Indosiar Karya (HOLD, TP IDR850): FY10 Results Review, Lower Than Anticipated - OSK Nusadana

· Lower than estimated. IDKM’s FY10 net profit fell to IDR8bn (-9.1% y-o-y) while sales declined to IDR749bn (-12.2% y-o-y), coming in below our expectation due mainly to weak financial performance in the fourth quarter last year. Notably, 4Q10 sales totaled only IDR142bn (-10.6% q-o-q) while the 4Q10 net loss increased to IDR19bn (-159.4% q-o-q).

· Wrong program strategy in 4Q10. IDKM attempted to copy the success of Trans Group by airing Indonesia’s Got Talent, a talent show program, at prime time. The company also continued to broadcast Take Celebrity Out, a reality program whose prime time ratings have been on the decline. This strategy backfired as the program’s audience rating fell to 8.9% in December 2010 from 9.3% in September 2010.

· Performance improved early this year. IDKM’s performance has been improving since its management switched program strategy early this year. The company is now broadcasting more quality TV drama series on prime time instead of games and reality shows. IDKM has an exclusive agreement with one of the most reputable production houses to produce popular drama series.

· Great strides in audience rating improvement in 1Q11. The airing of better TV programs has translated into higher audience ratings, significantly boosting IDKM’s audience rating from 8.9% in December last year to 12.5% in the first week of March. Indosiar is now ranked third in terms of single TV audience rating, after SCTV. This will draw more advertisements to the TV station.

· Maintain HOLD. We maintain our forecast and recommendation as we believe IDKM’s financial performance will turn around this year. As the stock is trading at 18.7x-14.9x 2011f-12f, we maintain a HOLD with a target price of IDR850.