Mahaka Radio Integra (MARI)

Transcription

March 8, 2016
Mahaka Radio Integra (MARI)
Sebastian Tobing
[email protected]
The King of Radio
Paula Ruth
[email protected]
The king of radio with aggressive expansion plan
Radio industry in Indonesia has been able to grow by 14% CAGR (in ads
revenue) in 2010-15E and we are optimistic in the industry’s outlook.
MARI (Mahaka Radio Integra) is the king of radio in Indonesia, with
largest listenership despite only having three radio stations (all its major
competitors have at least ten radio stations). MARI should be able to
cement this leadership further as it plans to double the number of its
radio stations by expanding into middle low segment radio in Jakarta
(which has a large listenership base) and expanding its Gen FM brand to
two other cities. MARI also plans to invest further in digital business,
which has plenty of potential yet to be monetized.
Strong growth ahead
We expect a profit CAGR of 17% in 2015-18, driven by 19% EBITDA
CAGR and 17% revenue CAGR in the same period. Important assumptions are 12-15% tariff growth in 2015-17 that will gradually slowdown
afterward, and a 5% ad minutes growth which we believe is conservative considering MARI’s expansion plans. We expect NOPAT ROIC to be
at a robust 32-41% in the foreseeable future, far above company’s
11.4% WACC.
PT Mahaka Radio Integra Tbk is a radio
broadcasting company. The Company
operates FM radio stations that primarily
broadcast across Jakarta and Surabaya.
BUY
Rp1000
Company Update
Share Price
Sector
Price Target
Rp715
Media
Rp1000 (40%)
Stock Data
1% potential divd yield in May, 5% next year
MARI has paid interim dividend in 2015 so upcoming divd yield in May is
likely to be only 1%, but this will rise to 5% starting next year (based
on this year’s earnings) as we assume company to maintain a 50%
payout ratio from next year onward. Note that we currently assume no
interim dividend this year, which according to management is a possibility.
Reuters Code
Bloomberg Code
Issued Shares
Mkt Cap. (Rpbn)
Avg. Value Daily 1
Month (Rpbn)
52-Wk range
Valuation: Buy with TP 1000
Major Shareholders
We use a DCF method assuming 11.4% WACC (1.0 Beta) and 5.0% LT
growth rate. MARI currently trades at 9.2x 2016 PE, lower than local
media comparison of 19.7x and global radio trailing average of 18.4x,
with 1% divd yield we expect to be paid this year and 5% divd yield
paid next year. Our target price implies 12.9x 2016 PE.
PT. Beyond Media
PT. Mahaka media Tbk
PT. Fajar Mentari
Public
Companies Data
Core EPS
Consensus (Rp)
TRIM vs Cons. (%)
in Rp bn
Revenue
Net Profit
EPS
Core Profit
Profit Growth (%)
Core EPS (Rp)
DPS (Rp)
Core P/E (x)
EV/EBITDA (x)
P/BV (x)
Div Yield (%)
2013
80
29
63
30
16%
66
129
10.8
8.6
5.9
16%
2014
95
29
64
30
-2%
65
168
10.9
8.8
7.0
20%
2015F
105
37
81
38
28%
84
32
8.5
6.8
5.0
4%
2016F
121
40
75
41
7%
78
7
9.2
5.4
3.4
1%
2017F
143
49
92
50
22%
95
38
7.6
4.6
2.7
5%
Core EPS decline YoY in 2016 as the company’s shares outstanding expanded post IPO in
Feb 2016.
PT Trimegah Securities Tbk - www.trimegah.com
MARI.JK
MARI.IJ
525
376
0.9
930 / 705
52.2%
17.4%
10.2%
20.0%
Consensus
16F
NA
NA
17F
NA
NA
Stock Price
Avg. 5 Day MA Trading Value (RHS)
780
Price (LHS)
(Rpbn)
7.0
770
6.0
760
5.0
750
740
4.0
730
3.0
720
710
2.0
700
1.0
690
680
0.0
Feb-16
COMPANY FOCUS
1
Investment Thesis
Radio industry in Indonesia has been able to grow by 14% CAGR (in ads revenue) in 2010-15E and
we are optimistic in the industry’s outlook. MARI (Mahaka Radio Integra) is the king of radio in Indonesia, with largest listenership despite only having three radio stations (all its major competitors
have at least ten radio stations). MARI should be able to cement this leadership further as it plans to
double the number of its radio stations by expanding into a middle low segment radio in Jakarta
(which has a large and usually resilient listenership base) and expanding its Gen FM brand to two
other cities. MARI also plans to invest further in digital business, which has plenty of potential but
yet to be monetized.
MARI has plenty of growth to offer, we expect a profit CAGR of 17% in 2015-18, driven by 19%
EBITDA CAGR and 17% revenue CAGR in the same period. Important assumptions are 12-15% tariff
growth in 2015-17 that will gradually slowdown afterward, and a 5% ad minutes growth which we
believe is conservative considering MARI’s expansion plans. We expect NOPAT ROIC to be at a robust
32-41% in the foreseeable future, far above company’s 11.4% WACC. We also expect 33-37% ROE in
2016-2021 with further upside if company executes its digital business well and/or if company pays
higher dividend payout in the future.
MARI has paid interim dividend in 2015 so upcoming divd yield in May is likely to be only 1%, but
this will rise to 5% starting next year (based on this year’s earnings) as we assume company to
maintain a 50% payout ratio from next year onward. Note that we currently assume no interim dividend this year, which is being considered by the management.
We arrive at DCF-based target price of IDR 1000/share. MARI currently trades at 9.2x 2016PE, 3.4x
2016 PBV and 5.4x 2016 EV/EBITDA. MARI will be the first publicly listed radio company in Indonesia. Other listed media companies in Indonesia are dominated by TV holdings (SCMA, MNCN), which
are similar to MARI in terms of operational performance but currently trade at higher 19.7x 2016 PE
and 14.2x 2016 EV/EBITDA.
Key catalysts
We expect the following catalysts for MARI (Mahaka Radio Integra): 1) MARI’s quarterly earnings that confirms
our growth projections, 2) MARI’s management executing its radio expansion within the timeline (one radio station per annum in 2016-18) and capex guidance (Rp50bn acquisition cost for three radio stations), and 3) Dividends—Management is committed to pay at least 50% dividend payout in the future.
DCF-based valuation of IDR 1000/share (40% upside)
We assume 8.05% risk-free rate, 5.0% equity market premium, and 1.0 Beta to arrive at 11.4% WACC. We use
5.0% long-term growth assumption. We use two stage DCF. For first stage, we use 5 years of free cash flow
forecast. For the second stage, we assume a terminal ROIC of 15.0% (versus 39% ROIC at the fifth year of our
forecast) that results in 1.6x EV/IC estimate. The discounted free cash flow contributes 49% and the terminal
value contributes 51% to total estimated free cash flow in our DCF.
MARI currently trades at 9.2x 2016 PE, far below its local media comps average of 19.7x and global radio trailing
average of 18.4x. Although local media comps are TV companies with much larger market capitalizations, the
operating metrics (i.e. ROE) are actually similar to MARI.
COMPANY FOCUS
2
Risk analysis
Risk of worsening macroeconomic situation
Worsening macro situation may impact advertisers willingness to spend adex, which may adversely impact
MARI’s revenue. Note however, that despite slowing GDP growth in the past four years, MARI has been able to
grow its revenue at double digit level. We currently assume a 5.1% GDP growth in 2016 and 5.3% in 2017 with
potential further upside if government can execute its stimulus programs better than expected.
Pace of tariff growth might be lower than expected
We expect MARI’s radio ad average tariff to grow at 15% per annum, which is in-line with historical tariff growth,
in-line with management guidance, and we think is reasonable given that radio’s average ad tariff per reach
(listener or viewer) is currently still 64% cheaper than TV’s.
Pace of ad minutes growth might be lower than expected
Growth in MARI’s ad minutes depends on continued success of its radio shows and execution on new planned
radio stations. We currently assume 5% annual growth in ad minutes.
Risk of changes in regulation
Radio industry is regulated by Ministry of telecommunication and information technology. There could be changes in regulation that may have adverse impact on radio industry as a whole.
Risk of higher than expected operating cost
MARI’s radio stations produce all of their shows in-house with salary being the highest cost. We have assumed
salary cost to rise at least in-line with revenue but there is a risk that total production cost and salary cost in
particular may rise higher than expected.
Risk of execution on expansion plans
MARI plans to use some of the IPO proceeds to expand its business, including opening three new radio stations
and expanding its digital business. These expansions involve execution risk including delays and higher than expected capex, all of which may impact earnings growth estimates.
Risk of human capital
