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Indosat ISAT IJ -Buy- More liquidity post stock split of 1-to-4 Erratum

Indosat ISAT IJ -Buy- More liquidity post stock split of 1-to-4 Erratum

Telco NS EW 528 16th Oct, 2024

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More liquidity post stock split of 1-to-4 (Erratum)

TP revised to IDR3,450, reflecting stock split

ISAT conducted a stock split in the ratio of 1-to-4 on 14 October 2024. Before the stock split, ISAT’s nominal stock value was IDR100 per share, with a total of 8,063mn shares. After the stock split, ISAT’s nominal stock value is at IDR25 per share, with a total of 32,251mn shares. We believe the stock split should be lucrative for ISAT, mainly for two reasons. The first is an increase in liquidity (higher number of shares being traded in the market), and the second is the lower market price following the stock split resulting in a more optimal price range (thereby encouraging retail participation in the stock). Hence, we remain positive on ISAT, with an updated target price of IDR3,450 to reflect the split.

As previously highlighted in our note, we see high potential for ISAT to gain market share (in terms of revenue) as compared with the other Indonesian telcos. Post its merger with H3I (unlisted), ISAT’s efficiency has continued to improve in terms of network expansion, particularly for 4G/5G. Indeed, we note that ISAT’s total number of 4G/5G BTS stations reached 188,321 as of 1H24 (+13% y-y/+2.4% q-q), elevating it as one of the market leaders in 4G/5G services. The net increase in 4G/5G BTS at ISAT, over the past year, has been 21,695 units. We expect ISAT to continue to gain revenue share, particularly in outside of Java regions where it benefits from: 1) TSEL’s (unlisted) premium services pricing (~30% premium over Java service prices, where ISAT can offer competitive pricing due to its lower service prices in ex-Java), and 2) cost efficiencies as well as price discrimination from having two brands (IM3 and 3). Thus, we maintain ISAT as our top pick in the Indonesia telecom sector.

Valuation and risks

We derive our TP of IDR3,450 using an unchanged DCF valuation. Key parameters: risk-free rate of 6.2%, equity risk premium of 7.4%, beta of 1.2x and a terminal growth rate of 2.5%. At our TP, the stock would trade at 7.0x FY24F EV/EBITDA (compared with the current price implied multiple of 5.0x). Key risks include adverse macroeconomic trends that could impact purchasing power, lower price increases or subscriber bases, higher opex due to slower post-merger network integration, and/or irrational competition leading to price cuts.

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)51,22955,27255,27257,53357,53358,48858,488
Reported net profit (bn)4,5063,8603,8604,0454,0454,4914,491
Normalised net profit (bn)4,5063,8603,8604,0454,0454,4914,491
FD normalised EPS558.92177.56119.69186.08125.43206.58139.25
FD norm. EPS growth (%)-4.6-14.3-78.64.84.811.011.0
FD normalised P/E (x)4.5–21.2–20.3–18.2
EV/EBITDA (x)5.7–5.3–4.8–4.6
Price/book (x)0.7–2.4–2.3–2.1
Dividend yield (%)8.8–1.4–1.5–1.6
ROE (%)15.312.012.011.611.611.911.9
Net debt/equity (%)158.3130.1130.1104.3104.381.881.8
Source: Company data, Verdhana estimates

