Media Nusantara Citra

PT Media Nusantara Citra (MNCN) is an integrated media company in Indonesia and runs one of the most popular FTA TV channels - RCTI. Together with close competitor Surya Citra Media (SCMA), they account for roughly 80% of the audience share in Indonesia's FTA TV market. Valuation looks cheap both on an absolute basis as well as relative to SCMA. 

The business itself seems well-run and recent investments in content production and digital distribution should help the company sustain its profitability for a few more years to come.

Some yellow flags:
1. Capital allocation has been suspect in the past (e.g. badly timed debt and equity raising) but these should be corrected in the next 24 months as cash flows fund debt repayment and distributions are resumed (either in buy backs or dividends).

2. Company's ties to its parent and grandparent companies make related party transactions an important area to look out for. But given MNCN is the cash cow in the whole conglomerate, management has an interest to safeguard its fundamentals.

One question I hope some here can help to answer: when is the deadline for Indonesian listed companies to file their full year financials?

The cheapness is probably due to the nature of its business.

In a year where people are at home more, it tells you a lot about TV's relevance when its viewership and ad revenues actually fell. Management claims that lower viewership is due to some key events being called off due to the pandemic, but I think there are other reasons involved.

Extrapolate a few years into the future, will more Indonesians be watching TV? If yes, then this is probably a good buy. If no, then it is probably a good idea to walk away.

Its production business is too small -- and production itself is also not a stable business -- to be of significance to its results.

This company's business is similar to mm2, except that mm2's medium is cinemas, which still has a chance to reviving after the pandemic. mm2 might not survive the pandemic but I'm pretty sure cinemas will.

Old media is dying. Netflix, Disney+, Youtube, and other on-demand streaming services are the future of home entertainment. Newspapers need no mention.

Radio still has a long life because of its live DJs. This is a competitive advantage which music streaming services has not yet figured out how to replicate.

(07-05-2021, 08:19 PM)karlmarx Wrote: ..

Radio still has a long life because of its live DJs. This is a competitive advantage which music streaming services has not yet figured out how to replicate.

Big Tech (Spotify, Apple, Youtube, Facebook, Twitter etc.) and startups (e.g. Clubhouse) pivoting hard into audio (Podcasts, Live-Audio Apps, live streams etc.) already. Most modern smartphones also do not have a radio antenna; hence, they have the same or less availability as other digital mediums in developed countries.

 It's a matter of time analogue live radio has to evolve too.

(07-05-2021, 08:19 PM)karlmarx Wrote: In a year where people are at home more, it tells you a lot about TV's relevance when its viewership and ad revenues actually fell. Management claims that lower viewership is due to some key events being called off due to the pandemic, but I think there are other reasons involved.

My impression is TV ad spend fell globally in 2020 both on an absolute basis and as % of total ad spend, while digital ad spend rose as eyeballs moved to laptops and smartphones, so this is not controversial. MNCN has made inroads into digital distribution of their content through their own app RCTI+ as well as through YouTube and Facebook, and monetizing through ads. Digital ad revenue should be around 10% of 2020 revenues compared to 0% in 2017.

(07-05-2021, 08:19 PM)karlmarx Wrote: Its production business is too small -- and production itself is also not a stable business -- to be of significance to its results.

Too small and unstable? The company has one of the largest production facilities and produces 80% of all content, and close to 100% of all local content (drama series, reality TV shows, animated series), which it broadcasts. This is the main reason they have been able to expand gross margins over the years to 60%+ recently.

(07-05-2021, 08:19 PM)karlmarx Wrote: This company's business is similar to mm2, except that mm2's medium is cinemas, which still has a chance to reviving after the pandemic. mm2 might not survive the pandemic but I'm pretty sure cinemas will.

They are not the same. MNCN is producing both short-lived (News, reality TV shows) and long-lived (drama, animated series) video content, targeting both passive and active viewership. I'm not familiar with mm2, but if they mainly produce films for cinematic releases then it caters to more active viewership, and has more short-lived assets and a more hit-based business model.

(07-05-2021, 08:19 PM)karlmarx Wrote: Old media is dying. Netflix, Disney+, Youtube, and other on-demand streaming services are the future of home entertainment. Newspapers need no mention.

Radio still has a long life because of its live DJs. This is a competitive advantage which music streaming services has not yet figured out how to replicate.

As far as I know its print and radio businesses are insignificant. >90% of revenue comes from ad revenues on its FTA TV channels and digital channels. 

(07-05-2021, 08:30 PM)Wildreamz Wrote:

(07-05-2021, 08:19 PM)karlmarx Wrote: Radio still has a long life because of its live DJs. This is a competitive advantage which music streaming services has not yet figured out how to replicate.

 It's a matter of time analogue live radio has to evolve too.

Agree with Wildreamz on the broad strokes here, but would just say everything has its price. There is still some use case for traditional low-cost radio broadcast in certain geographies (not that this discussion matters for MNCN).

(07-05-2021, 03:44 PM)D123 Wrote: One question I hope some here can help to answer: when is the deadline for Indonesian listed companies to file their full year financials?

The usual dateline was 30 March, but due to Covid-19, the dateline is 31 May.