Operational risk includes loss of human capital, to competing radio stations or for any other reasons. Note however, that given MARI’s standing as the leading radio group it should have the financial capability to retain its
people, and that the success of a radio show depends on various things (i.e. producer, program writers), not just
the presenter. On management level, we are confident that Mr. Adrian is likely to stay with the company for the
foreseeable future as he also holds CEO position at PT Mahaka Media Tbk, which owns 17% of MARI.
COMPANY FOCUS
3
Competitive analysis
Assessment of industry attractiveness
Figure 1. Porter’s 5 forces
Source: TRIM Research
A brief introduction on radio business
Radio companies in Indonesia operate based on localized license (meaning they can only operate within a certain
area i.e. Jakarta only) from Ministry of telecommunication and information techonology. There can only be one
license per radio company but a holding company can own many subsidiaries that each own a radio license.
Since radio is broadcasted on a certain waveband, there is a limit to the number of radio channels in a city. Each
city has radio channels on FM (Frequency Modulation) band and AM (Amplified Modulation) band, with FM band
being superior on voice clarity and therefore preferred by listeners. Currently there are 52 FM radio stations in
Jakarta, of which MARI (Mahaka Radio Integra) owns GenFM and JakFM. MARI has also built apps that allow their
radio stations to be streamed digitally, eliminating physical boundaries of a radio license.
Radio is a capex-light business, with acquisition cost ranging from Rp10 to 30bn (depending on which city) for a
struggling radio station. Radio stations normally produce all their shows in-house, as opposed to TV stations,
which usually combine between buying programs or movies from third parties and producing their own in-house
shows. Radio stations differentiate themselves by song selection (i.e. western or Indonesian, pop or dangdut),
type of programs (i.e. presenter-led shows, discussion, news). MARI currently own three radio stations, all of
which tend to have presenter-led shows, which focus on the presenters in addition to the music. Presenter-led
shows are the most common in Indonesia, usually with two presenters format. As with other media industries,
radio stations’ primary source of revenue is ads. Since most radio stations develop their shows in-house, their
highest cost is salary.
COMPANY FOCUS
4
Indonesia’s media industry benefits from attractive demographic profile
According to Frost & Sullivan, Indonesia has the largest population in Southeast Asia and the fourth largest population in the world. The population was approximately 246.9mn people in 2012 and is expected to have another
23.0mn people by 2022 (1% CAGR of 2012-2022). Over one-third of the country’s population in 2012 was at
<19 years old, pointing to current youthful demographics and an influential generation and future workforce
participants.
Figure 2. Indonesia demographic profile (2012)
Indonesia demographic profile (2012)
35%
29%
30%
25%
20%
17%
17%
15%
15%
11%
12%
45-54
55+
10%
5%
0%
0-14
15-24
25-34
35-44
Source: UNDESA-PA, TRIM Research
This demographic trend is aligned with MARI’s listeners profile. For GenFM Jakarta, the company targets
men and women in the range of 15-34 years old, the biggest percentage of Jakarta population. For JakFM Jakarta, the company puts criteria that are more precise; men and women in the range of 25-35 years old. For GenFM
Surabaya, its listeners are the same as GenFM Jakarta.
Media ad revenue has grown at a rapid pace
Indonesia’s total ad revenue is expected to grow at 19% CAGR in 2012-16, higher than expected average nominal GDP growth of 10% in the same period. We believe sectors with large advertisement expenditure (adex) are
consumers, telco, and banks.
Figure 3. Indonesia media ad spending growth
Media ad spending (US$ bn)
15.0
16
12.9
14
11.2
12
10
8
7.6
9.1
6
4
2
0
2012
2013
2014
2015
2016
Source: eMarketers, Monitoring Media, TRIM Research
COMPANY FOCUS
5
Radio still command a large presence versus other media
According to AC Nielsen, radio commands the third largest radio consumption in Indonesia after TV and internet.
More interestingly, in Greater Jakarta there are 32% radio listeners as of 2Q15, despite Greater Jakarta’s higher
GDP per capita relative to the rest of the country and therefore its population should easily have access to internet or other forms of media or entertainment.
We think radio industry in Indonesia will continue to thrive for the same reason that Indonesians are very active
in social media apps. Indonesians simply like to chat. For this reason, radio provides an interactive medium that
fits Indonesian culture. Most of Indonesian radios have presenter-led shows with two presenter format and usually involve plenty of interactions between the presenters with occasional interaction between presenters and listeners that call in. This is opposed to the format in most other countries, which is usually a one presenter format
and tend to focus on either the music or a certain topic. Many Indonesians listen to radio for the sake of listening
to the interaction rather than the music itself.
Figure 4. Media consumption in Indonesia
100%
Figure 5. Radio listenership in Greater Jakarta
95%
80%
60%
32%
33%
40%
20%
12%
20%
6%
Radio listeners
5%
0%
Source: AC Nielsen press release in 2014
Source: AC Nielsen 2Q15 report, Central Bureau of Statistics
The average hours spent per week listening to radio in Indonesia has been relatively stable at ~2.3 hours per
week in the past three years. This is despite a substantial growth in data traffic (107% CAGR in 2012-15), which
supports our thesis that demand for radio in Indonesia is sustainable despite the rise of internet.
Figure 6. Average hours spent per week listening to radio (2015)
2.6
2.45
2.5
2.4
2.3
2.37
2.28
2.2
2.21
2.27
2.19
2.48
2.35
2.34
2.34
2.34
2.37
2.29
2.19
2.1
2
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Source: Company
COMPANY FOCUS
6
Trimegah’s proprietary survey: Radio thrives well in this digital era
We did a survey on 88 respondents in Jakarta. The respondents are a combination of random people in and
around our office in SCBD area, Trimegah employees, and Trimegah employees’ friends and family members.
Interesting conclusions we make based on our survey: 1) A lot of people still listen to radio (89% of respondents), 2) Most still listen to the traditional or analog version of the radio (57%), 3) Digital can complement traditional/analog radio rather than replace (15% listen to both), and 4) Internet does not compete with radio, it
actually allows radio to increase its reach beyond the traditional boundaries (17% listen to digital radio only).
Note that 51% of our respondents is in the 15-20 age range, which we deem to be an age range that is very
responsive to technological advances.
Figure 7. Survey: Do you listen to radio?
Figure 8. Survey: Age range of 88 respondents
8%
11%
2%
<15
10%
Yes, traditional
radio
17%
57%
15%
15-20
Yes, traditional &
digital radio
21-25
Yes, digital radio
51%
29%
No
25-30
>30
Source: Trimegah research
When and where our respondents listen to radio
Most of our survey’s respondents that listen to radio do it in the morning or in the evening and an overwhelming
majority do it on the way to office, campus, or other destinations. This suggests that as long as people still commute, demand for radio will continue to thrive. We do not think it matters much whether the commute is done by
car or bus. As can be seen in the pie chart above, respondents also listen to digital radio (Gen FM’s digital radio
has 2.5mn downloads and 1mn streaming per month). We believe those who listen to digital radio do so while
commuting on public service.
Figure 9. Survey: When do you listen to
radio?
Figure 10. Survey: Where do you listen to
radio?
1%
On the way
Morning
13%
11%
7%
Noon
At the office
or campus
Evening
At home
54%
29%
81%
4%
others
Night
COMPANY FOCUS
7
Strong industry ad revenue growth
Indonesia’s radio industry ad revenue has grown at a 14% CAGR in the last five years, a clear indication that
advertisers see radio industry as an important medium. Further GDP growth and a growing in middle class segment will be the key catalysts for media industry (including radio), as it will affect advertising budget for companies in Indonesia. We expect GDP growth to accelerate from 4.8% in 2015 to 5.0% in 2016 and 5.5% in 2017.
Figure 11. Indonesia’s radio industry ad revenue (in USD mn)
180
160
140
120
100
80
60
40
20
0
160
139
14% CAGR in 2010-15E
74
79
83
89
