COMPANY FOCUS PT Trimegah Securities Tbk - www.trimegah.com 1
Indosat Better and Profitable
Paula Ruth
Profitability turnaround
We expect a turnaround in core profitability in 2016, driven by higher
EBITDA but lower D&A (smaller capex post-modernization), lower net
interest expense (due to lower net debt), and also no more additional
finance cost (premium to redeem USD 650mn bond in 3Q15E) compared
to expected core loss in 2015E. Our 2016E core profit is still below con-
sensus by -17%. For EBITDA, we assume EBITDA margin of 43/42% in
2015E/16E. There could be further upside if ISAT can maintain its 3Q15
EBITDA margin at 46%. ISAT achieved positive core bottom line for two
quarters in a row with 3Q15 core profit substantially jumped to Rp116bn
(vs. 2Q15 Rp11bn), supported also by flat D&A and higher tax benefit
rate that quarter.
More manageable forex impact
Last July, the company already called its USD 650mn bond (due 2020)
financed through USD revolving loan (USD 500mn) and IDR loan. USD
debt portion to total debt (excluding obligation to finance lease) was
~33% in 9M15 (vs. 1H15 55%) of total debt. We think this put ISAT at
no. 2 of lowest USD debt portion among Big 3 (Telkomsel ~11% in
9M15; EXCL ~50% in Oct 2015). We still assume 2015E USD debt por-
tion at ~32%. We have not included possible 2nd tower sales in our
forecast.
Monetization of better network
Not only ISAT is energized from positive industry momentums (rising
data price and subscriber’s large appetite for data service), the company
is beginning to monetize more from its upgraded network (more 3G +
4G-ready BTS). Its 3G capability already reached ~49% of its network
(total BTS) from only ~21% in 2012 just before modernization started.
Valuation: Buy with TP Rp5,400
Our DCF-based TP used 9.9% WACC, 1.0 Beta, and 3.0x EV/EBITDA
terminal value. Current price implied 2016-17 EV/EBITDA of 3.1-3.0x.
We expect ROIC improvement momentum in 2017-18E. If we assume
the company sold 1K towers by the beginning of next year, ISAT would
trade at 2016E EV/EBITDA of 3.0x (please see page 13 for assumption
details).
PT Indosat Tbk is a telecommunication
and information service provider in Indo-
nesia that provides cellular services
(prepaid and postpaid), fixed data ser-
vices or MIDI (Multimedia, Internet &
Data Communication) and fixed voice
services including fixed wireless access
services.
Share Price Rp4,745
Sector Telecommunications
Price Target Rp5,400(14%)
Year end Dec 2014 2015F 2016F 2017F 2018F
Sales 24,085 26,505 28,074 29,210 30,397
EBITDA 10,059 11,337 11,925 12,284 12,655
Net Profit (1,987) (1,590) 1,112 1,536 1,880
EPS (366) (293) 205 283 346
Core Profit (542) (116) 1,006 1,430 1,774
Core EPS (Rp) (100) (21) 185 263 327
Core EPS Growth (%) NM NM NM 42% 24%
DPS (Rp) (183) (146) 102 141 173
BVPS (Rp) 2,506 2,307 2,658 2,838 3,043
EV/EBITDA (x) 3.7 3.3 3.1 3.0 2.9
Core P/E (x) NM NM 25.6 18.0 14.5
Div Yield (%) NM NM 2.2% 3.0% 3.6%
BUY Rp5,400
Reuters Code ISAT.JK
Bloomberg Code ISAT.IJ
Issued Shares 5,434
Mkt Cap. (Rpbn) 26,164
Avg. Value Daily 6 Month (Rpbn)
2.3
52-Wk range 4855 / 3050
Qoredoo Asia Pte. Ltd. 65.0%
Others 19.7%
Public 15.3%
EBITDA 16F 17F
Consensus (Rp bn) 11,896 12,550
TRIM vs Cons. (%) 0.2 -2.1
Company Update
Stock Data
Major Shareholders
Consensus
Companies Data
November 13, 2015
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
-
1,000
2,000
3,000
4,000
5,000
6,000
Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15
(Rpmn)Avg. 5 Day MA Trading Value (RHS) Price (LHS)
Stock Data Stock Data Stock Price
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 2
Figure 1. Porter’s five competitive forces analysis
Source: TRIM Research
Healthier competitive rivalry among telco players
Currently, there are ~5 telco operators in the industry, down from previously ~10 players in 2009, implying that
the industry has entered consolidation phase from previously unhealthy price war during 2008-12. Hence, we
think there will be less price war in the industry supporting the industry player’s effort to achieve better moneti-
zation of their network (more likely to increase ARPU). As smartphone adoption (~14% in 2013) keep increasing,
we think there is higher risk of substitution to data service rather than voice and SMS service. Hence, operators
might tend to increase voice and SMS price to balance the decline in voice and SMS traffic.
