Refer to Important disclosures in the last page of this report
N o v -1 7 N o v -1 7 D e c -1 7 J a n -1 8 J a n -1 8 F e b -1 8 M a r- 1 8 A p r- 1 8 A p r- 1 8 M a y -1 8 J u n -1 8 J u n -1 8 J u l- 1 8 A u g -1 8 A u g -1 8 S e p -1 8 O c t- 1 8 O c t- 1 8 ISAT-Rebase JCI Index-Rebase
0.0
Revenue (RpBn) 29,185 29,926 22,529 24,201 25,989 EBITDA (RpBn) 12,864 12,763 6,831 7,455 8,101 EBITDA Growth (%) 12.1 (0.8) (46.5)
9.1
8.7 Net Profit (RpBn) 1,105 1,136 (3,120) (2,873) (2,760) EPS (Rp) 203 209 (574) (529) (508) EPS Growth (%) (184.4) 2.8 (374.7) (7.9) (3.9) Net Gearing (%) 129.2 120.3 145.5 195.4 272.2 PER (x)
11.36 11.0 n/m n/m n/m PBV (x)
0.93
0.89
1.23
1.71
2.75 Dividend Yield (%)
0.0
3.1
3.2
0.0 EV/EBITDA (x)
09 November 2018 Company Update HOLD (Unchanged)
2.3
2.3
4.3
3.9
3.6 Source: ISAT, IndoPremier Share Price Closing as of :8-November-2018
E q u it y | I n d o n e s ia | T e le c o m m u n ic a ti o n
40
50
60
70
80
90 100 110 120
Year To 31 Dec 2016A 2017A 2018F 2019F 2020F
Indosat (ISAT IJ)
Ooredoo Asia Pte. Ltd. 65.0% Government of RI 14.3% Public 20.7%
Latest EBITDA (Rp) 6,831 7,455 Vs. Prior EBITDA (%)
20.7 Avg. 6m dailyT/O (US$ m)
0.3 Price Performance
3M
6M
12M
Absolute (%) -33.6 -31.2 -59.5 Relative to JCI (%) -32.0 -31.7 -59.5 52w high/low (Rp) 6,100 - 2,290
Major Shareholders
Shareprice (Rp) Rp2,290
Estimate Change; Vs. Consensus 2018F 2019F
Prior TP (Rp) Rp3,500
Upside/downside (%) +9.2
Target price (Rp) Rp2,500
Profit turnaround still lack visibility Better YoY top-line growth next year albeit from low base. Cost control to limit margin pressure. Network investment is rapidly catching up to drive future growth. Maintain Hold TP Rp2,500 (9% ups), 7% above -1STD of 7-yr mean.
We view new management’s transformation strategy will be positive to ISAT. However, we remain conservative in our estimates given uncertainty in recovery timing and momentum (e.g. core profitability turnaround) after tightening in prepaid card registration.
Better YoY top-line growth next year. This is supported by diminishing impact from registration and blocking of prepaid card during 2018. We expect subscribers might still decline in 4Q18F (on-going “cleansing” in subscriber base), but increase in ARPU will limit impact on revenue. We expect full-year revenue growth to turn positive in 2019F (+7%YoY) from negative in 2018F (-26%YoY).
Stabilization of EBITDA margin. After significant margin decline in 1H18, we expect effective cost control to limit FY18F/19F margin pressure and conservatively assume slight recovery in margin afterward. Thus, our 2018F-29F EBITDA margin (c.30-35%) is still below 43% EBITDA margin booked in FY17.
Strong capex jump to support future growth. After slowing down of (booked) capex realization in FY16-17, we expect ISAT to enter capex cycle during 2018F-
19F to support network expansion and improvement, incl. to outer Java. Our total
18F-19F capex assumption is Rp15tn (USD1bn, assuming Rp14.7K/USD), c.48% lower than management’s estimate of > Rp29tn (USD2bn using Rp14.7K/USD rate). Management said this amount is yet to be finalized. We expect 18F-19F capex to account for 34-32% of revenue, above FY16-17 at 22-20%.