2008
2009
2010
2011
93
2012
107
2013
2014
2015E
Source: Statista, PwC
Plenty of upside in radio adex market share
Radio adex in Indonesia is only 1.7% of total media adex, which is much smaller compared to several other
countries which data is collected by Euromonitor. US has the highest radio adex portion of 10.5%. Indonesia is
also behind its neighboring countries such as Singapore (8%) and Malaysia (5%). This implies there is plenty of
upside in radio adex portion, which we believe is more likely to be driven by tariff increases rather than minute
increases. Most of the upside in advertising minutes for Indonesian radio stations is on weekends particularly on
Sundays.
Multinational and local companies usually allocate 5-10% portion of sales for advertising and promotion expenses
per annum, and will be divided into some strategic media advertising platform (e.g. TV, radio, banner, etc).
Figure 12. Global adex (advertisement expenditure) portion for radio (2012)
Ads. spending portion for radio (%)
12%
10.5%
10%
8.0%
8%
7.8%
5.2%
6%
4.2%
4%
3.3%
3.1%
2%
1.7%
1.7%
Indonesia
South
Korea
0%
US
Australia Singapore Malaysia
China
India
Japan
Source: Euromonitor, TRIM Research
COMPANY FOCUS
8
Radio ad tariff in Indonesia is still much lower than other countries
We believe the differences in radio ad tariff between Indonesia and other countries help explain why Indonesia’s
radio adex is much lower than other countries (see chart in previous page). Kuala Lumpur’s ad tariff is 5x Jakarta, and the biggest gap is an NYC radio that charges 19x that of Indonesia. Some of the gap is due to differences
in GDP per capita, but as we can see in the second chart below, Indonesia remains one of the lowest (second
only to Singapore) in terms of tariff per minute as % of GDP per capita.
Figure 13. Tariff per minute of radio stations in various countries
20
18
16
14
12
10
8
6
4
2
-
in Rpmn
19
Figure 14. Tariff per minute as % of GDP
per capita
25.0%
20.1%
20.0%
15.0%
5
7
8
10.0%
5.0%
2.0%
3.5%
2.6%
0.9%
1
0.0%
Jakarta
Kuala
Lumpur
Singapore
Manila
NYC
Source: Various websites, Trimegah research
Note: We use Gen FM spot rate for Jakarta, WQHT-FM for NYC, DZRH-AM
for Philippines, MYFM for Kuala Lumpur, and Class 95FM for Singapore
Jakarta
Kuala
Lumpur
Singapore
Manila
NYC
Source: Various websites, Trimegah research
Note: We use Gen FM spot rate for Jakarta, WQHT-FM for NYC, DZRHAM for Philippines, MYFM for Kuala Lumpur, and Class 95FM for
COMPANY FOCUS
9
Competitive strengths
Three radio stations, two target segments
MARI owns three radio stations: Gen FM Jakarta, Jak FM Jakarta, and Gen FM Surabaya. The Gen FM brand targets youth and young adults between 15 to 34 years old while Jak FM targets young professionals between 25 to
35 years old. The 15-35 years old segment represent 34% of Indonesia’s population, the largest group by age.
The second largest group is 0-14 years old (29% of population), which ensures the sustainability of MARI’s target
segment.
Figure 15. MARI’s existing radio stations
Source: Company
Figure 16. Company’s milestone
Source: Company
COMPANY FOCUS
10
All three radio stations are well positioned in their respective segments...
Gen FM Jakarta is the number one radio by listenership in Jakarta and the number one in the young adult segment, far ahead of its closest competitor (I-Radio). Gen FM Jakarta has about as many listeners as the next three
radio stations combined. Jak FM ranks second in the young professionals segment in Jakarta, while Gen FM Surabaya ranks second in the young adult segment in Surabaya.
This is despite each of the radio stations are relatively younger than their close competitors. Gen FM Jakarta is
only 8 years old (started in 2007) versus I-Radio 15 years old while Prambors radio is at least 45 years old. Jak
FM is also 8 years old versus Delta FM 23 years old and Indika FM 15 years old. Gen FM Surabaya is only 5 years
old versus EBS FM (also part of Prambors group) 9 years old and Istara FM 32 years old.
Figure 17. Leadership positions in respective segments
Source: Company data, AC Nielsen
Figure 18. Listenership market share in Jakarta area
Gen FM listeners hip share in Jakarta
30%
25%
20%
15%
10%
5%
0%
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
Source: AC Nielsen, Trimegah Research
COMPANY FOCUS
11
…and the leading radio group in Indonesia
As of 2Q15, MARI is the industry leader with total of 3.3mn listeners. This is more impressive when one considers
that MARI is able to lead the industry with only three radio stations whereas other big groups have between 1431 radio stations. Prambors group, the closest competitor, has 16 radio stations in at least 9 cities.
We believe the group’s planned expansion into a middle low segment radio station in Jakarta, which has significant potential demand, and expand its Gen FM brand into other big cities should help MARI expand number of
listeners substantially in the next five years. Management hopes MARI can double its listeners in that time frame.
Figure 19. Leadership positions in respective segments
Source: Company data, Trimegah Research
COMPANY FOCUS
12
MARI also has significant number of digital listeners
MARI currently has 480k visitors to JakFM website and 380k visitors to Gen FM website on a monthly basis. MARI
has also developed mobile streaming app available in all major platforms with 2.5mn downloads so far and 1mn
streaming session per month.
MARI recently expanded into mobile game apps as well to increase touch points with fans of their radio stations.
There has been 10k downloads in the first two months. Note that these digital platforms are not yet monetized
and could be an important source of revenue growth in the future.
Figure 20. Strong presence in various digital platforms
Source: Company data, Trimegah Research
COMPANY FOCUS
13
Being the leading radio station group helps MARI gains a diversified customer base
The company has diverse customer base, which reduces risk to our revenue forecast. It will enable it to face
uncertainties in some particular industries. The company enjoyed increasing trend in product brands that advertised through the company; 405 in 2012, 423 in 2013, and 466 in 2014.
In term of industry of company’s clients, the company also has small exposure into particular sector. The following are the top ten customers for each radio station.
Figure 21. Top ten client companies (7M15)
98.7 Gen FM Jakarta
103.1 Gen FM Surabaya
101.1 Jak FM
XL
KFC
Shell
Pertamina
Pizza Hut Delivery
Standard Chartered Bank
Telkomsel
Indomaret
Aspira
Luwak White Koffie
Paramex
Nissan
Astra
Metro Department Store
Aqua
Samsung
BRI
Citibank
Alfamart
Indosat
Pizza Hut Delivery
Bank Bukopin
Evalube
The Kotak
Vicks
Ais Asia Indonesia
Canon
Pepsi
Alfamart
System Nano
Source: Company, Trimegah Research
Figure 22. Industry based clients
100%
75%
50%
25%
0%
Others
Financial service
Medication
Service - retail
Automotive & accessories
Office, comp. & comm. Equipments
F&B
2010
28%
14%
8%
11%
6%
20%
13%
2011
28%
14%
7%
12%
5%
21%
14%
2012
28%
15%
8%
13%
8%
13%
15%
2013
27%
15%
9%
10%
10%
9%
21%
2014
21%
13%
5%
12%
19%
11%
19%
7M15
22%
7%
8%
13%
15%
16%
19%
COMPANY FOCUS
14
We believe MARI’s success can be attributable but not limited to: 1) Strong programming backed by commitment
to R&D, 2) Willingness to try new strategies, and 3) Experienced management and ownership.
Strong programming backed by commitment to R&D
Approximately 16% of MARI’s cost is related to R&D (this figure includes 2% R&D cost as stated in accounting
statement and 14% R&D related costs that on accounting basis is included in other cost items), which according
to management is much higher than the figure in other radio stations. MARI does periodic research to explore
their listeners’ demand on songs, what kind of shows listeners are more interested in, etc. MARI also tests all
their shows with focus groups before launching them, which reduces risk of failure. The company has also done
very well in branding their shows. The “Semangat Pagi” segment, which airs in 6-10am (prime time for radio)
has three popular branded sub-segments called “Salah Sambung” (where presenters make prank calls),
“Wagimin” (comedic interview with presenter that personifies a famous person), and “Rap in news” (presenters
discuss latest news by rapping). Note: you can listen to “Salah Sambung” and “Wagimin” online at
www.987genfm.com/podcast/index.
MARI’s shows are generally designed to have a comedic aspect, which are in-line with listeners demand as per
our survey. We found that the second biggest reason for our survey participants to prefer one radio station over