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 3
Figure 3. Current marketing positioning of GSM operators
Source: TRIM Research
Telkomsel Indosat XL Three
Postpaid brand (high end customers) Halo Matrix XL Tri
Quality brand (medium to high end customers) Simpati Mentari XL Tri
Fighting brand (low to medium end customers) As IM3 Axis Tri
Figure 2. Timeline of Indonesia’s telco industry’s competitive phases
Source: TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 4
Growing usage of data service from increasing smartphone penetration
As mobile subscribers’ penetration rate in Indonesia already reached 125%, we think there won’t be a significant
increase in the total number of subscribers in the industry. However, we think there’s still potential upside of fur-
ther growth for the cellular business from the growing data usage on the back of growing smartphone adoption
in Indonesia. This is also implied from 3G penetration rate in Indonesia which was still at 45%, significantly be-
low the mobile subscribers’ penetration rate, considering that most of mobile subscribers in Indonesia still use
feature phone (only 2G; voice and SMS). It is expected that smartphone penetration in Indonesia to reach 38%
in 2017E from 14% in 2013.
Source: World Bank, ITU, TRIM Research
Figure 4. Mobile Subscribers Penetration in ASEAN, China, and India (2013)
Figure 5. A snapshot of mobile subscribes and usage in Indonesia
Source: Internet live stats, Internet world stats, www.techinasia.com, companies’ data, TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 5
Figure 7. Social network users in Indonesia(in
millions)
Source: statista.com, World Bank, TRIM Research
Figure 8. Number of Internet Users in Indonesia
Source: Euromonitor, World Bank, TRIM Research Source: statista.com
Figure 9. Average mobile app download rate per
capita
Figure 6. Indonesia’s smartphone penetration
Source: Statista.com, TRIM Research
Figure 10. Spectrum allocation
Source: Indosat, Telkom, XL, and TRIM Research
Total 850 Mhz 900 Mhz 1800 Mhz 2100 Mhz 2300 Mhz
Telkomsel 65.0 5.0 7.5 22.5 15.0 15.0
Indosat 57.5 2.5 10.0 20.0 10.0 15.0
XL Axiata 45.0 - 7.5 22.5 15.0 -
Hutchison Three 20.0 - - 10.0 10.0 -
Spectrum allocation—resource for competitiveness
As 900Mhz already set as technology neutral, ISAT allocated its 10Mhz bandwidth on that band for 3G and 2G
service through its network modernization project (finished last July). Although 1800Mhz band should be ready
for LTE after refarmed (scheduled to finish on November 2015), higher usage of 4G service will depend also on
the readiness of the ecosystem (4G smartphone penetration rate). We think there will be substantial increase in
LTE penetration if the LTE mobile phone price goes down to Rp500K (~USD37) considering that telco operators
do not subsidize handset (99% of subscribers using prepaid packages). There’s already LTE mobile phone priced
at Rp1.1mn (~USD81) based on price survey last May.
PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 6
Figure 11. Market share among Big 3 Telco Operators
0%
20%
40%
60%
80%
Cellular subscribers market share (Big 3)
Telkomsel Indosat XL
0%
20%
40%
60%
80%
Revenue market share (Big 3)
Telkomsel Indosat - cellular XL
0%
20%
40%
60%
80%
EBITDA market share (Big 3)
Telkomsel Indosat - cellular XL
Source: Company, TRIM Research
Figure 12. Big 3 Telco Operators’ EBITDA and EBITDA margin
Source: Company, TRIM Research
ISAT hold 2nd biggest market share among
Big 3 Telcos. In terms of 3Q15 EBITDA, ISAT’s
market share is ~16%, slightly higher than
EXCL’s ~14%.
