, especially from local FMCG players, with the re-entry of the tobacco companies potentially representing another boon for this year, given there has been no excise tax increase. According to Capital IQ consensus, the company is trading on 15.3x FY19E PER and 13.8x FY20E PER, with forecasts EPS growth of +8.5% and +10.5% for FY19E and FY20E respectively. The company is forecast to achieve an ROE of 33% in 2019, with a dividend yield of 4.2%.
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