another is because one radio station has more funny shows.
Figure 23. Survey: What are the reasons you listen to radio?
50
45
40
35
30
25
20
15
10
5
0
47
32
18
13
Funny
Good Songs
Less Ads
Informative
COMPANY FOCUS
15
Willingness to try new strategies
Gen FM Jakarta, to the best of our knowledge, is the first radio station that focuses on Indonesian pop music
while other radio stations were still playing mostly western music. This is a great example of how decision is
made in Mahaka Radio Integra. MARI’s R&D department came up with a new idea (commissioned surveys suggested that there was strong demand for Indonesian pop music) and management willing to go against the industry norm (of playing mostly western music). Gen FM is also the first radio that is pushing the three presenter
format (versus industry norm of two presenters), starting with its “Kopaja” show (airs from 10pm to 1am).
Management is also willing to stop airing shows that are losing popularity while other radio stations have a tendency to wait until ad revenue is affected (and in the process losing listeners).
These bold strategies have helped Gen FM to be the first non-Dangdut (local folk music) radio station to achieve
number one status in terms of listenership.
Experienced management and ownership
MARI’s CEO Mr. Adrian has been with the company since the inception of Gen FM and Jak FM, with plenty of
background in radio industry. He started his career at Prambors (the leading radio station at the time) in 199098 before he left to join other radio stations. He was at Radio One between 2003-07 before it was acquired and
renamed to Jak FM, and then worked his way up to become CEO of MARI.
Ownership group is led by Mr. Erick Thohir, who is well known for his part ownership in Adaro, the largest publicly listed coal company in Indonesia that is known for being well run and good corporate governance.
COMPANY FOCUS
16
Management strategy
Management expects healthy growth at existing business on the back of tariff upside and monetizing non prime
time hours better.
Management has a three-pronged strategy in expanding MARI’s business further: 1) Expanding into a middle low
segment radio in Jakarta which will complete its economic segmentation, 2) Expanding the Gen FM brand into
other big cities in Indonesia, 3) Expanding into digital business.
There is room to monetize non prime time hours
We listened to Gen FM Jakarta, Jak FM (both are MARI’s radio stations), and Prambors radio (Gen FM’s closest
competitor) during prime and non-prime time hours. All three have similar 13-14mins of ads per hour during
weekday prime time, but Gen FM only has 5 mins of ads on a weekday non-prime hour (2-3pm), 22% lower than
Jak FM and 34% lower than Prambors. We only expect MARI’s ads minutes per hour to rise only by 5% per annum, which is driven by MARI’s new radio stations, implying upside to our minute forecast.
Figure 24. Ads minutes during weekday
prime time
16.0
14.0
Minutes /
hour
13.0
14.4
14.1
Figure 25. Ads minutes during weekday nonprime
8.0
Minutes / hour
7.0
12.0
6.0
10.0
5.0
8.0
4.0
6.0
3.0
4.0
2.0
2.0
1.0
7.6
6.4
5.0
-
Gen FM Jakarta
Jak FM
Gen FM Jakarta
Prambors
Source: Companies data, Trimegah research
Note: Based on Gen FM show on 8 Oct at 9-10am, Jak FM on 13 Oct at 9
-10am, Prambors on 8 Oct at 9-10am.
Jak FM
Prambors
Note: Based on Gen FM show on 9 Oct at 2-3pm, Jak FM on 12 Oct at 23pm, Prambors on 9 Oct at 2-3pm.
Figure 26. Ads minutes during weekend non-prime
6.0
Minutes /
hour
4.8
5.0
4.0
3.0
2.8
2.0
1.0
Jak FM
Prambors
Note: Based on Prambors show on 18 Oct at 2-3pm and Jak FM on 18 Oct at 3-4pm
COMPANY FOCUS
17
Plenty of upside on tariff
MARI charges Rp0.9mn per minute of Spot ad and Rp1.2mn per minute of Adlibs ad. We estimate higher prime
time tariff of Rp2mn per minute of Spot ad and Rp3mn of Adlibs ad. To put this in perspective, we compare the
average cost per listener/viewer for advertisers between MARI, the leading radio station, and SCTV, the leading
TV station in Indonesia. We found that MARI’s average cost per listener is only Rp0.3mn for Spot ad and
Rp0.4mn for Adlibs ad, which on average is 64% cheaper than the cost per viewer for TV ad. We estimate the
cost per listener during radio prime time to be Rp0.8mn for Spot ad and Rp1mn for Adlibs, which on average is
52% cheaper than the cost per viewer of Rp55mn for TV ad during prime time. We also highlight that Indonesia’s
radio ad tariff is still much lower than other countries in the region (please see page 10 for details).
We believe our assumption that MARI can raise its average tariff by 15% in 2015-17 and then followed by a
gradual decrease to 14% in 2018, 13% in 2019, 12% in 2020, and 11% in 2021 is reasonable given the gap
versus TV and MARI’s position as the leader in radio industry with strong brands (Gen FM, Jak FM).
Figure 27. Average tariff and prime tariff comparisons
Average tariff
Prime time tariff
55
60.0
50.0
40.0
33
30.0
20.0
10.0
0.9
2
1.2
3
MARI's ads - Spot MARI's ads - Adlibs
incl. Inserts
TV Ads
Figure 28. Radio Vs. TV’s Avg. Tariff per reach
1.20
1.00
Rp mn per
listener/vie
wer
1.09
0.80
0.60
0.40
0.44
0.34
0.20
MARI's ads - Spot MARI's ads - Adlibs
incl. Inserts
TV Ads
Note: To calculate MARI’s Avg tariff per listener, we use 2.6mn listeners
(Gen FM only). To calculate TV Avg tariff per listener, we use 30mn
viewers (SCTV only).
Figure 29. Radio Vs. TV’s Prime time Tariff
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
-
Rp mn per
listener/viewer
1.83
1.01
0.77
MARI's ads - Spot incl.
Inserts
MARI's ads - Adlibs
TV Ads
Note: To calculate MARI’s Avg tariff per listener, we use 2.6mn listeners
(Gen FM only). To calculate TV Avg tariff per listener, we use 30mn
viewers (SCTV only).
COMPANY FOCUS
18
Expansion into a middle low segment radio in Jakarta
MARI plans to complete its economic segment reach (Jak FM targets A-C consumers, Gen FM targets B-D consumers segments) by expanding into a middle low segment radio (which likely targets C-E consumers segments).
There is plenty of demand for a middle low segment radio as can be seen from radio listenership data in Jakarta.
The second and third ranked radio by listenership in Jakarta are middle low segment radios that plays mostly
local folk music. MARI should be able to translate the creativity and innovations that it has made in Gen FM and
Jak FM into a middle low segment radio (albeit different genres).
In terms of listenership volume, middle low segment is an attractive segment with at least 33% market share of
total listenership in Greater Jakarta area. It is also less competitive, with six radio stations averaging 1.3mn
listeners versus an average of 0.5mn listenership for all radios in Greater Jakarta area.
We assume this middle segment radio acquisition cost (including license and equipments) to cost Rp30bn, same
as management guidance. Note that MARI acquires mostly for the license and equipments. MARI will build new
brand and concept to be implemented post acquisition.
Figure 30. Middle low segment listenership in Greater Jakarta
11%
2%
Gen FM listenership
share in Greater
Jakarta
Jak FM listenership
share in Greater
Jakarta
54%
33%
Middle low segment
listenership in
Greater Jakarta
Others
Source: AC Nielsen, Trimegah research
COMPANY FOCUS
19
Expansion into other cities
Management plans to replicate its success in Gen FM brand into other big cities. However, the company will not
simply follow other radio groups’ footsteps in their expansion to multiple cities. MARI plans to differentiate its
effort in the following ways:
1) National concept, localized content. Unlike other radio stations which usually simply just relay the exact
same shows from its main radio station, MARI modifies its shows to fit local flavors i.e. incorporating local
presenters or modify song list.
2) Plans on calculated approach in expanding. Expansion will take into consideration economic growth and
size of adex (ad expenditure) market, not simply size.
MARI’s first and currently only expansion outside Jakarta is Gen FM Surabaya in 2011, which managed to post
operating profit in a year’s time.
We assume Rp10bn average acquisition cost per radio station outside Jakarta and assume one acquisition in
2016 and one in 2017, same as management guidance.
Figure 31. Mapping out potential cities for expansion
Source: Central Bureau of Statistics (BPS), company data
COMPANY FOCUS
20
Expansion into other cities—Surabaya as study case
Since its inception in 2011, Gen FM Surabaya has done well, ranking 2nd in listenership in its ‘young adult’ segment in Surabaya. Revenue is estimated to grow to Rp6bn in 2015E (based on annualized 7m15 revenue), which