During previous quarter, only Telkomsel
(65% owned by TLKM) gained market share to
~71% of the three big telcos.
-
5
10
15
20
0%
10%
20%
30%
40%
50%
60%
(Rp
tr)
EBITDA
Telkomsel Indosat - cellular XL
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 7
Management’s Strategy
Figure 13. ISAT’s revenue breakdown Figure 14. Cellular revenue (9M15)
Source: Company, TRIM Research Source: Company, TRIM Research
Network modernization to support higher quality data service
Cellular revenue accounts for 81% of ISAT’s revenue. Among its three services, voice is still the biggest contrib-
utor followed with data (35% and 31% to cellular revenue respectively). To catch the opportunity from strong
data demand in Indonesia and increase network quality, the company already completed modernization (2G to
3G) on its network last July (started Nov/Dec 2012): Phase 1 (done May 2014) for key cities in Java, such as
Greater Jakarta, Surabaya, and Bandung; Phase 2 (done October 2014) for 14 cities outside Java; Phase 3 for
satellite cities, such as Sidoarjo, Gresik, and Sragen. ISAT’s 3G network already reached 23K BTS (~49% of
ISAT’s total BTS), more than EXCL’s 3G of 18K BTS (~32% of EXCL’s total BTS). Note that ISAT installed multi-
channel antenna spectrums (one antenna can support more than 1 spectrum compared to usually one antenna
(BTS) for one spectrum) during the modernization. Following the completion of the modernization, data traffic
already rose +167%YoY last quarter.
Cellular -
net
revenue
81%
Fixed
voice
4%
Fixed
data
(MIDI)
15%
Voice
35%
Data
31%
SMS
23%
VAS
4%
Others
7%
Source: Company Source: Company
Figure 15. ISAT’s 2G and 3G BTS Figure 16. 2G vs. 3G BTS composition
0
5,000
10,000
15,000
20,000
25,000
2011 2012 2013 2014 9M15
2G BTS 3G BTS
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 9M15
2G BTS 3G BTS
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 8
Source: Company, TRIM Research
Figure 17. ISAT’s voice traffic
Source: Company, TRIM Research
Figure 18. Voice effective price.
Source: Company, TRIM Research
Figure 19. ISAT’s SMS traffic
Source: Company, TRIM Research
Figure 20. SMS effective price.
Source: Company, TRIM Research
Figure 21. ISAT’s data traffic
Source: Company, TRIM Research
Figure 22. Data effective price.
0
2
4
6
8
10
12
14
(b
n m
inu
tes)
Implied outgoing minutes (LHS)
167
168
168
169
169
170
0
5
10
15
20
25
30
35
40
45
9M14 9M15
(R
p/
min
ute
)
(b
n m
inu
tes)
Implied outgoing minutes (LHS)
Implied voice effective price (RHS)
0
5
10
15
20
25
0
50
100
150
200
250
300
9M14 9M15(R
p/
SM
S)
(S
MS
)
SMS traffic (LHS) SMS effective price (RHS)
0
10
20
30
40
50
60
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
9M14 9M15
(R
p/
MB
)
(in
TB
)
Data traffic (LHS) Effective data price (RHS)
0
10
20
30
40
50
60
(p
eta
byte
)
Data traffic
0
10
20
30
40
50
60
70
80
(b
n)
SMS traffic (bn)
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 9
Source: Company, TRIM Research
Figure 24. ISAT’s Total Revenue
Data as the engine of growth
On the back of growing smartphone penetration and industry’s pursuit for more rational data price, we estimate
ISAT’s data revenue to grow 12%YoY (9M15 +67%YoY) for next year, but effective data price still down by -
19%YoY (9M15 -35%YoY). We expect slower voice and SMS revenue going forward with faster decline in SMS
due to more migration to messaging service. Our 2015E/16E cellular revenue growth is 12/8%YoY, leading to
total revenue growth of 10/6%YoY. 9M15 revenue accounts 74% of our 2015E target (9M14 74% of FY). Please
see next page for details about our forecasted operational drivers. Regarding 4Q15, the company mentioned it
will accelerate some capex spending, including for LTE, to 4Q15 (still within capex guidance) from previously on
1Q16. Considering also the completion of network modernization last July, we assume lower capex portion to
revenue next year relative to this year (9M15 capex:24% to revenue).
