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Jumat, 01 April 2011

ISAT: Hold the fort - Mandiri

Indosat (ISAT) booked in-line revenue and operating income, however net income plunged below our (44.3%) and consensus (69.6%), due to forex exposures and higher financing charges. Meanwhile, retaining its position as the 2nd largest in term of subscribers cut down ARPU (-8.0% yoy) and RPM (-26% yoy). Our concern on its debts subsided as ISAT has done major repayments on its debt. Going forward, we think ISAT may sell some of its towers to further reduce its debt load rather than refinancing it or raising fund from the market. Given this, we upgrade ISAT to Neutral (TP: Rp5,600)

Net income below, operationally inline. ISAT managed to book single-digit revenue and operating income growth to Rp19.8tn (+5.2% yoy, -4.4% qoq) and Rp3.5tn (+8.1% yoy, -3.9% qoq), both in line with our and consensus estimates. Net income, plunged to Rp647bn (-56.8% yoy, -52.3% qoq) mainly due to a big drop in forex gains recorded in FY10 compared with in FY09, and rising financing charges. Cellular revenue was still the main driver for growth as it posted Rp16.0tn (+12% yoy). Meanwhile, fixed line and data services (MIDI) revenue fell to Rp1.3tn (-28.3% yoy) and Rp2.5tn (-9.0% yoy), due to lower traffic. As competition in the telecom sector will remain, we expect ISAT’s revenue will grow by 10.2% to some Rp22.1tn.

Maintaining 2nd place sliced ARPU and RPM.. As of 2010, ISAT booked 44.3mn (+34.3% yoy) of subscribers, which means ISAT managed to retain its 2nd position from XL Axiata’s pursuit. Consequently, ARPU declined to Rp34.7k (-8.0% yoy). In addition, heightened promotional efforts to grab subscribers and usage has also deteriorated RPM to Rp163 (-25.9% yoy). For FY11, we expect competition will remain tough, though it will not as harsh as last year, thus we may see ARPU and RPM would somewhat hold up or reduce at slower pace.

Sell towers to reduce debts. We appreciate ISAT’s repayments (Rp2.6tn of credit facility and US$234mn of global bonds) last year to reduce its debt load. Still, leverage position is quite distressing as net debt to equity is at 1.2x. We think that in order to reduce its debt, ISAT may sell some of its towers to independent tower companies, rather than refinance it. It is estimated that ISAT have ±11,600 towers. Assuming average EV/tower of two listed tower companies (TBIG and TOWR) of Rp2.1bn/tower, ISAT have potential cash of Rp2.4tn if it decides to sell 10% towers.

Upgrade to Neutral. Previously, we were concerned over ISAT debt burden. Now, ISAT has shown some reduction in its debt and have potential financial source from tower divestment. We upgrade ISAT to Neutral at TP Rp5,600.
Posted by Saham Pilihan at 17.29

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