What’s New
Indosat reported a 138% y/y surge in 1H11 net profit to Rp682b, bolstered by a forex gain of Rp678b. Revenue grew by a modest 4% y/y to Rp10,050b. Operating profit, however, contracted by 17% y/y to Rp1,336b, dragged down an 8% rise in operating expenses. EBITDA also slid by 2% y/y, causing EBITDA margin to shrink to 44.8% from 47.6% a year ago.
Operating expenses increased on a 55% y/y jump in personnel expenses following the implementation of the Voluntary Separation Scheme, which led to total cash spending of about Rp425b. Excluding this expense, normalised EBITDA margin would be 49%.
The cellular business was brisk in 2Q11 with new subscriber additions (+4%) and higher ARPU (+2%), while RPM remained stable. But MIDI revenue fell by 2% y/y due to the pressure on tariffs and the strengthening rupiah.
Our View
Indosat is undergoing a transformation, which started since it was acquired by Qatar Telecom in June 2008. A series of management changes have taken place and a new CTO, new Chief of Strategy & Planning and a new CFO would come onboard between May and September this year. The company said management changes are complete but transformation continues in other areas (ie, strategy, branding, people, culture and commercial directorate). We believe Indosat’s future will hinge on its successful transformation.
The company is exploring the feasibility of selling its assets, which include StarOne and towers (4,000 towers for US$500m, according to media reports). The proceeds can be used to reduce debt and increase capex or dividends. We have not factored the asset sale assumptions into our forecasts.
Action & Recommendation
Maintain HOLD and TP of Rp6,200, pegging the stock at 4.0x FY12F EV/EBITDA.
source: KIM ENG dated 18 August 2011
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