MNCN is sitting in the PRIME position. The ad cycle couldn’t be better with
rising consumption & FDI driving competition. While the rate card
expands +15-20%, MNC’s cost base is largely fixed driving huge
operating leverage. We forecast 20% top-line & 40% bottom-line growth
in 2012. MNCN trades at a discount to consumer companies despite
higher operating leverage and being a beneficiary of competition. The
stock is one of key conviction calls – our TP implies 28% upside. BUY.
The cycle is PRIME
Given the cyclicality in ad spend investing in Media is all about picking when
the cycle is strong. In Indonesia it couldn’t be better with rising consumption
and FDI (which brings competition). MNC is key beneficiary (owns 3 of the 10
FTA channels) of all these trends especially competition which is driving up ad
expenditure & rate cards. Many of these new competitors are targeting the
mass-market, hence using FTA (accounts for 70% of ad spend).
Huge operating leverage
Unlike consumer companies with variable cost bases, MNC enjoys huge
operating leverage as its major cost (programming is 75% of COGS) is fixed.
This has been the key driver for the material EBITDA margin expansion (33%
from 30% in FY11). We forecast margins to expand further in 2012 to 38%.
MNC also produces 60% of its total content needs internally minimizing the
risk of content-bidding wars (the major downfall for most media companies).
2012 – 20% top-line and 40% bottom line growth
MNC’s 2011 results were impressive with EBITDA growth of 26%. In 2012 we
expect the momentum to continue forecasting 20% revenue growth and 40%
earnings growth. Moreover this is growth is very visible. Our analysis of major
Indonesian consumer companies shows A&P expense is up 20%+ in 2011
with no slowdown in sight for 2012.
One of key ‘Conviction Calls’ to play the return of FDI & competition
MNC has been one of our highest convictions stock calls since our December
2010 initiation & and the best way to play the return of FDI thematic. While
the stock has re-rated materially we still find the stock compelling as it trades
at a discount to consumer (despite significantly more operating leverage) and
unlike consumer companies which are negatively exposed to competition -
MNC is a beneficiary. This coupled with the visible and robust earnings growth
make the stock compelling. BUY.
Download file : Indonesia MNC Final