represents 6% of MARI’s total revenue. Gen FM Surabaya has also stayed profitable since at least 2012, only one
year after its inception.
MARI’s track record in Surabaya has made us more optimistic that the company can do well in expanding outside
Jakarta.
Figure 32. Gen FM Surabaya’s Revenue
7
in Rp bn
6
6
5
6
Figure 33. Gen FM Surabaya’s Operating
Profit
0.6
in Rp bn
0.5
0.5
5
0.4
0.4
4
4
0.3
3
0.2
2
0.2
0.1
0.1
1
0.0
2012
2013
2014
2015E
Note: We estimate Gen FM Surabaya’s 2015E revenue by annualizing
7m15 revenue
2012
2013
2014
2015E
Note: We estimate Gen FM Surabaya’s 2015E operating profit by annualizing 7m15 operating profit
Expansion in digital business
MARI has already built apps for all three of its existing radio stations, where one can listen to all shows by
streaming. These apps are not yet properly monetized but something that management is considering as number
of streaming has risen to currently 1mn downloads per month. The more immediate ways to monetize the apps
are introducing ads to its digital platform i.e. pop-ups. Another way is by making sure that these digital listeners
are recognized by advertisers i.e. higher tariff if an advertiser wants its product promoted across both analog and
digital platforms, lower if analog or traditional radio only.
Another possibility that we think management can explore is selling songs through its digital platform. As the
leading radio company, MARI already has great relationship with artists and recording studios. The company can
leverage this into building a platform where local recording studios can sell songs digitally. Note that Apple
iTunes has a very limited library of Indonesian songs.
Company plans to spend Rp15bn for its expansion in digital business, which we assume to be Rp5bn spent in
2016 and Rp10bn in 2017.
COMPANY FOCUS
21
The bird-eye view on what MARI may become in next 5 years
In this segment, we try to envision the potential upside as to what MARI may become in next 5 years if the company maintains its aggressive pace of expansion and if management can execute these expansion plans well. On
traditional/analog radio, we envision MARI has the potential to double its number of listeners to ~6mn in next
five years, assuming expansion of one middle low segment radio station in Jakarta and two radio stations outside
Jakarta. MARI’s digital business also has plenty of potential with ‘iTunes’ like business likely to bring in the largest potential financial upside.
We believe if MARI can achieve its upside potential, it will be large enough to be an important player in the event
of a radio media consolidation.
Figure 34. Bird’s eye view: the upside on MARI in next 5 years
Note: This is our estimate as to the bullish scenario. For our base scenario, please see our “Financials” section.
COMPANY FOCUS
22
Financials
Profit and loss
We expect MARI to grow its revenue at 17% CAGR in 2015-18E which translates to 19% EBITDA CAGR and 17%
core profit CAGR in the same period. We expect EBITDA margin to fall slightly from 53% in 2015 to 52% in 2016
as opex should outpace revenue growth due to company’s plan to open a new radio stations each in 2016 and
2017. We expect EBITDA margin to improve slightly to 54% in 2017 as MARI plans to open one more radio station that year and then EBITDA margin to rise further to 56% in 2018.
We expect core profit margin to fall from 36% in 2015 to 33.9% in 2016 as we assume MARI would need more
debt for its expansion plans. We believe we are already conservative, especially in accounting for near-term
potential cost increases.
Figure 35. Income statement
in Rp bn
Revenue
2012
65
EBITDA
37
EBITDA margin
Operating profit
Operating profit
margin
Net interest income
(expense)
Forex gains (loss)
Others
Pretax Profit
Pretax income
margin
Net profit
Core profit
Core profit margin
Core EPS (Rp)
Revenue growth
EBITDA growth
Operating profit
growth
Core profit growth
Revenue CAGR (3yrs
forward)
EBITDA CAGR (3yrs
forward)
Operating profit CAGR
(3yrs forward)
Core profit CAGR (3
57%
35
54.3%
(1)
0
(2)
32
49.8%
24
26
2013
80
2014
95
2015E
105
2016E
121
2017E
143
2018E
169
2019E
197
2020E
231
2021E
266
110
131
155
40
42
56
62
77
94
50%
44%
53%
52%
54%
56%
38
40
53
58
70
86
100
122
144
47.4%
41.7%
50.8%
48.4%
49.2%
50.9%
51.0%
52.8%
54.2%
2
0
(2)
38
0
0
(1)
39
(2)
(2)
49
(4)
(2)
53
(4)
(2)
65
(5)
(2)
79
(4)
(2)
94
(2)
(2)
117
0
(3)
142
47.2%
41.3%
46.6%
43.7%
45.2%
46.9%
47.6%
50.7%
53.3%
29
29
37
40
49
59
70
88
107
56%
57%
58%
30
30
38
41
50
61
72
89
109
40.3%
57
37.7%
66
31.4%
65
36.3%
84
33.9%
78
34.8%
95
36.1%
116
36.5%
137
38.8%
170
40.8%
207
NA
NA
24%
8%
18%
4%
11%
34%
15%
12%
19%
23%
18%
23%
17%
16%
17%
20%
16%
18%
NA
NA
8%
16%
4%
-2%
35%
28%
9%
7%
20%
22%
22%
22%
17%
18%
21%
24%
19%
21%
17%
14%
15%
17%
18%
17%
16%
15%
16%
23%
19%
21%
20%
18%
15%
15%
21%
17%
20%
20%
19%
14%
10%
19%
17%
21%
22%
21%
Source: Trimegah Research
COMPANY FOCUS
23
Revenue drivers
Majority or 98% of MARI’s revenue is advertisement revenue, while only 2% others (i.e. off-air events). We
expect this proportion to stay roughly the same until digital business, which we classify as ‘Others’ in our forecast, starts generating substantially higher revenue from 2018 onward. We expect advertisement revenue to
contribute 93% of total revenue in 2021. We also highlight that the average minutes in our assumption is for all
radio stations owned by MARI. Hence, when we expect average minutes to grow by 5% in 2016 onward, this
assumption is based on MARI’s expansion into three additional radio stations, doubling the number of radio stations (MARI currently has three radio stations).
MARI classifies its ad revenue into four different types of advertisement or commercials:
1) Program: MARI’s creative team promote a product by seamlessly including it in a show. Since it is tied into
the show, can not be broken down into minutes.
2) Spot and Insert: Spots are regular commercial 30-60 seconds long, Inserts are quiz or tips 3-5 minutes long.
3) Adlibs: live mention by the presenters, usually in their own style.
Program is the type of ads where MARI’s creative team adds most value to the commercial itself, followed by
Adlibs and then Inserts.
Figure 36. Revenue drivers
Revenue drivers
Total Revenue
Rpbn
2012
65
2013
80
2014
95
2015E
105
2016E
121
2017E
143
2018E
169
2019E
197
2020E
231
2021E
266
24%
18%
11%
15%
19%
18%
17%
17%
16%
40
58
44%
63
8%
69
10%
78
12%
89
15%
102
14%
115
13%
129
12%
143
11%
42
35,040
40
52,560
47
52,560
54
52,560
64
55,188
77
57,947
92
60,845
109
63,887
128
67,081
149
70,435
6.0
6.0
6.0
6.3
6.6
6.9
7.3
7.7
8.0
50%
0%
0%
5%
5%
5%
5%
5%
5%
Growth YoY
Ads - Program
Growth YoY
Ads - Spot
Minutes per annum
Average minutes per
Growth YoY
Average tariff per
minute
Rpbn
Rpbn
Minutes
Minutes
Rpmn
4.0
1.2
0.8
0.9
1.0
1.2
1.3
1.5
1.7
1.9
2.1
-36%
17%
15%
12%
15%
14%
13%
12%
11%
4
8,760
5
8,760
9
8,760
11
9,198
12
9,658
15
10,141
18
10,648
21
11,180
25
11,739
29
12,326
Growth YoY
Ads - Adlibs
Minutes per annum
Rpbn
Minutes
Average minutes per
Growth YoY
Minutes
1.0
1.0
0%
1.0
0%
1.1
5%
1.1
5%
1.2
5%
1.2
5%
1.3
5%
1.3
5%
1.4
5%
Average tariff per
Growth YoY
Rpmn
0.5
0.6
17%
1.0
71%
1.2
15%
1.3
12%
1.5
15%
1.7
14%
1.9
13%
2.1
12%
2.4
11%
Discount
Rpbn
(24)
(25)
(26)
(31)
(36)
(42)
(49)
(57)
(65)
(75)
Others (growth from
Rpbn
2
2
2
2
2
4
6
8
14
19
COMPANY FOCUS
24
Cost drivers
MARI’s main cost driver is salary, which we expect to represent 47% of total cost in 2015. This is higher than
historically 35-37%, but we estimate salary cost to rise to 48% of total operating expense in 2016 as we assume
planned expansion of additional three radios and digital would add salary cost. We then expect salary cost as %
of operating expense to gradually fall afterward to 41% in our last forecast year (2021). Note that salary cost
includes R&D related costs that are on accounting basis should be included in salaries rather than R&D.
The next largest item is promotion, most of which relates to off-air events. Promotion jumped up from Rp11bn or
25% of operating expense in 2013 to Rp16bn or 28% in 2014, before falling to Rp11bn or 21% in 2015E. We
expect promotion cost to rise again to 25-28% of revenue in 2016-21.
MARI has an agreement to pay management fee to PT Beyond Media, which amounted to Rp6bn in 2013, Rp9bn
in 2014, and we estimate to be Rp4bn in 2015. We highlight that MARI has already announced in its prospectus
that the agreement will be automatically annulled and MARI will no longer need to pay management fee to PT
Beyond Media once MARI becomes a public company. Hence, we forecast zero management fee from 2016 onward.