Source: Company, TRIM Research
Figure 23. ISAT’s subscriber base and implied ARPU (YoY and QoQ)
0
20
40
60
80
100
0
10
20
30
40
50
60
70
80
(R
p 0
00
)
(m
n)
Number of subscribers (LHS) Implied ARPU (RHS)
0
20
40
60
80
100
120
0
10
20
30
40
50
60
70
80
(R
p 0
00
)
(m
n)
Number of subscribers (LHS) Implied ARPU (RHS)
0
5
10
15
20
25
30
35
2012 2013 2014 2015E 2016E 2017E 2018E
Rp
tr
Cellular - net revenue Fixed voice Fixed data (MIDI)
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 10
Figure 25. Forecast drivers
Source: Companies and TRIM Research
31 December 2013A 2014A 2015E 2016E 2017E 2018E 2019E
Indosat
Mobile subs (m) 60 63 69 71 72 73 74
Subscriber market share 21.0% 20.2% 21.8% 21.8% 21.8% 21.8% 21.9%
Implied ARPU (Rp 000) 27 26 27 28 29 30 30
% change -2.2% -3.4% 3.4% 2.1% 3.0% 3.2% 1.7%
Voice
Outgoing MOU (min/sub/month) 46 41 38 40 42 43 45
Total MOU (min/sub/month) 93 78 70 68 70 72 73
Total minutes carried 62 54 56 57 60 62 64
% change -6.0% -12.7% 4.2% 2.2% 4.0% 4.0% 3.0%
Incoming minutes (%) 29% 29% 30% 30% 30% 30% 30%
Voice revenue / outgoing minute (Rp) 211 244 195 199 201 203 205
% change 14.0% 15.4% -20.0% 2.1% 1.0% 1.0% 1.0%
Data
Data traffic (terabyte) 30,517 85,359 203,236 283,435 323,115 355,427 383,861
% change 100.8% 179.7% 138.1% 39.5% 14.0% 10.0% 8.0%
Data Rate (Rp/kb) NA NA 0.03 0.03 0.03 0.02 0.02
% change NA NA NA -19.4% -5.0% -3.0% -1.0%
SMS
Outgoing SMS (bn) 274 237 241 236 234 231 229
% change 1.9% -13.5% 1.5% -1.9% -1.0% -1.0% -1.0%
Revenue / outgoing SMS (Rp) NA NA 21 22 22 22 23
% change NA NA NA 6.9% 0.5% 0.5% 0.5%
(in Rp tr)
Cellular - net revenue 19.4 19.5 21.7 23.4 24.5 25.6 26.5
% change 4.8% 0.5% 11.5% 7.8% 4.7% 4.7% 3.4%
Fixed voice service 1.2 1.1 1.1 0.9 0.9 0.9 0.9
% change 18.9% -9.8% -1.0% -15.5% -1.0% -1.0% -1.0%
Fixed data (MIDI) 3.3 3.5 3.7 3.7 3.8 3.9 3.9
% change 12.3% 7.4% 5.3% 1.4% 1.4% 1.4% 1.4%
Net revenue 23.9 24.1 26.5 28.1 29.2 30.4 31.3
% change 6.4% 1.0% 10.0% 5.9% 4.0% 4.1% 3.1%
EBITDA 10.4 10.1 11.3 11.9 12.3 12.7 12.9
% change -1.6% -3.1% 12.7% 5.2% 3.0% 3.0% 2.0%
EBITDA margin 43.5% 41.8% 42.8% 42.5% 42.1% 41.6% 41.2%
Capex / revenue 39.3% 29.2% 29.1% 26.3% 26.4% 26.4% 26.4%
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 11
Cost efficiency supports EBITDA growth
As ISAT plan to do rebranding around this month, near to 4G LTE momentum (1,800Mhz refarming schedule to
finish by Nov), we expect possible increase in marketing and related expenses. For next year, the company said
there’s still possible further cost efficiency, e.g. from power expense. We expect 2015E/16E EBITDA growth of
13/5%YoY (9M15 13%YoY) with both at ~43% margin. 9M15 EBITDA is 76% of our FY target (vs. 9M14 76% of
FY).
