Media Nusantara Citra (MNCN) - BUY (Maintain)

Last Price: 1,400, TP: 900

All Hail Digital 

 

A sluggish quarter. MNCN reported an IDR 400 billion net profit in 4Q22 (-12% qoq) on an IDR 1.7 trillion revenue (-0.16% qoq; its worst quarterly revenue in 4 years). Two of MNCN's three main business segments reported sluggish quarterly performance; its FTA revenue slipped -14% qoq to IDR 862 billion (45% of MNCN’s 4Q22 revenue) and its content revenue slumped -27% qoq to IDR 630 billion (21% of MNCN’s 4Q22 revenue). Meanwhile, its digital ads revenue went up +12% (33% of MNCN's 4Q22 revenue). Overall, in FY22, MNCN posted a net profit of IDR 2.1 trillion (-15.4% yoy) and an EBITDA of IDR 3.7 trillion (-8.5% yoy), slightly below our estimates (91%) and below consensus (88%).

It’s digital time. In our opinion, media companies will face a challenging year in 2023, as consumer and tech companies might cut their advertising budgets given the rather bleak macroeconomic condition. Our research revealed that in FY22, FMCG companies cut their advertising budgets by -624 bps, whilst tech companies cut theirs by -1,123 bps, and we expect more cuts in the future, which could lead to rate cuts and hurt media companies’ performance. Even with the upcoming election year (which should generate demand for FTA advertising from political parties), due to budget constraints, it may not be enough to support the FTA market in 2023. However, there’s still hope for digital media; according to Statista, Indonesia’s overall advertising expense could rise to USD 5.9 billion (+6.5% yoy) in 2023, with a potential for further growth to USD 6.6 billion in 2027. Although the figure is mainly composed of FTA (61%), we believe digital media will be the main growth driver, as digital media is projected to contribute approximately USD 2.3 billion (+12% yoy). MNCN, with its solid digital media business, might benefit from the situation since its digital media business will provide a better upside.

2023 outlook. We maintain our projections that MNCN will book a net profit of IDR 2.2 trillion (+10% yoy), and an EBITDA of IDR 3.7 trillion (+11% yoy) in 2023. Our rather modest projections were based on our thesis that FTA would continue to struggle while digital media might prevail and provide some upside.

BUY, TP IDR 900. We reiterate our BUY rating on MNCN, albeit with a lower TP of IDR 900, reflecting 4.98x FY23F P/E (-0.5 SD). We believe MNCN’s current valuation is undemanding, making it an attractive pick in the struggling media sector. Key Risks: Lower-than-expected digital ads revenue, rate cut, political downturn