Indosat (ISAT.IJ, BUY) - Turning Around

Indosat’s 9M12 net profit growth of 55% YoY is above our and consensus estimates.  The main drivers are strong revenue growth (9% YoY) and a IDR2,187b gain on the sale of its towers.  In 3Q12, the company outperformed both Telkomsel and XL Axiata by posting 15% QoQ growth in cellular revenue while adding 4.6m subscribers (9% QoQ).  Going forward, on the marketing front, Indosat will continue to redesign its prepaid portfolio and fine-tune its pricing.  At the same time, it will intensify the revamp of its sales and distribution.  Indosat has strong free cash flow, supported by USD405m in proceeds from the sale of its towers to Tower Bersama.  The proceeds will be used to finance capital expenditure and to pay down debt ahead of schedule.  The focus of the capex will be the rollout of a high-performance data network (3G 900).  Indosat warrants a BUY recommendation. Our TP is IDR7,350, implying 19.0x FY13F PER and 3.7x FY13F EV/EBITDA. 

source: KIMENG dated 1 Nov 2012