Figure 27. EBITDA and EBITDA margin
Source: Company, TRIM Research
Source: Company, TRIM Research
Figure 26. Opex excl. D&A composition
0%
20%
40%
60%
80%
100%
3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Interconnection Radio frequency fee Personnel
G&A Maintenance Marketing
Utilities Leased circuit Others
38%
39%
40%
41%
42%
43%
44%
45%
46%
47%
48%
0
2
4
6
8
10
12
14
16
18
2012 2013 2014 2015E 2016E 2017E 2018E
(R
p t
r)
EBITDA EBITDA margin
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 12
Further deleveraging plan
ISAT said monetization of a section of its towers is considered likely next year to reduce debt. The company still
exploring various options on how to best monetize it. Currently, ISAT has ~8.6K towers. Our forecast has not
included the potential 2nd tower sale. Regarding ISAT’s plan to release IDR bond Rp900bn (part of continues se-
ries bond), we already include the proceed of bond issuance in our 2015E debt and remaining part of continues
series bond (PUB) ~Rp3.5tr next year in 2016E debt. We targets USD debt portion of 29% next year.
Figure 28. Interest bearing debt breakdown as of 9M15
Source: Company
USD Loan
(USD 506mn)
33%
IDR Bank
Loan
67%
ISAT
Weighted avg. shares outstanding (bn) 5
Last market price (Rp) 4,745
Market cap (Rp bn) 25,782
Assumption of potential number of towers sold in the beginning of 2016E (towers) 1,000
Implied value / tower (Rp bn) 1.2
Potential cash received (Rp bn) 1,209
Implied towers' EV to EBITDA (x) 9.0
Assuming sales-and-lease back under operating lease
Figure 29. Estimated potential proceed assuming tower section sold at 9x EV/EBITDA
Source: Company, TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 13
2016E
(in Rp bn except stated otherwise)
Before 2nd tower sale
After 2nd tower sale Diff. (%)
ISAT's tower leasing business Estimated number of towers owned by ISAT (towers) 8,600 7,600 (1,000) (11.6)
Assumed number of towers sold 1,000 Revenue ISAT received from its towers' tenants Rp bn 711 628 (83) (11.6)
Assumed monthly rental Rp mn /month 10 10
Number of tenants BTS 5,925 5,925 ~Total tenancy ratio 1.40 1.40 Implied third party tenancy ratio 0.69 0.69 Implied Indosat's own tenancy in their towers 0.71 0.71 Assumption:
2016E tower lease revenue same as annualized 9M15
Revenue decline proportionate to number of owned towers
EBITDA ISAT received from its towers' tenants 569 503 (66) (11.6)
Assumptions: EBITDA margin 80% 80% 80%
Note: Tower companies' EBITDA margin:
SUPR 83% TBIG 82%
ISAT's tower rental expense to tower operator
Additional tower rental expenses post sale NA 85 (85) NA
- what ISAT pays to buyers Assumptions: Monthly rental / BTS (Rp mn) 10
ISAT's EBITDA 11,925 11,774 (151) (1.3)
ISAT's Market cap, net debt, and Enterprise Value Market cap (current price) 25,782 25,782
Net debt 11,102 9,893 (1,209) (10.9)
EV (current price) 36,885 35,676 (1,209) (3.3)
ISAT's 2016 Net Debt/EBITDA (x) 0.9 0.8
ISAT's 2016 EV/EBITDA (x) 3.1 3.0
Figure 30. Potential impact if 2nd tower sale-and-leased-back occur in early 2016E
Source: Company, Bloomberg, TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 14
YE Dec 31 (in Rp b) 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F