Radio program and on-air costs mostly consist of music licensing cost and other technical aspects. Note that
radio stations in Indonesia have collective bargaining process with the music studios. We expect the collective
bargaining process and the fact that music studios also benefit from songs aired on radio (think of it as promotion) will result in radio program and on-air costs to remain low in the foreseeable future.
Figure 37. Cost drivers
in Rp bn
G&A
Salaries
Promotion
Rent
Management fee
Depreciation
Professional fee
Pension
Utilities
R&D
Bandwith radio
Others
2012
29
11
9
2
0
2
0
0
0
1
0
3
Radio program
2013
42
15
11
2
6
2
1
1
2
1
2
2014
55
19
16
2
9
2
1
1
2
0
3
0
1
0
2015E
51
24
11
3
4
2
1
1
1
1
0
4
2016E
61
30
16
3
4
0
1
1
2
1
4
2017E
72
33
19
4
6
0
1
1
2
1
5
2018E
82
37
21
4
8
1
2
1
2
1
6
2019E
95
42
25
5
9
1
2
1
3
1
6
2020E
108
46
30
6
10
1
2
2
3
1
8
2021E
120
50
34
7
10
1
2
2
3
1
9
1
1
1
1
1
1
2
(0)
(0)
Ticket sales of off-
-
-
-
(0)
(0)
(0)
(0)
(0)
Total Operating
30
42
55
52
62
73
83
97
53%
58%
49%
52%
51%
49%
49%
47%
46%
43%
31%
-6%
20%
17%
14%
16%
13%
12%
as % of
Growth YoY
46%
109
122
COMPANY FOCUS
25
Expect 17% core profit CAGR in 2015-18
We expect MARI’s to post a 17% core profit CAGR in 2015-18 on the back of 17% revenue CAGR and 19%
EBITDA CAGR in the same period. We expect core profit margin to fall from 36% in 2015 to 34% in 2017 as we
assume MARI to incur more debt for its expansion plans. We expect core profit margin to rise again to 36% in
2018 and further to 41% in 2021.
MARI reported forex gain (loss) in 2012-14 as the company had USD debt that it had already paid off. We do not
expect company to obtain any foreign currency denominated debt in the foreseeable future and therefore we
have assumed zero forex gain (loss) in our forecast.
MARI usually experienced loss of receivables value that on average was 1% of revenue in the past three years
and we assume MARI will continue to post similar average in our forecast.
We assume 25% tax rate in our forecast as MARI’s minority ownership will be 30% post-IPO, therefore the company is not eligible for the 5% tax discount for public-listed companies with more than 40% minority ownership.
We arrive at core profit by deducting the following from reported net profit, adjusted for tax: 1) Forex gain
(loss), 2) Change in receivables value, 3) Gain or loss on sale of fixed assets, 4) Other income (loss).
COMPANY FOCUS
26
Balance sheet
We expect net fixed assets including licenses to increase from Rp4bn in 2015 to Rp38bn in 2016, Rp58bn in
2017, and Rp65bn in 2018 as we assume MARI to spend a total of Rp65bn in expansion capex in 2016-18 for
three new radio stations (Rp50bn capex) and digital business (Rp15bn capex). Hence, we expect by end of 2018
MARI would increase its number of radio stations from three to six, of which three would be located in Jakarta
and three in other cities. We assume capex to be only 3% of revenue from 2018 onward, similar to the 1-4%
level in 2012-15E.
Figure 38. Balance sheet statement
in Rp bn
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
2021E
56
57
2
114
19
64
85
3
172
16
64
50
11
141
4
71
50
15
140
67
77
50
12
205
50
86
50
17
202
55
101
50
20
226
76
118
50
22
266
84
138
50
27
298
103
160
50
31
343
8
6
1
15
9
5
1
15
13
4
8
25
13
4
27
44
13
38
1
51
13
58
13
85
13
65
30
108
13
62
48
123
13
59
67
139
13
57
85
155
129
187
166
184
257
287
334
389
438
498
0
29
29
72
38
110
1
56
41
98
2
47
49
2
54
56
2
63
65
2
75
77
3
87
90
3
102
105
4
118
122
Assets
Cash & Short-Term InvestAccounts & Notes Receivable
Loan to related parties
Other Current Assets
Total Current Assets
Loan to related parties
Net Fixed Assets incl. Licenses
Other Long-Term Assets
Total Long-Term Assets
Total Assets
Liabilities & Shareholders' Equity
Accounts Payable
Short-Term Borrowings
Other Short-Term Liabilities
Total Current Liabilities
Long-Term Borrowings
-
-
-
56
76
76
76
76
56
36
Borrowings from related parOther Long-Term Liabilities
Total Long-Term Liabilities
11
2
12
10
3
13
11
3
14
-
3
59
13
89
-
5
81
-
6
82
-
7
83
-
8
64
-
9
45
Total Liabilities
41
123
112
108
145
146
159
173
169
166
0
0
0
0
0
0
0
0
0
0
(4)
30
(4)
28
(4)
23
(4)
23
(4)
23
(4)
23
(4)
23
(4)
23
(4)
23
(4)
23
61
87
40
64
34
54
56
76
92
112
121
140
156
176
197
216
249
269
312
331
129
186
166
184
257
287
334
389
438
498
Minority Interest
Share capital and additional
paid-in capital
Proforma equity
Retained Earnings & Other
Total Equity
Total Liabilities & Equity
Source: Company, Trimegah research
COMPANY FOCUS
27
Strong balance sheet allows ample room for further expansion or higher payout ratio
We expect MARI to have very healthy balance sheet, likely to remain net cash despite our 50% payout ratio
assumption. This net cash position contracts gradually as the company spend capex but then expand again from
2018 onward.
We believe there is plenty of room for MARI for organic/inorganic expansion or higher payout ratio. We have
discussed potential expansion extensively in Management Strategy section. We also highlight that management
has mentioned repeatedly its commitment to pay out dividends. We expect 50% payout ratio but there is room
for higher payout. Our sensitivity analysis suggests that if company would have to pay out higher than 80%
dividend payout ratio consistently in order for its gearing to turn net debt (from net cash forecast).
Figure 39. Net Debt to Equity ratio
Figure 40. Net Debt to EBITDA ratio
(0.1)
(0.14)
(0.2)
(0.23)
(0.3)
(0.26) (0.24)
(0.29)
(0.34)
(0.4)
(0.39)
(0.5)
(0.49)
(0.48)
(0.6)
(0.61)
(0.7)
2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Loan to shareholders
In 2013, MARI procured a Rp80bn loan from UOB Bank that it in turn lent to shareholder (PT Beyond Media) at
the same interest rate.
COMPANY FOCUS
28
Cash flow
We assume capex including acquisitions to rise significantly from Rp1-2bn (1-4% of sales) in 2012-15 to Rp37bn
(31% of sales) in 2016, Rp27bn (19% of sales) in 2017, and Rp15bn (9% of sales) in 2018 as we expect MARI to
acquire 3 radio stations (1 in Jakarta, 2 in other cities) in the next three years. We assume capex to sales to
return to its normal rate of 3% of sales afterward.
We assume cash dividend payout ratio of 50% from 2017 onward. There is significant upside to our assumption,
as company will remain net cash and as management has shown willingness to pay a high payout ratio in the
past.
Figure 41. Cash Flow statement
in Rp bn
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
2021E
24
29
29
37
40
49
59
70
88
107
Depreciation & Amortization
2
2
2
2
4
6
8
9
10
10
Change in Working Capital
5
0
(4)
(22)
4
(4)
(7)
(6)
(10)
(9)
Other Non-Cash Adjustments
1
1
(36)
(2)
(15)
(21)
(16)
(17)
(18)
(17)
Cash From Operations
31
32
(8)
15
32
30
45
56
70
91
Capex incl. acquisitions
(2)
(1)
(1)
(2)
(37)
(27)
(15)
(6)
(7)
(8)
0
0
0
0
0
0
0
0
0
0
(2)
(1)
(1)
(2)
(37)
(27)
(15)
(6)
(7)
(8)
New shares issuance
0
0
0
0
51
0
0
0
0
0
Dividends
0
(31)
(31)
(15)
(4)
(20)
(24)
(30)
(35)
(44)
Changes to bank loans
0
72
(16)
(56)
0
0
0
0
0
0
Changes to loan from related
0
(2)
0
(11)
0
0
0
0
0
0
Changes to loan to related
0
(106)
52
0
0
0
0
0
0
0
0
0
0
56
20
0
0
0
(20)
(20)
0
(67)
6
(25)
68
(20)
(24)
(30)
(55)
(64)
0.9%
0.9%
2.0%
31.0%
19.0%
8.9%
3.0%
3.0%
3.0%
129%
108%
50%
10%
50%
50%
50%
50%
50%
Net Income
Others
Cash From Investing Activities
Payment of long-term loans
Cash from Financing Activities
Capex to sales
Dividend payout ratio
3.7%
-
COMPANY FOCUS
29
Return on capital
MARI’s ROE will fall from 50% in 2015 to 37% in 2016. We forecast ROE to gradually fall to 33% in 2019 due to
lower leverage. Company can avoid falling ROE by increasing dividend payout ratio.
We expect NOPAT ROIC to fall to 32% in 2017 as revenue per invested capital falls but expect NOPAT ROIC to
rise gradually to 41% in 2021, still below the 62% level in 2012.
Figure 42. ROE and ROIC breakdown
in Rp bn
Net margin (Core profit /
Revenue)
Asset turnover (Revenue /
Asset)
Leverage (Asset / Equity)
Core ROE
NOPAT margin (NOPAT /
Revenue)
Asset turnover (Revenue /
Inv Capital)
NOPAT ROIC
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
2021E
40%
38%
31%
36%
34%
35%
36%
37%
39%
41%
50%
147%
30%
43%
294%
48%
57%
308%
56%
57%
243%
50%
47%
230%
37%
50%
204%
35%
50%
190%
35%
51%
180%
33%
53%
163%
33%
53%
150%
33%
41%
36%
31%
38%
36%
37%
38%
38%
40%
41%
153%
62%
64%
23%
91%
29%
82%
31%
100%
36%
86%
32%
86%
33%
91%
35%
96%
38%
101%
41%
Source: Company data, Trimegah research
COMPANY FOCUS
30
Valuation
We use a two stage DCF methodology to arrive at Rp1000/share target price. Note that we include loan to shareholders as part of cash and equivalents.
DCF assumptions:

