Indosat - Alert: FY10 Bottom Line Misses, EBITDA In-line - Citigroup

Indosat released highlights of its full year 2010 performance. The bottom line posted a miss, falling 57% YoY to Rp647bn. This translates to a 27% miss vs. Citi and a 33% miss vs. Bloomberg consensus profit estimates. EBITDA on the other hand was broadly in-line for both. What did strike us in the limited release was the 4Q trend. Mobile revenue growth was weak at a 0.7% rise YoY, significantly slower vs. full-year mobile growth of 12%. Non-mobile revenues, which account for 19% of service revenues, continued to shrink, declining 15% YoY for 4Q and 17% YoY for the full year. From a mobile standpoint, we see that the company is materially lagging XL which posted 5% QoQ/15% YoY growth on revenues. XL also appears to have extended its revenue market share in 4Q vs. Indosat. We note that while Indosat may have added an impressive 4.6m subs in 4Q (+12% QoQ), this was not monetized, with revenues flat and trailing peers.

Capex also accelerated in 4Q to Rp2.2tn, taking up 34% of the full year capex spend of Rp6.5tn. Management had flagged previously that cash capex should accelerate as vendor equipment backlog is filled in 4Q10 and FY11.

On the positive front, we do see that efficiency initiatives have started to bear fruit with EBITDA margins improving 200bp YoY to 48.6% for the year as the company better controls costs with new management.

The company is due to release its financial statements and operating results on 24 March and will hold an investor call on 28 March. We may review our numbers accordingly following these. On balance, we find the company to have disappointed on the bottom line, although there remains limited granularity on this front with only highlights of the full year results released. We currently have a Sell/Low Risk rating on Indosat with a TP of Rp4,900. We believe its valuations
look expensive at 29.1x FY11 PER on our current estimates.