We cut DCF-based TP by 29% to Rp2,500 – Maintain Hold. We lowered TP by 29% to Rp2,500 mainly because we cut EBITDA estimates by c.14-18% for 2018F onward (company indicates 9M18F result to be below; Fig. 7). We lower our WACC to 9.3% from 10.0% as we raised RFR to 8.0% from 7.5% and debt/capital to 81% from 67%. Our Beta is 1.0, higher than ISAT’s 2yr-Beta of
Stock Data
Sharesoutstanding (m) 5,434 Marketcap. (US$ m) 856 Free float (%)
- 16 -14 Vs. Consensus (%) -23 -27
Risks (page 6). Upside risks: Outer Java expansion, possibility of tower-sale-and- lease back. Downside risks: Low stock liquidity.
Source: Bloomberg Paula Ruth
PT Indo Premier Sekuritas [email protected]
0.9. If we use ISAT’s 2-yr Beta of 0.9, our TP would be Rp2,600, 4% above current TP. Our target valuation is 4.1x 19F EV/EBITDA. Current share price translates to 4x 19F EV/EBITDA, similar to -1STD of 7-yr mean.
- 62 21 5793 1168
Fig. 1: ISAT’ revenue breakdown 2Q18* Fig. 2:
ISAT’s subscribers and ARPU Fixed Line 120
25 3% )
Voice, SMS, 100 )
20 Other Celular n
20% m (
80 p
MIDI*
15 R (
18%
60
10
40 VAS
5
20 5% Number of subscribers (LHS) Implied ARPU (RHS) Data
- ) Based on ISAT's highlight announcement (unaudited). Company said key
54%
highlights may differ from ISAT's official financial statement (est. release schedule on c. 23 Nov).
- ) 3Q18 revenue breakdown yet disclosed (waiting for audited result).
Source: Company, IndoPremier Source: Company, IndoPremier Fig. 3: Investor Day 2018: Chief Technology & Information Fig. 3: Investor Day 2018: CTO’s Presentation (2) Officer (CTO)’s Presentation (1)
Source: Company, IndoPremier Source: Company, IndoPremier Fig. 5: ISAT fw-hist. EV/EBITDA until 2 Nov 2018 (4.1x) Fig. 6: Big 3 Telcos’ EV/EBITDA
7.5 12
7.0 11
6.5 10
6.0 9
5.5 8
5.0 7
4.5 6
4.0 5
3.5 4
3.0 3
2.5 M M S N M M S N M M S N M M S N M M S N M M S
Ja Jul Ja Jul Ja Jul Ja Jul Ja Jul Ja Jul 2 e o e o e o e o e o e
a a a a a a a a a a a a M M S N M M S N M M S N M M S N M M S N M M S
n n n n n n p v p v p v p v p v p Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju y y y y y y a a e o a a e o a a e o a a e o a a e o a a e n n n n n nr- -1 r- -1 r- -1 r- -1 r- -1 r- -1 l- p v l- p v l- p v l- p v l- p v l- p
y y y y y y- 1 -1 -1 -1 -1 -1 1 1 1 1 1 1
- 1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1
- 2STD 3.8 -1STD 3.0 Avg 4.7 +1STD 5.5 +2STD 6.3 *) TLKM’s EV/EBITDA is adj. to ownership in Telkomsel.
