Indosat Ooredoo(ISAT IJ)

Transcription

1 Equity Research Initiation Friday,07 September 2018 BUY Initiation Last price (IDR) 3,020 Target Price (IDR) 3,300 Upside/Downside +9.3% Previous Target Price (IDR) 3,300 Stock Statistics Sector Bloomberg Ticker Telco ISAT IJ No of Shrs (mn) 5,434 Mkt. Cap (IDRbn/USDmn) 16,410/1,102 Avg. daily T/O (IDRbn/USDmn) 3.7/0.2 Major shareholders (%) Ooredoo Asia Pte. Ltd Government 14.3 Estimated free float 20.7 EPS Consensus (IDR) 2018F 2019F 2020F Danareksa (66.2) Consensus (106.8) Danareksa/Cons (38.0) (12.2) 8.8 ISAT relative to JCI Index Source : Bloomberg x Niko Margaronis (62-21) Ext niko.margaronis@danareksa.co.id Indosat Ooredoo(ISAT IJ) Conservative as challenges may remain ISAT operating and financial performance was the worst hit among the 3 main operators in 1H18. Its very low valuation may price in all these negatives but due to the persistence of challenges ahead it will be too early to turn positive on the stock. Nonetheless, ISAT has shown good OPEX control, its service packages are very competitive and sticks to its guidance for network rollout with larger investment budget +33% yoy (albeit late and last). Initiate coverage with a HOLD call and a Target Price of Rp3,300. Operational and financial impact from a shift in the model. ISAT recorded the worst performance in 1H18 and lost significant revenues share vs. its two large competitors. Transition efforts to move towards the reload/top-up model post sim registration clearly impacted heavily on ISAT s topline revenues and the margins were hit too. The shift is a good step for ISAT and the industry trend moving away from starter packages but may time to develop and see rewards. Margins recovery is a big uncertainty in the short-term and depends on whether ISAT can stop revenue market share loss and continue cost control efforts. ISAT s regular data packages are still very competitive compared to XL and Telkomsel for similar quota offers and the company goes a lot further by giving unlimited Youtube, spotify, iflix, social media and instant messaging to regain market share. In parallel, ISAT instigates increases in data prices in line with current industry sentiment. These tactics should potentially halt the downtrend in operating and financial performance and stabilize market share. ISAT at last focuses on its network. In 1H18 Indosat lost more than 30mn subscribers during the sim reregistration process while ARPU still remains lower than peers, purely due to inferior network quality. We expect material changes in network rollout and 4G coverage based on an increased capex target (Rp8 tn in FY18 vs. Rp6 tn in FY17) to strengthen its network. ISAT so far underperforms its peers based on Opensignal network KPIs. The network performance should improve as the MHz2100 spectrum becomes fully operational and new capex rollout materializes. This should reverse ISAT s negative operating and financial trends and give us reason to update projections and valuation. Initiate coverage with a HOLD. ISAT stock price came off by almost 50% in the last year reflecting weak operating and financial performance. We do not think ISAT is on course for immediate recovery yet. We initiate coverage with a HOLD call and Target Price of Rp3,300 implying forward EV/EBITDA of x. Key Financials Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (IDRbn) 29,185 29,926 25,359 26,854 28,499 EBITDA (IDRbn) 12,864 12,763 9,662 10,872 11,643 EBITDA Growth (%) 12.1 (0.8) (24.3) Net profit (IDRbn) 1,105 1,136 (360) EPS (IDR) (66.2) EPS growth (%) (184.4) 2.8 (131.7) (120.2) BVPS (IDR) 2, , , , ,530.4 DPS (IDR) PER (x) n/m PBV (x) Dividend yield (%) EV/EBITDA (x) Source : ISAT, Danareksa Estimates See important disclosure at the back of this report 1

2 Exhibit 1. Revenues and Growth Exhibit 2. Net Profits and Growth Exhibit 3. Margins Exhibit 4. Gearing Level See important disclosure at the back of this report 2

3 Exhibit 5. Indosat Ooredoo quarterly financial results Rp bn FY16 FY17 1H18 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Operating revenue 29,185 29,926 11,066 6,813 7,129 7,582 7,660 7,290 7,823 7,453 7,360 5,692 5,373 Cellular 24,095 24,496 8,645 5,676 5,915 6,301 6,204 6,051 6,529 6,151 5,765 4,417 4,228 Multimedia, Data, Internet 4,130 4,517 2, ,043 1, ,060 1,085 1,375 1, Fixed telecommunications' Total operating expense (25,244) (25,894) (10,533) (5,965) (6,271) (6,433) (6,574) (6,458) (6,403) (6,431) (6,602) (5,767) (4,766) Cost of services (11,919) (12,645) (5,710) (2,751) (2,955) (3,076) (3,136) (3,102) (3,101) (3,068) (3,374) (2,858) (2,852) Depreciation & amortization (8,973) (8,853) (4,097) (2,218) (2,232) (2,269) (2,253) (2,225) (2,208) (2,218) (2,202) (2,078) (2,019) Personnel (2,115) (2,022) (1,162) (530) (520) (514) (550) (597) (565) (568) (292) (588) (574) Marketing (1,238) (1,283) (475) (317) (347) (303) (270) (262) (331) (348) (342) (179) (296) G&A (1,049) (1,214) (217) (253) (228) (263) (305) (229) (251) (238) (496) (126) (91) Other opex , (7) (59) (43) ,066 Operating Profit 3,941 4, ,149 1, ,420 1, (74) 607 EBITDA 12,864 12,763 3,503 2,961 3,080 3,425 3,398 3,100 3,574 3,232 2,856 1,942 1,560 EBITDA margin (%) Total other income (expenses) (2,145) (2,092) (1,104) (477) (508) (530) (631) (523) (515) (524) (531) (513) (591) Net interest income (2,145) (2,057) (1,019) (565) (519) (545) (516) (528) (513) (496) (519) (495) (524) Forex gain (loss) (114) (135) 36 6 (30) (10) (33) (81) Other income (expenses) (274) (39) 29 (223) (28) (44) 20 (31) (7) 2 (2) Pre-tax profit / (loss) 1,795 1,940 (571) (587) 16 Tax expense (520) (638) 135 (115) (104) (170) (130) (98) (247) (140) (153) Minority interest (171) (166) (258) (38) (35) (32) (65) (37) (48) (53) (28) (40) (218) Net profit / (loss) 1,105 1,136 (694) (506) (188) Net margin (%) (6.3) (8.9) (3.5) Cash Capex 6,377 6,237 2, ,057 1,147 3, , ,752 1,322 1,350 Capex/sales (intensity) (%) Source : ISAT Company & Danareksa Sekuritas Exhibit 6. Indosat Ooredoo quarterly operational results Key Operating Data FY16 FY17 1H18 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Customers - total (mn) Customers - postpaid (mn) Customers - prepaid (mn) Data metrics Data users (mn) (calculated) Smartphone users (mn) Data traffic (Petabytes) , Effective Data Tariff (Rp '000/gb Average data usage (in gb) Voice metrics MoU ARPM ARPU (blended) (Rp thousand) ARPU (prepaid) (Rp thousand) Network BTS (# '000) 2G G G Total BTS Source : ISAT Company & Danareksa Sekuritas See important disclosure at the back of this report 3