WACC. We use a WACC of 11.4%

NOPAT. NOPAT (Net Operating Profit After Tax) = EBIT (Earnings Before Interests and Taxes) * (1-Tax rate)

Invested Capital = Interest-bearing debt + Equity — Cash

Stage 1: discounted operating free cash flow in 2017-2021

Stage 2 (terminal value). Terminal value = Invested Capital in year 2021 * EV/IC multiple, discounted
back for 5 years.

EV/IC multiple = Enterprise Value / Invested Capital

ROIC = Return on Invested Capital, calculated by dividing NOPAT with Invested Capital

Terminal ROIC. We assume terminal ROIC of 15%, much lower than 39% ROIC in 2021E and the 23-62%
range in 2012-2021E.
Figure 43. DCF-based NAV calculation
in Rpbn
EBIT (1- tax)
Depreciation and Amortisation
Changes in non-cash Working Capital
Capex
FCFF
Discounted FCFF
Discounted FCFF Year 1-5
Terminal Value
Net debt (cash) at end of 2016
NAV (post-money)
Year 1
2017E
53
6
(4)
(27)
28
Year 2
2018E
64
8
(7)
(15)
50
Year 3
2019E
75
9
(6)
(6)
73
Year 4
2020E
91
10
(10)
(7)
84
Year 5
2021E
108
10
(9)
(8)
101
25
41
53
55
59
232
242
(9)
527
Shares outstanding (mn)
NAV / share (post-IPO)
525
1,004
Target price after rounding
1,000
Terminal Value Assumptions
Terminal ROIC
WACC
LT Growth
EV/Invested Capital
Invested Capital in 2021
EV in 2021
Terminal value of EV
15.0%
11.4%
5.0%
1.6
265
415
242
COMPANY FOCUS
31
WACC assumptions
We assume a beta of 1.00 on the basis that Mahaka Radio’s advertisers are widely dispersed across many sectors, which as a whole likely to move in-line with fluctuations in Indonesia’s economic growth.
Figure 44. WACC assumptions
Items
Value
Comment
Risk free rate
8.05%
10-yr Indo Govt Bond assumption
Market premium
5.0%
Risk premium of equity investment over bonds
Beta
1.00
Assume same beta as market
Debt interest rate
10.0%
MARI's borrowing rate assumption
Debt proportion
30.0%
LT debt proportion assumption
Tax rate
25.0%
Statutory tax rate
Equity cost of capital
13.1%
Debt cost of capital after tax
7.5%
WACC
11.4%
LT growth rate
5.0%
Debt rate after tax
Weighted Average Cost of Capital
Long-Term growth rate
Sensitivity analysis
We performed a sensitivity analysis on DCF assumptions (risk-free rate, Beta).
Figure 45. WACC assumptions
Risk free rate
Beta
991
7.0%
7.5%
8.0%
8.1%
9.0%
9.5%
10.0%
0.70
1,680
1,586
1,504
1,496
1,369
1,312
1,261
0.80
1,404
1,335
1,275
1,269
1,174
1,130
1,091
0.90
1,222
1,168
1,120
1,116
1,039
1,004
972
1.00
1,091
1,047
1,008
1,004
939
910
883
1.10
993
955
921
918
862
837
813
1.20
916
883
853
850
801
778
757
1.30
853
823
797
794
750
729
710
COMPANY FOCUS
32
Comparisons
We make two PE multiple comparisons: 1) Against radio companies globally, and 2) A discount against other
media companies in Indonesia.
Each of the comparison has its own problems. For comparison against other radio companies, most of the public
listed radio companies are in US and Australia, which do not share same operational characteristics as MARI
(there are many listed media companies but very few are pure radio).
Figure 46. PE and EV/EBITDA multiples comparison Versus Global radio peers
EBITDA
Margin
2015F
Mcap
Op. Margin
(US$mn)
2015F
in Rp bn
ROA
2015F
ROE
2015F
P/E
2015F
EV/
EBITDA
2015F
(%)
(%)
(%)
(%)
(x)
(x)
69
13.1
23.9
3.8
0.7
6.5
9.0
447
20.1
23.1
2.9
8.6
16.1
9.3
BBGI US
81
13.4
17.4
2.4
5.6
8.9
9.3
ENIL IN*
442
26.1
33.7
14.5
16.9
33.7
35.9
MRN AU*
116
13.3
15.4
2.2
3.1
26.9
7.8
Average
231
17.2
22.7
5.2
7.0
18.4
14.3
Average excluding ENIL IN
178
15.0
20.0
2.8
4.5
14.6
8.8
CMLS US
ETM US
Source: Bloomberg, Trimegah Research
Note: Comps’ estimates are based on Bloomberg estimates as of 12 Nov 2015
Figure 47. PE and EV/EBITDA multiples comparison Versus Indonesian TV peers
Op. Margin FY16F
EBITDA
Margin
FY16F
ROA
FY16F
ROE
FY16F
CAPEX to
sales
FY16
P/E
FY16F
EV/
EBITDA
FY16F
(%)
(%)
(%)
(%)
(%)
(x)
(x)
MNCN IJ
38.4
41.6
12.1
17.2
9.0
13.0
9.2
SCMA IJ
47.7
49.9
33.3
40.1
2.6
26.4
19.1
Average
43.1
45.8
22.7
28.7
5.8
19.7
14.2
15.2
10.9
23% discount to Average
Source: Bloomberg, Trimegah Research
COMPANY FOCUS
33
Appendix
Ownership structure
PT Beyond Media and its subsidiary PT Mahaka Media Tbk currently own a combined 70% of MARI.
Figure 48. MARI’s ownership
Figure 49. Ownership pre and post-IPO
Shareholder
PT Beyond Media
PT Mahaka Media Tbk
PT Fajar Mentari
PT Pratama Prima Utama
Public
Total
New shares
Number of shares
274,188,000
91,396,000
90,482,040
913,960
456,980,000
Ownership pre-IPO
60.0%
20.0%
19.8%
0.2%
0.0%
Number of shares
274,188,000
91,396,000
53,713,540
913,960
105,052,900
525,264,400
68,284,400
Ownership post-IPO
52.2%
17.4%
10.2%
0.2%
20.0%
100%
Source: Company, Trimegah research
COMPANY FOCUS
34
Management background
Figure 50. Board of Director
Adrian Syarkawie
President Director