- *) Based on ISAT's highlight announcement (unaudited). Company said key highlights may differ from ISAT's official financial statement (est. release schedule on c. 23 Nov). Source: Company, IndoPremier
- **) Actual SMS traffic is not disclosed in 1H18. Source: Company, IndoPremier
- Current Fixed line, MIDI, others revenue
- Old % change 0.0% 0.0% % change NM NM EBITDA - Current 6,831 7,455 Capex booked - Current 7,735 7,679 EBITDA - Old 8,140 8,700 Capex booked - Old 7,741 7,906 % change -16.1% -14.3% % change -0.1% -2.9% EBITDA margin - Current 30.3% 30.8% Capex booked to Revenue - Current 34.3% 31.7% EBITDA margin - Old 36.1% 36.6% Capex booked to Revenue - Old 34.3% 33.3%
1 3 -1
1 4 -1
1 5 -1
1 6 -1
1 7 -1
1 8 -1 r- r- r- r- r- r-
3
4
5
6
7
8 1 -1 3 -1 -1 1 -1 4 -1 -1 1 -1 5 -1 -1 1 -1 6 -1 -1 1 -1 7 -1 -1 1 -1 8 -1
3
3
3
4
4
4
5
5
5
6
6
6
7
7
7
8
8 Fw-EV/EBITDA - 1 STD Fw-EV/EBITDA - 2 STD Fw-EV/EBITDA + 2 STD ISAT Fw-EV/EBITDA
3
4 ISAT Fw-EV/EBITDA avg Fw-EV/EBITDA + 1 STD
5
6
7
8 3 3 3 3 TLKM Fw-EV/EBITDA EXCL Fw-EV/EBITDA 3 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6 7 7 7 ISAT Fw-EV/EBITDA 7 7 8 8 8 8
2 Nov: TLKM* 8.9x; EXCL 3.6x; ISAT 4.1x
Source: Company, Bloomberg, IndoPremier Source: Companies, IndoPremier, Bloomberg Fig. 7: 3Q18F results indication
3Q18F* /
3Q18 /
9M18 / (Rp bn)
3Q17
2Q18
3Q18F* QoQ YoY
9M17
9M18F* YoY Old 3Q18F
3Q18 FY18E
Sales 7,453 5,373 5,695 6.0% -23.6% 22,566 16,761 -25.7% 101.7% 74.3% 65.9% EBITDA 3,232 1,560 1,653 6.0% -48.9% 9,906 5,156 -48.0% 77.9% 63.3% 52.9% EBITDA
43.4% 29.0% 29.0% 43.9% 30.8% Margin
Analysis on 3Q18F Result Highlight Expect modest QoQ recovery in top-line. Company expect 9M18F revenue to be Rp17tn (-26%YoY), in-line to our estimate but below consensus. 3Q18F revenue to grow +6%QoQ (slower than Telkomsel +36%QoQ) thanks to diminishing pressure from prepaid card registration impact. We note 3Q18 cellular subscribers still declined to 64mn (-15%QoQ; -34%YoY), but ARPU increased in higher QoQ rate to Rp22K (+35%QoQ; -21%YoY).
EBITDA margin stabilized. 9M18F EBITDA might be below to consensus and our estimate. 3Q18F EBITDA showed positive QoQ of 6% (inflection point).
EBITDA margin was stable in 3Q18 vs. 2Q18 at 29%, which we think due to effective cost control. We assume EBITDA margin to roughly stable at c.30% in 2018F-20F, slightly higher than 3Q18F at 29%.
Strong capex jump to support future growth. 9M18F capex would be Rp4.8tn (+93%YoY; 62% of our FY estimate). 3Q18F capex jumped by +57%QoQ (+170%YoY), to Rp2.1tn. We view strong capex growth to support ISAT’s growth trend recovery in the future.
Investor Day (30 October 2018) New management targets to improve nation wide 4G population coverage to 80% in 4Q18F from 53% in 4Q17: Outer Java to 60% in 4Q18F from 26% in 4Q17; Java to 80% in 4Q18F from 68% in 4Q17. The company has improved customer experience based on improvement by close to 50% faster in 4G download speed in Jun 2018 vs. Dec 2017, according to company and OpenSignal. Outer Java expansion on-track: Lampung in April 2018; Banjarmasin and Makasar in Sep 2018; and Medan later in 2018. This might give slight negative sentiment mainly to TLKM than EXCL as Telkomsel might have higher revenue contribution from outer Java than EXCL (c.15% to revenue), in our view.
New CEO, Mr. Chris Kanter, said currently no M&A process realization; however he still looks for opportunity in M&A in the long term (to support consolidation). We think it is remain to be seen whether there will be another M&A in telco industry.
