Results review:
Indosat (ISAT IJ, Neutral, TP: IDR6,700)
Awaiting New Catalyst
Indosat (ISAT IJ, Neutral, TP: IDR6,700)
Awaiting New Catalyst
We think:
1. The sharp rally in the share price of
42% (+42% over the past 12 months) has priced in the mid-term positive
prospects on the stock;
2. Indosat’s strong growth in 1H16 is
likely to normalise going forward with the realignment of post Lebaran
packages.
Positive
catalysts will come from the active sharing regulation. Maintain NEUTRAL with a
higher IDR6,700 TP (from IDR5,650, 8% upside) after rolling forward our
valuation base to FY17. Our TP implies 3.5x/3x FY17-18 EV/EBITDA respectively.
♦
Active
sharing regulations being finalised. Indosat expects the active network
collaboration with XL Axiata (XL) Axiata (EXCL IJ, BUY, TP: IDR4,900) to
contribute towards capex/opex savings in the longer term. We gathered from
management that the regulation on active sharing, ie spectum pooling and radio
access network (RAN) sharing, is being finalised by the Government and likely
to be made offiicial soon. There are no restrictions in terms of network site
locations to be shared, although the greatest benefits can be extracted from
outside Java where PT Telekomunikasi Selular (Telkomsel) is dominant.
♦ Improvement in
balance sheet from debt rebalancing. Indosat’s USD debt has fallen significantly
to USD227.5m (1H15: USD1.2bn) – representing 14% of overall debt. Accordingly,
net debt/EBITDA has declined to 1.85x in 1H16 (1H15: 2.22x). Management is
targeting to reduce its USD debt exposure to 10% in the longer term.
♦ A good quarter. Indosat reported
strong 2Q16 revenue, EBITDA and subscribers (subs) growth of 9%, 12% and 18%
YoY respectively. This was aided by the new Freedom Combo plans
introduced in early 2016, strong Lebaran uptake and the improvement in
commercial execution with an expanded 4G footprint. We expect revenue and
EBITDA growth to normalise in 2H16, as the promotional packages are
progressively removed. We expect subs addition to ease given the high base of Lebaran
sign-ups and maintain our topline growth assumptions of 8.8%, 10.9% and 9.1%
for FY16-18 respectively
♦ NEUTRAL call
maintained with higher DCF TP. We roll forward our valuation base to FY17
with TP raised to IDR6,700 (from IDR5,650). We think the sharp price
appreciation (+42% over the past 12 months) has baked in the improvement in
Indosat’s operational momentum to some extent.
♦ Our preferred exposure to the Indo
telco sector remains Telekomunikasi Indonesia (Telkom) (TLKM IJ, BUY, TP: IDR5,000),
given its superior fundamentals. We also like XL as a laggard play with the
latter’s recovery posing a key downside risk to Indosat. Other key risks
include:
i. Stronger-than-expected competition;
ii. Higher-than-expected capex.
Best regards,
David Arie Hartono
Assistant Vice
President
Research Analyst – Media,
Transportation
PT. RHB Securities
Indonesia