EBIT 3,734 3,654 3,433 3,186 3,176 4,137 4,252 4,078 4,379 4,185
Tax Rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
EBIT*(1-t) 2,801 2,740 2,575 2,390 2,382 3,103 3,189 3,059 3,284 3,139
+ D & A 8,550 9,001 9,478 9,983 10,219 9,514 9,666 10,136 9,732 10,183
- Capex (7,698) (8,017) (8,266) (8,520) (8,757) (8,972) (9,196) (9,395) (9,515) (9,689)
+ Decrease/(increase) in non
cash working capital 336 319 275 297 294 287 301 293 258 292
FCFF 3,988 4,043 4,062 4,149 4,138 3,932 3,960 4,094 3,760 3,923
FCFF - Discounted 3,613 3,319 3,021 2,795 2,526 2,174 1,984 1,858 1,546 1,462
Value of cash-flows thro 2026 24,297
Terminal value- 3x EV/EBITDA 16,057 Risk-Free rate 8.40%
Equity market risk premium 5.00%
Enterprise value 40,354 Beta 1.00
Net Debt / (Cash) 11,102 Cost of equity 13.40%
# of shares 5,434 Post-tax cost of debt 8.25%
Value per share (mn) 5,384 Debt/Capital ratio 59%
10.4% WACC
Target price after rounding 5,400
Figure 31. DCF calculations
Source: TRIM Research
Figure 32. Forward historical EV/EBITDA - Big 3 Telcos
Source: Company, Bloomberg, TRIM Research
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
Jan-1
0
Mar-1
0
May-1
0
Jul-1
0
Sep-1
0
Nov-1
0
Jan-1
1
Mar-1
1
May-1
1
Jul-1
1
Sep-1
1
Nov-1
1
Jan-1
2
Mar-1
2
May-1
2
Jul-1
2
Sep-1
2
Nov-1
2
Jan-1
3
Mar-1
3
May-1
3
Jul-1
3
Sep-1
3
Nov-1
3
Jan-1
4
Mar-1
4
May-1
4
Jul-1
4
Sep-1
4
Nov-1
4
Jan-1
5
Mar-1
5
May-1
5
Jul-1
5
Sep-1
5
EXCL Fw-EV/EBITDA TLKM Fw-EV/EBITDA ISAT Fw-EV/EBITDA
6.0
7.1
3.3
PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 15
Source: Company, Bloomberg, TRIM Research
Figure 33. ISAT’s forward historical EV/EBITDA
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Jan-1
0
Apr-1
0
Jul-1
0
Oct-1
0
Jan-1
1
Apr-1
1
Jul-1
1
Oct-1
1
Jan-1
2
Apr-1
2
Jul-1
2
Oct-1
2
Jan-1
3
Apr-1
3
Jul-1
3
Oct-1
3
Jan-1
4
Apr-1
4
Jul-1
4
Oct-1
4
Jan-1
5
Apr-1
5
Jul-1
5
Oct-1
5
ISAT Fw-EV/EBITDA ISAT Fw-EV/EBITDA avg Fw-EV/EBITDA + 1 STD
Fw-EV/EBITDA - 1 STD Fw-EV/EBITDA - 2 STD Fw-EV/EBITDA + 2 STD
3.1
3.8
4.5
5.2
5.9
3.3
Valuation: Buy with 10% upside to TP Rp5,300
To arrive at our DCF-based TP, we assume 9.9% WACC, 1.0 Beta, and 3x EV/EBITDA for the terminal value. The
terminal value’s EV/EBITDA is still lower than EXCL (4x) despite ISAT’s market share is slightly below EXCL
among Big 3 Telcos. We note that ISAT trades at lower liquidity (ISAT’s public’s ownership ~15%) than EXCL.
ISAT’s terminal value EV/EBITDA is also significantly below Telkomsel (65% owned by TLKM) of 9x justified by
Telkomsel’s leadership in the industry.
Current market price implied 3.1x 2016E EV/EBITDA and 3.0x 2017E EV/EBITDA, still lower than EXCL
(2016/17E 6.2/6.0x) although 3Q15 ISAT’s market share is slightly higher than EXCL. We think there might be
further upside to ISAT when:
1) It can sustain similar level of EBITDA margin to 3Q15 (after modernization) as we noticed that the compa-
ny’s EBITDA margin was 47% in FY12 (modernization start Nov/Dec 2012).
2) The company can gain market share.
3) Management can manage its capex better. We currently assume capex at 26% to revenue for ISAT, higher
than our assumption for EXCL’s (15-22%) during 2016E-26E.