Fig. 8: Forecast drivers*
Description FY16 FY17 2018E 2019E 2020F
IndosatMobile subs (m) 86 110
65
70
74 Implied ARPU (Rp 000)
26
21
17
24
25 % change -5.9% -19.4% -18.0% 41.0% 2.0%
Voice
Total minutes carried
63
55
35
29
27 (b min) % change 11.2% -13.3% -36.8% -15.0% -10.0% Voice revenue / outgoing minute (Rp) 173 181 180 178 169 % change -9.0% 4.6% -0.6% -1.0% -5.0%
Data
Data traffic (terabyte) 491,789 1,082,761 1,925,547 4,159,182 7,029,018 % change 147.1% 120.2% 77.8% 116.0% 69.0% Data Rate (Rp/kb) 0.021 0.013 0.006 0.004 0.003 % change -40.6% -36.3% -51.4% -40.0% -30.0%
SMS**
Outgoing SMS (bn) 200 108
59
53
48 % change -15.6% -46.0% -45.0% -10.0% -10.0% Revenue / outgoing SMS (Rp)
25
35
26
23
22 % change 18.1% 42.7% -27.2% -10.0% -3.3% (in Rp tr) Cellular - net revenue
24.1
24.5
17.9
19.4
21.1 % change 10.0% 1.7% -26.8% 8.3% 8.8% Fixed voice service
1.0
0.9
0.7
0.8
0.7 % change -14.3% -4.8% -17.9% 5.4% -7.0% Fixed data (MIDI)
4.1
4.5
3.8
4.0
4.1 % change 10.0% 9.4% -14.8% 3.5% 3.2% Net revenue
29.2
29.9
22.5
24.2
26.0 % change 9.0% 2.5% -24.7% 7.4% 7.4% EBITDA
12.9
12.8
6.8
7.5
8.1 % change 12.1% -0.8% -46.5% 9.1% 8.7% EBITDA margin 44.1% 42.6% 30.3% 30.8% 31.2% Core Profit
1.1
1.1 (4.0) (3.0) (2.9)
Capex (booked)/revenue 21.5% 19.9% 34.3% 31.7% 28.1% *) We have not included potential tower sale-and-lease-back in our estimates.
Fig. 9: Changes in forecasts and estimates
YE 31 Dec (Rp bn) 2018E 2019E YE 31 Dec (Rp bn) 2018E 2019E
Revenues - Current 22,529 24,201 Net interest expense - Current (1,964) (1,956) Revenues - Old 22,547 23,748 Net interest expense - Old (1,888) (1,765) % change -0.1% 1.9% % change 4.0% 10.8% Cellular Revenue - Current 17,933 19,430 Net Income - Current (3,120) (2,873) Cellular Revenue - Old 17,951 18,977 Net Income - Old (2,082) (1,916) % change -0.1% 2.4% % Change NM NM Fixed line, MIDI, others revenue
4,596 4,771 Core profit - Current (3,955) (2,979)
4,596 4,771 Core profit - Old (2,917) (2,022)
Net debt - Current 16,953 17,437 D&A - Current (9,235) (9,703) Net debt - Old 15,918 15,453 D&A - Old (9,235) (9,712) % change 6.5% 12.8% % change 0.0% -0.1% EBIT - Current (2,403) (2,248) EBIT - Old (1,095) (1,012) % change NM NM
Source: Company, IndoPremier
Fig. 10: Risk-free-rate and terminal EV/EBITDA assumption
Risk-Free rate 8.0% (old: 7.5%)
Equity market risk premium 6.0%
Beta
1.0 Cost of equity 14.0% (old: 13.5%)
Post-tax cost of debt
8.3 Debt/Capital ratio 81% (old: 67%)
WACC 9.2% (Old: 10.0%)
Terminal EV/EBITDA
3.0 Source: Company, IndoPremier, Bloomberg
Risks Upside risk: Possibility of new performance guidance in next earning call (usually near result release schedule on 23 Nov); result from recent push marketing strategy to end customers; outer Java expansion; 2018F cost efficiency (2Q18 company guidance is high 30’s EBITDA margin); possibility of tower-sale-and- lease-back (company said it is still in assessment process and are not in talks with any party).
Downside risk: Competition, ISAT’s shares have lower trading liquidity than TLKM and ISAT.
Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement
Net Revenue 29,185 29,926 22,529 24,201 25,989 Cost of Sales Gross Profit 29,185 29,926 22,529 24,201 25,989 SG&A Expenses (25,293) (26,016) (24,932) (26,449) (28,055) Operating Profit 3,891 3,910 (2,403) (2,248) (2,066) Net Interest (2,145) (2,057) (1,964) (1,956) (1,962) Forex Gain (Loss) 268 24 (112) Others-Net (219) 63 1,225 141 141 Pre-Tax Income 1,795 1,940 (3,255) (4,062) (3,887) Income Tax (520) (638) 806 1,337 1,279 Minorities (171) (166) (672) (147) (152) Net Income 1,105 1,136 (3,120) (2,873) (2,760)
Balance Sheet
1,850 1,675 1,422 1,729 1,517 Cash & Equivalent
2,750 3,989 3,003 3,226 3,464 Receivable
79
88
66
71
76 Inventory 3,394 3,728 2,716 2,821 2,925
Other Current Assets 8,073 9,479 7,208 7,847 7,983
Total Current Assets 39,078 35,892 34,392 32,367 29,500
Fixed Assets - Net 1,440 1,597 1,597 1,597 1,597
Goodwill 1,877 3,078 2,206 2,363 2,585
Non Current Assets 50,839 50,661 45,831 44,666 42,204
Total Assets 399 616 339 318 ST Loans 845 872 706 758 Payable
10,429 10,726 10,789 11,017 11,052 Other Payables
7,413 4,602 3,049 3,118 3,283 Current Portion of LT Loans
19,087 16,200 15,111 15,179 15,411 Total Current Liab. 12,349 14,899 14,710 15,710 15,100
Long Term Loans 5,226 4,746 4,362 4,855 5,379 Other LT Liab. 36,662 35,846 34,183 35,744 35,890
Total Liabilities 968 866 543 543 543 Equity
12,382 13,131 9,614 6,741 3,981 Retained Earnings 827 819 1,490 1,637 1,790 Minority Interest
14,177 14,816 11,648 8,922 6,314 Total SHE + Minority Int. Total Liabilities & Equity 50,839 50,661 45,831 44,666 42,204
Source: ISAT, IndoPremier
Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow
1,276 1,302 (2,449) (2,726) (2,608) Net Income (Excl.Extraordinary&Min.Int)
7,865 (4,367) 9,235 9,703 10,167 Depr. & Amortization
(1,991) (838) 2,185 (123) (352) Changes in Working Capital
2,648 1,531 1,214 1,450 1,859 Others
9,798 (2,372) 10,185 8,304 9,067 Cash Flow From Operating
(4,984) 6,196 (6,863) (7,835) (7,522) Capital Expenditure 37 (29) 113
27
35 Others (4,947) 6,167 (6,750) (7,808) (7,487)
Cash Flow From Investing (3,515) (660) (1,125) 790 (465)
Loans Equity
(387) (397) Dividends
(2,687) (2,701) (2,061) (1,367) (1,349) Others
(6,201) (3,748) (3,583) (576) (1,814) Cash Flow From Financing
(1,350) 48 (148) (80) (234) Changes in Cash
Financial Ratios
100.0 100.0 100.0 100.0 100.0 Gross Margin (%)
13.3 13.1 (10.7) (9.3) (8.0) Operating Margin (%)
6.2 6.5 (14.4) (16.8) (15.0) Pre-Tax Margin (%)
3.8 3.8 (13.9) (11.9) (10.6) Net Margin (%)
2.1 2.2 (6.5) (6.3) (6.4) ROA (%)
8.1 7.8 (23.6) (27.9) (36.2) ROE (%)
3.5 3.6 (9.8) (10.3) (10.9) ROIC (%)
34.3
41.1
56.6
47.0
47.0 Acct. Receivables TO (days)
0.0
0.0
0.0
0.0
0.0 Acct. Receivables - Other TO (days)
0.0
0.0
0.0
0.0
0.0 Inventory TO (days)
0.0
0.0
0.0
0.0
0.0 Payable TO (days)
0.0
0.0
0.0
0.0
0.0 Acct. Payables - Other TO (days) 142.2 131.6 157.8 214.8 296.2
Debt to Equity (%)
0.6 0.5 (0.8) (0.9) (1.0) Interest Coverage Ratio (x)
129.2 120.3 145.5 195.4 272.2 Net Gearing (%)
Source: ISAT, IndoPremier
Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167
INVESTMENT RATINGS
BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this