An Indonesian citizen, 45 years old


1999-2000: Manager of Radio 5 A Sec / Music City FM CIbubur






An Indonesian citizen, 44 years old.
1994: Bachelor of Economic from Universitas Trisakti, Jakarta
Independent Director since 2015
2013-2015: Business & Financial Controller of PT Asuransi Allianz Life Indonesia
2011-2012: Assistant Director, Advisory Services of PT Ernst & Young Indonesia
2005-2012: Financial Controller of Retail & Lifestyle Division of PT Mugi Rekso Abadi
1997-2005: Finance & Accounting Manager of PT Mogems Putri International –
‘BVLGARI’
1995-1997: Senior Internal Auditor for Salim Group, PT Inti Salim Corporation
1994-1995: Internal Auditor for Sinar Mas Real Estate Division, PT Duta Pertiwi

Maria Natalina
Sindhikara
Independent
Director


1994: Bachelor of Economic from Universitas Pancasila Jakarta
President Director since 2015
2013—now: President Director of PT Radio Attahiriyah (GEN FM, Jakarta)
2013—now: President Director at PT Suara Irama Indah (JAK FM, Jakarta)
2010—now: President Director at PT Mahaka Media Tbk
2009—now: Director of PT Radio Camar (GEN FM Surabaya)
2003-2007: Started as manager with last position as CEO of Radio One Jakarta.
Radio One Jakarta changed its name to Jak FM post acquisition by Mahaka group.
1990—1998: Started his career at PT Radio Prambors Jakarta with last position as
Production Director
Source: Company
COMPANY FOCUS
35
Figure 51. Board of Commisioner











Erick Thohir

President Commissioner

Isenta
Independent
Commissioner















Handy Purnomo
Soetedjo
Commissioner








An Indonesian Citizen, 45 years old.
1990: Associate of Arts from Glendale College, California, USA
1991: Bachelor of Arts from Glendale College, California, USA
1993: Master of Business Administration from National University, California, USA
President Commissioner since 2015
2013—now: Owner and President of F.C. Internazionale (Inter Milan Football Club)
2013—now: President Director of PT Intermedia Capital Tbk
2012—now: Owner of DC United
2010—now: Commissioner of PT Mahaka Media Tbk
2011-2013: Owner of The Philadelphia 76ers
2007-2012: President Director of PT Visi Media Asia (VIVA)
2007-2012: President Director of PT Lativi Media Karya
2000-2008: President Director of PT Mahaka Media Tbk
1992: Bachelor of Science in Finance from Oklahoma City University
1994: Master of Business Administration from Oklahoma City University
Independent Commissioner since 2015
2011—now: President Director of PT Equator Investments
2011—now: Director of PT Equator Capital partners
2003—now: Commissioner of PT Northstar Pacific Capital
2006—now: Director of PR Surya Esa Perkasa Tbk
2006-Juli 2011: Director of PT Northstar Pacific Investasi
2001-2003: Senior Manager, Corporate Finance & Investment Banking of PT Pricewaterhouse Coopers Indonesia
1996-2001: Associate Director, Investment Banking of PT Bahana Securities
1994-1996: Analyst of Deutsche Morgan Grenfell Securities (1994 – 1996).
1991: Bachelor of Science - Biology from University of California, Los Angeles, California, USA
1994: MBA – Finance & Marketing from University of Pittsburgh, Pennsylvania,
USA
Commissioner since 2015
2013—now: Director of F.C. Internazionale (Inter Milan Football Club)
2011—now: Commissioner of PT Ariahills Sejahtera
2010—now: President Director of PT Midasia Capital
2005—now: Director of PT Risjadson
2006-2009: Vice President Director at PT Berau Coal
2006-2009: Director of PT Armadian Tri Tunggal
1995-1998: Senior Manager Corporate Banking of Standard Chartered Bank, Jakarta
Source: Company
COMPANY FOCUS
36
Income Statement (Rpbn)
Year end Dec
Revenue
Revenue Growth
(%)
Opr. Profit
EBITDA
EBITDA Growth (%)
Net Int Inc/(Exp)
Gain/(loss) Forex
Other Inc/(Exp)
Pre-tax Profit
Tax
Minority Int.
Extra. Items
Reported Net Profit
Core Net Profit
growth (%)
Dividend per share
growth (%)
Dividend payout
ratio
Balance Sheet (Rpbn)
2013
80
2014
95
2015F
105
2016F
121
2017F
143
24%
38
40
8%
7
0
(0)
38
(9)
0
0
29
30
16%
18%
40
42
4%
9
0
(0)
39
(10)
0
0
29
30
-2%
11%
53
56
34%
6
0
(4)
49
(12)
0
0
37
38
28%
15%
58
62
12%
4
0
(6)
53
(13)
0
0
40
41
7%
19%
70
77
23%
5
0
(6)
65
(16)
0
0
49
50
22%
129
NM
168
31%
32
-81%
7
-78%
38
437%
242%
266%
50%
10%
50%
Cash Flow (Rpbn)
Year end 31 Dec
Core Net Profit
Depr / Amort
Chg in Working Cap
Others
CF's from oprs
Other curr asset
Net fixed asset
2013
2014
2015F
2016F
2017F
104
66
54
116
99
68
75
86
89
103
58
5
4
4
38
10
21
40
14
26
187
166
184
257
287
ST debt
72
56
0
0
0
Other curr liab
38
42
49
56
65
Other asset
Total asset
LT debt
0
0
56
76
76
13
14
3
13
5
0
0
0
0
0
123
112
108
145
146
Shareholders Equity
64
54
76
112
140
Net cash (debt)
32
10
(2)
40
23
Total cap employed
34
37
41
71
96
Net Working capital
29
33
37
33
37
Debt
72
56
56
76
76
2013
2014
2015F
2016F
2017F
47.4%
41.7%
50.8%
48.4%
49.2%
49.6%
43.7%
52.8%
51.5%
53.6%
Other LT Liab
Minority interest
Total Liabilities
Key Ratio Analysis
2013
2014
2015F
2016F
2017F
30
30
38
41
50
2
2
2
4
6
(72)
20
47
(4)
4
72
(59)
(72)
(8)
(30)
32
(8)
15
32
30
Capex
1
1
2
37
27
Others
(2)
(2)
(4)
(75)
(54)
CF's from investing
(1)
(1)
(2)
(37)
(27)
Net change in debt
71
(16)
(11)
20
0
(139)
21
(15)
48
(20)
Others
Year end 31 Dec
Cash and equivalents
Year end 31 Dec
Profitability
Opr Margin (%)
EBITDA Margin (%)
Core Net Margin
(%)
37.7%
31.4%
36.3%
33.9%
34.8%
ROAE (%)
40.2%
50.9%
59.1%
43.5%
39.4%
ROAA (%)
19.2%
16.9%
21.9%
18.5%
18.3%
1.6
1.4
2.9
3.7
3.1
(0.5)
(0.2)
0.0
(0.4)
(0.2)
(0.8)
(0.2)
0.0
(0.6)
(0.3)
(5.9)
(4.5)
(10.1)
(15.5)
(14.8)
Stability
Current ratio (x)
Net Debt to Equity
(x)
Net Debt to EBITDA
(x)
Interest Coverage
(x)
CF's from financing
(67)
6
(25)
68
(20)
Net cash flow
(36)
(3)
(12)
63
(17)
Cash at BoY
56
19
16
4
67
A/P (days)
0
9
9
9
9
Cash at EoY
19
16
4
67
50
A/R (days)
291
247
247
234
219
Free Cashflow
33
(7)
17
70
57
Inventory (days)
0
0
0
0
0
Efficiency
Capital History
Date
11-Feb-2016
IPO @ Rp 750
COMPANY FOCUS
37
PT Trimegah Securities Tbk
Gedung Artha Graha 18th Floor
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190, Indonesia
t. +62-21 2924 9088
f. +62-21 2924 9150
www.trimegah.com
DISCLAIMER
This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information
purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to b uy. This report has
been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Secu rities.
While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no
representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who
are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any
liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted
upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of
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This report was prepared, approved, published and distributed by PT Trimegah Securities Tbk located outside of the United States (a “non-US Group Company”). This report is
distributed in the U.S. by Enclave Capital LLC (“Enclave Capital”), a U.S. registered broker dealer, on behalf of PT Trimegah Securities Tbk only to major U.S. institutional investors
(as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S.
customer in the securities described in this report must be effected through Enclave Capital. Neither the report nor any analyst who prepared or approved the report is subject to
U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. No non
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organization.

Mahaka Radio Integra (MARI)

Transcription

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