4 07/13 10/13 01/14 04/14 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 10/17 01/18 04/18 07/18 Exhibit 7. Forward EV/EBITDA Band Chart 6.5x 5.5x 4.5x 3.5x 2.5x ISAT forward EV/EBITDA band -2stdev -1stdev Average EV/EBITDA +1stdev +2stdev EV/EBITDA Source: Bloomberg, Danareksa Sekuritas estimates See important disclosure at the back of this report 4

5 Exhibit 8. Income Statement Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Revenue 29,185 29,926 25,359 26,854 28,499 COGS (22,666) (23,186) (22,163) (22,701) (23,316) Gross profit 6,519 6,740 3,196 4,153 5,183 EBITDA 12,864 12,763 9,662 10,872 11,643 Oper. profit 3,941 4,032 1,423 2,240 2,900 Interest income Interest expense (2,256) (2,121) (2,053) (2,040) (1,968) Forex Gain/(Loss) Income From Assoc. Co s Other Income (Expenses) (274) (39) Pre-tax profit 1,795 1,940 (295) 289 1,088 Income tax (520) (638) 97 (87) (326) Minority interest (171) (166) (162) (129) (104) Net profit 1,105 1,136 (360) Core Net Profit 831 1,133 (362) Exhibit 9. Balance Sheet Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Cash & cash equivalent 1,850 1,778 2,942 5,190 4,401 Receivables 2,750 3,989 3,490 3,615 3,853 Inventory Other Curr. Asset 3,378 3,625 3,309 3,349 3,555 Fixed assets - Net 39,078 35,892 35,276 34,268 33,148 Other non-curr.asset 3,687 5,290 4,618 4,456 4,676 Total asset 50,823 50,661 49,727 50,974 49,738 ST Debt 7,812 4,602 4,261 4,672 4,495 Payables 5,227 5,105 4,774 4,980 5,019 Other Curr. Liabilities 6,048 6,493 6,531 7,193 6,981 Long Term Debt 12,349 14,899 14,899 14,884 13,342 Other LT. Liabilities 5,226 4,746 5,226 5,006 4,938 Total Liabilities 36,662 35,846 35,691 36,736 34,775 Shareholder'sFunds 13,350 13,997 13,056 13,128 13,750 Minority interests ,110 1,213 Total Equity & Liabilities 50,839 50,661 49,727 50,974 49,738 See important disclosure at the back of this report 5

6 Exhibit 10. Cash Flow Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Net income 1,105 1,136 (360) Depreciation and Amort. 8,973 8,853 8,239 8,631 8,743 Change in Working Capital 64 (1,120) 56 (145) (193) OtherOper. Cash Flow 683 2,123 2,451 2,785 1,372 Operating Cash Flow 10,825 10,992 10,386 11,344 10,581 Capex (5,122) 7,553 (7,500) (7,500) (7,500) Others Inv. Cash Flow (1,035) (14,758) (186) Investing Cash Flow (6,156) (7,205) (6,889) (7,373) (7,686) Net change in debt (4,195) (1,039) (1,736) New Capital (192) Dividend payment 0 (560) (581) 0 (36) Other Fin. Cash Flow (2,005) (2,201) (2,164) (1,999) (2,013) Financing Cash Flow (6,392) (3,737) (2,333) (1,723) (3,683) Net Change in Cash (1,724) 50 1,164 2,248 (788) Cash - begin of the year 3,623 1,850 1,778 2,942 5,190 Cash - end of the year 1,850 1,778 2,942 5,190 4,401 Exhibit 11. Key Ratios Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Growth (%) Sales (15.3) EBITDA 12.1 (0.8) (24.3) Operating profit (64.7) Net profit (184.4) 2.8 (131.7) (120.2) Profitability (%) Gross margin EBITDA margin Operating margin Net margin (1.4) ROAA (0.7) ROAE (2.7) Leverage Net Gearing (x) Interest Coverage (x) Source : ISAT, Danareksa Estimates See important disclosure at the back of this report 6