Falling Advertising Budget Takes Toll on Indonesian TV Stocks

(Bloomberg) -- Indonesian media stocks may remain in the doldrums as the central bank’s surprise rate cut this week is unlikely to boost consumer spending soon enough to persuade companies to spend more on advertising.

The nation’s two biggest media companies, PT Media Nusantara Citra and  PT Surya Citra Media, saw their shares falling by at least 15 percent this year, erasing more than 11 trillion rupiah ($823 million) from their combined market capitalization, as concerns about weakening consumer spending mount, even as the Jakarta Composite Index holds near its record high.

Private consumption grew by only 4.95 percent in the second quarter from a year earlier, according to data from the government statistics office. Private spending growth has underperformed overall gross domestic product expansion of 5.01 percent in each of the past two quarters.

“The trend may continue going into the second half of the year, given consumption has been really weak in the first half and doesn’t seem like recovering soon enough,” Kevie Aditya, an analyst at CIMB Securities Indonesia, said via email. “It makes sense for companies to cut their advertising spending budgets.”

Promotional spending by the five biggest Indonesian consumer goods companies, excluding tobacco firms that are facing government restrictions on advertising, fell 0.2 percent in the first half of this year, according to data from the companies compiled by Bloomberg. That compares with average year-on-year growth of 9.1 percent in the eight quarters through the end of 2016.

Media Nusantara Citra’s shares have plunged 17 percent this month, making it the worst performer in the MSCI South East Asia Index. Second-quarter revenue fell 0.7 percent, the most since the final three months of 2015. Net income dropped 32 percent.

“First-half advertising spending was slower than expected, however MNCN managed to book 2 percent growth year-on-year, despite a challenging economic situation,” MNC Group Chairman Hary Tanoesoedibjo said in a text message. “We hope that the second half will be much better due to recovery of consumer spending, which all industry participants have been looking forward to.”

Surya Citra’s shares have slumped 12 percent this quarter. Olle Wennerdahl, the company’s head of investor relations, didn’t reply to Bloomberg’s phone calls and emails requesting comment.

The growth of Southeast Asia’s largest economy may not accelerate until the final quarter of 2017, meaning that a recovery in consumption may take place in the first half of next year and is likely to be slow, Ferry Wong, head of Indonesian equity research at Citigroup Inc. wrote in a report. 

The government has decided to increase the budget deficit for this year in order to maintain the growth momentum of the Southeast Asia’s biggest economy, Finance Minister Sri Mulyani Indrawati said on Aug. 21. Bank Indonesia cut the benchmark interest rate by 25 basis points to 4.5 percent on Tuesday to spur economic growth.

While the rate cut may prompt short-lived positive sentiment toward Indonesian equities, it would support private consumption “only in the medium to longer term,” said Jeffrosenberg Tan, head of strategy at PT Sinarmas Sekuritas.

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Jonathan Annells, Margo Towie