4) The company can lower its USD forex risk faster.
5) Positive solution to IM2 case as it becomes part of the Indonesia’s telco industry issue. We still forecast the
IM2 loss estimate as provision in our long term forecast considering the Ministry’s support and company’s
optimism.
6) Substantial time needed to achieve significant 4G penetration which support ISAT to gain market share in
the growth of data service using 3G (3G handset still more affordable than 4G). Most of Indonesia’s cellular
subscribers still use 2G handset.
In terms of PE, the company trades at 25.6x 2016E PE and 18.0x 2017E PE, higher than TLKM (2016E/17E PE
for TLKM 14.7/13.5x). We still estimate a negative core bottom line for EXCL in 2016 to recover to positive in
2017 (2017E PE of 634.5x).
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 16
Risks
Foreign exchange risk
As telco operator is a capital intensive business and its capex, e.g. for network equipment, tends to be imported
with payment to vendor using USD, the company used USD loan to help to finance its capex. Meanwhile, most of
the company’s revenue is in IDR. IDR weakness to USD could cause higher forex loss, interest expense, and low-
er profit, and also higher principal payment for the USD loan leading to higher risk of liquidity. IDR weakness to
USD also cause increase in fund amount required to finance its capex and rise in operational cost. This might
lead to lower network upgrade, expansion, less maintenance, and/or less purchase of items and services, which
might cause the company provide service with quality not as high as before and lower its ability to compete.
Competition Risk
We think the telco industry in Indonesia is very competitive. If competitor lower its price substantially as its mar-
keting strategy to grab market share for some times, it might cause the company losing its price-sensitive sub-
scribers and follow to decrease its price as well to remain competitive. This could lead to price war causing the
industry cannot monetize its investment properly nor growing its business in a sustainable way.
Technology change risk
As technology kept evolving, if the company cannot or too slow to invest in new technology which the industry
already adopted, the company could lose its competitiveness, such as in form of declining ARPU.
Interest rate risk
The company is exposed to risk from interest rate changes for its interest bearing debt. If interest rate goes up,
it cause higher interest expense and lower bottom line.
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 17
Company Background
ISAT is one of Indonesia’s leading telecommunication and information service providers in Indone-
sia, established in 1967. It provides cellular, fixed data, and wireless broadband services, fixed tel-
ecommunication or fixed voice offerings, and digital services. Together with its subsidiaries, PT In-
dosat Mega Media (IM2) and PT Aplikanusa Lintasarta, Indosat provides fixed data or Multimedia,
Internet & Data Communication services, as well as IT services to corporates.
Source: Company
Figure 34. ISAT’s group structure, share ownership, and subsidiaries
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 18
Income Statement (Rpbn)
Year end Dec 2014 2015F 2016F 2017F 2018F
Revenue 24,085 26,505 28,074 29,210 30,397
Revenue Growth (%) 1% 10% 6% 4% 4%
Gross Profit NA NA NA NA NA
Opr. Profit 1,833 2,707 3,470 3,734 3,654
EBITDA 10,059 11,337 11,925 12,284 12,655
EBITDA Growth (%) -3% 13% 5% 3% 3%
Net Int Inc/(Exp) (2,264) (2,684) (1,994) (1,692) (1,151)
Gain/(loss) Forex (395) (2,329) 0 0 0
Other Inc/(Exp) (1,110) 432 141 141 141
