1Q23 review: Way short of estimates. SCMA booked a flat top line of IDR 1.5 trillion in 1Q23 (-0.4% yoy) on the back of lower FTA revenue (IDR 1.2 trillion, -6% yoy). Apart from the flat top line, SCMA also posted a lower GPM than in 1Q22 (37%, -1,100 bps), while its OPM plunged to 4% (-2,000 bps) due to the spike in opex of +36% yoy to IDR 495 billion and the reconciliation of FX-related expenses into its opex. Lastly, SCMA posted an EBITDA of IDR 122.7 billion (-72% yoy) and a bottom line of IDR 63 billion (-78% yoy), reaching 10% of our estimates and 5% of consensus.

 

FTA might decline further due to weak macro environment and analog switch-off (ASO). According to Nielsen, SCMA prevails in market share, with an audience share of 30.3% in April 2023 (post-ASO-related restatement). Despite the large audience share, we believe it is not reflective in terms of ads revenue, as most media companies might take a hit due to weak macro environment and the switch to digital media. Also, almost 78% of SCMA’s revenue comes from traditional FTA revenue, while digital and OOH only contribute 16% of its total revenue (for comparison, the digital segment of MNCN [SCMA’s direct competitor] contributes 26% of the company’s top-line through RCTI+). Right now, SCMA is banking heavily on Vidio; however, considering the high production cost for OTT, we think SCMA’s margins will deteriorate further to around 35% (GPM). Furthermore, the cost amortization of the World Cup license will also bring EBITDA margins down in the forthcoming quarters, so we see no short-to-midterm upside for the company.

 

Forecast downgrade due to potential headwinds. Considering the limited upside from FTA (due to lower audience retention after the 2022 World Cup) and the possibility of further decline in margins due to higher broadcasting and programming costs, we downgraded SCMA’s 2023 earnings forecast to IDR 325 billion (-71.4%) and 2024 to IDR 364 billion (-72.9%). Our GPM forecast is 36%, relatively the same as the actual figure in 4Q22, when media revenue started to go down while broadcasting and programming costs spiked due to ASO. In line with our earnings forecast, we also reduced our EBITDA forecast by 61.9% to IDR 705 billion (2023) and 60.5% to IDR 762 billion (2024).

 

Downgrade to SELL, TP of IDR 130. In light of the decline in its FTA revenue and the possibility of further decline in margins, coupled with the limited upside from Vidio, we downgrade our rating for SCMA to SELL with a TP of IDR 130, reflecting 29.8x FY23F P/E (+0.5 SD of its 5-year P/E, 7x premium to its closest competitor, MNCN). Main Upside: Higher-than-expected FTA growth. improved margins.