Pre-tax Profit (1,936) (1,874) 1,616 2,184 2,644
Tax 78 417 (404) (546) (661)
Minority Int. (129) (133) (100) (102) (103)
Extra. Items 0 0 0 0 0
Reported Net Profit (1,987) (1,590) 1,112 1,536 1,880
Core Net Profit (542) (116) 1,006 1,430 1,774
Growth (%) -18% -79% -969% 42% 24%
Dividend per share (183) (146) 102 141 173
growth (%) -29% -20% -170% 38% 22%
Dividend payout
ratio
50% 50% 50% 50% 50%
Balance Sheet (Rpbn)
Year end Dec 2014 2015F 2016F 2017F 2018F
Cash and equiva-
lents
3,480 8,422 9,406 3,580 3,644
Other curr asset 5,111 5,461 5,464 5,526 5,625
Net fixed asset 40,776 61,537 60,475 59,623 58,639
Other asset 3,903 4,490 4,912 4,748 4,996
Total asset 53,270 79,911 80,257 73,476 72,905
ST debt 11,797 5,860 8,095 2,454 2,769
Other curr liab 9,351 14,625 14,758 15,155 15,573
LT debt 11,350 16,863 12,413 9,959 7,190
Other LT Liab 6,474 29,214 29,636 29,471 29,720
Minority interest 681 814 915 1,016 1,120
Total Liabilities 38,971 66,563 64,901 57,039 55,252
Shareholders Equity 13,618 12,534 14,441 15,421 16,533
Net debt / (cash) 19,666 14,301 11,102 8,833 6,315
Total cap employed 32,122 59,425 57,404 55,867 54,563
Net Working capital (12,557) (6,602) (7,982) (8,503) (9,073)
Debt 23,146 22,723 20,508 12,413 9,959
Cash Flow (Rpbn)
Year end Dec 2014 2015F 2016F 2017F 2018F
Core Profit (542) (116) 1,006 1,430 1,774
Depr / Amort 8,226 8,630 8,456 8,550 9,001
Chg in Working Cap 1,981 4,924 129 336 319
Others (2,316) (1,475) 106 106 106
CF's from oprs 7,349 11,963 9,697 10,422 11,200
Capex (6,391) (7,725) (7,393) (7,698) (8,017)
Others 1,388 133 100 102 103
CF's from investing (5,004) (7,592) (7,293) (7,597) (7,914)
Net change in debt (1,008) (423) (2,215) (8,095) (2,454)
Others (49) 994 795 (556) (768)
CF's from financing (1,057) 571 (1,420) (8,651) (3,222)
Net cash flow 1,246 4,942 984 (5,826) 64
Cash at BoY 2,234 3,480 8,422 9,406 3,580
Cash at EoY 3,480 8,422 9,406 3,580 3,644
Free Cashflow 958 4,238 2,303 2,723 3,183
Key Ratio Analysis
Year end Dec 2014 2015F 2016F 2017F 2018F
Profitability Gross Margin (%) NA NA NA NA NA
Opr Margin (%) 7.6% 10.2% 12.4% 12.8% 12.0%
EBITDA Margin (%) 41.8% 42.8% 42.5% 42.1% 41.6%
Core Net Margin (%) -2.3% -0.4% 3.6% 4.9% 5.8%
ROAE (%) -3.6% -0.9% 7.5% 9.6% 11.1%
ROAA (%) -1.0% -0.2% 1.3% 1.9% 2.4%
Stability Current ratio (x) 0.4 0.7 0.7 0.5 0.5
Net Debt to Equity (x) 1.4 1.1 0.8 0.6 0.4
Net Debt to EBITDA (x) 2.0 1.3 0.9 0.7 0.5
Interest Coverage (x) 0.8 0.9 1.4 1.7 2.7
Efficiency A/P (days) NA NA NA NA NA
A/R (days) 32 31 30 30 30
Inventory (days) NA NA NA NA NA
Interim Result (Rpbn)
3Q14 4Q14 1Q15 2Q15 3Q15
Sales 6,104 6,368 6,093 6,527 6,962
Gross Profit NA NA NA NA NA
EBITDA 2,567 2,466 2,604 2,758 3,205
Opr. Profit 527 232 536 657 1,128
Net profit (212) (657) (456) (278) (389)
Core profit (56) (349) (64) 11 116
Gross Margins (%) NA NA NA NA NA
EBITDA Margins (%) 42% 39% 43% 42% 46%
Opr Margins (%) 9% 4% 9% 10% 16%
Net Margins (%) -3.5% -10.3% -7.5% -4.3% -5.6%
Core Margins (%) -0.9% -5.5% -1.1% 0.2% 1.7%
Capital History
Date
19-Oct-94 IPO @ Rp. 7,000
PT Trimegah Securities Tbk
Gedung Artha Graha 18th Floor
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190, Indonesia
t. +62-21 2924 9088
f. +62-21 2924 9150
www.trimegah.com
DISCLAIMER
This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information
purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has
been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities.
While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication,
Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is
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