Key data on Indosat

Income statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
46,752
51,229
55,272
57,533
58,488
Cost of goods sold
-36,250
-37,383
-39,625
-41,758
-41,543
Gross profit
10,503
13,846
15,646
15,774
16,945
SG&A
-955
-835
-850
-885
-900
Employee share expense
-3,782
-3,695
-4,560
-4,746
-4,825
Operating profit
5,766
9,317
10,236
10,143
11,220
EBITDA
19,469
23,938
25,938
27,075
27,566
Depreciation
-13,703
-14,621
-15,702
-16,932
-16,345
Amortisation
0
0
0
0
0
EBIT
5,766
9,317
10,236
10,143
11,220
Net interest expense
-4,227
-4,394
-4,492
-4,147
-4,118
Associates & JCEs
0
0
0
0
0
Other income
500
-334
-500
-500
-1,000
Earnings before tax
2,038
4,589
5,245
5,496
6,102
Income tax
-1,166
-1,156
-1,154
-1,209
-1,342
Net profit after tax
873
3,433
4,091
4,287
4,759
Minorities
-647
-269
-231
-242
-268
Other items
4,497
1,343
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
4,723
4,506
3,860
4,045
4,491
Extraordinary items
0
0
0
0
0
Reported NPAT
4,723
4,506
3,860
4,045
4,491
Dividends
-2,041
-1,803
-1,158
-1,214
-1,347
Transfer to reserves
2,683
2,704
2,702
2,832
3,144
Valuations and ratios
Reported P/E (x)
4.3
4.5
21.2
20.3
18.2
Normalised P/E (x)
4.3
4.5
21.2
20.3
18.2
FD normalised P/E (x)
4.3
4.5
21.2
20.3
18.2
Dividend yield (%)
10.0
8.8
1.4
1.5
1.6
Price/cashflow (x)
1.1
1.2
4.0
3.8
3.7
Price/book (x)
0.7
0.7
2.4
2.3
2.1
EV/EBITDA (x)
6.9
5.7
5.3
4.8
4.6
EV/EBIT (x)
23.2
14.5
13.3
12.9
11.2
Gross margin (%)
22.5
27.0
28.3
27.4
29.0
EBITDA margin (%)
41.6
46.7
46.9
47.1
47.1
EBIT margin (%)
12.3
18.2
18.5
17.6
19.2
Net margin (%)
10.1
8.8
7.0
7.0
7.7
Effective tax rate (%)
57.2
25.2
22.0
22.0
22.0
Dividend payout (%)
43.2
40.0
30.0
30.0
30.0
ROE (%)
25.2
15.3
12.0
11.6
11.9
ROA (pretax %)
7.0
8.7
9.4
9.6
10.8
Growth (%)
Revenue
48.9
9.6
7.9
4.1
1.7
EBITDA
40.2
23.0
8.4
4.4
1.8
Normalised EPS
1,013.2
-4.6
-78.6
4.8
11.0
Normalised FDEPS
1,013.2
-4.6
-78.6
4.8
11.0
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
19,469
23,938
25,938
27,075
27,566
Change in working capital
4,434
-944
27
-334
-141
Other operating cashflow
-5,393
-5,549
-5,645
-5,356
-5,461
CF from operations
18,510
17,444
20,320
21,384
21,963
Capital expenditure
-21,725
-12,783
-13,500
-14,000
-14,000
Free cashflow
-3,215
4,661
6,820
7,384
7,963
Reduction in investments
0
0
0
0
0
Net acquisitions
0
0
0
0
Dec in other LT assets
0
366
0
0
0
Inc in other LT liabilities
0
683
0
0
0
Adjustments
19,829
-2,094
2,000
1,501
0
CF after investing acts
16,614
3,616
8,820
8,885
7,963
Cash dividends
-2,041
-1,803
-1,158
-1,214
-1,347
Equity issue
16,430
0
0
0
0
Debt issue
1,500
0
0
0
0
Convertible debt issue
0
Others
-27,075
-6,139
-9,981
-2,001
-1,000
CF from financial acts
-11,186
-7,942
-11,139
-3,215
-2,347
Net cashflow
5,428
-4,326
-2,319
5,671
5,616
Beginning cash
4,087
9,516
5,190
2,870
8,541
Ending cash
9,516
5,190
2,870
8,541
14,157
Ending net debt
46,468
48,681
43,520
37,849
32,233
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
9,516
5,190
2,870
8,541
14,157
Marketable securities
0
0
0
0
0
Accounts receivable
2,374
3,144
2,807
2,922
2,970
Inventories
0
0
0
0
0
Other current assets
6,793
7,146
7,598
7,850
7,957
Total current assets
18,683
15,480
13,275
19,313
25,084
LT investments
0
0
0
0
0
Fixed assets
69,070
72,861
70,659
67,727
65,382
Goodwill
19,883
20,504
20,504
20,504
20,504
Other intangible assets
0
0
0
0
0
Other LT assets
6,244
5,878
5,878
5,878
5,878
Total assets
113,880
114,722
110,316
113,422
116,848
Short-term debt
11,375
9,457
0
0
0
Accounts payable
850
746
805
838
851
Other current liabilities
23,650
23,932
24,014
24,014
24,014
Total current liabilities
35,874
34,134
24,819
24,852
24,866
Long-term debt
44,609
44,414
46,390
46,390
46,390
Convertible debt
0
0
0
0
0
Other LT liabilities
1,782
2,465
2,465
2,465
2,465
Total liabilities
82,265
81,013
73,674
73,707
73,721
Minority interest
3,272
2,963
3,194
3,435
3,704
Preferred stock
0
0
0
0
0
Common stock
18,520
18,875
18,875
18,875
18,875
Retained earnings
9,823
11,871
14,573
17,405
20,549
Proposed dividends
0
0
0
0
0
Other equity and reserves
0
0
0
0
0
Total shareholders' equity
28,343
30,746
33,448
36,280
39,423
Total equity & liabilities
113,880
114,722
110,316
113,422
116,848
Liquidity (x)
Current ratio
0.52
0.45
0.53
0.78
1.01
Interest cover
1.4
2.1
2.3
2.4
2.7
Leverage
Net debt/EBITDA (x)
2.39
2.03
1.68
1.40
1.17
Net debt/equity (%)
163.95
158.33
130.11
104.33
81.76
Per share
Reported EPS (IDR)
585.82
558.92
119.69
125.43
139.25
Norm EPS (IDR)
585.82
558.92
119.69
125.43
139.25
FD norm EPS (IDR)
585.82
558.92
119.69
125.43
139.25
BVPS (IDR)
3,515.32
3,813.35
1,037.12
1,124.92
1,222.40
DPS (IDR)
253.09
223.57
35.91
37.63
41.78
Activity (days)
Days receivable
17.3
19.7
19.7
18.2
18.4
Days inventory
0.0
0.0
0.0
0.0
Days payable
11.2
7.8
7.2
7.2
7.4
Cash cycle
6.1
11.9
12.5
11.0
11.0
Source: Company data, Verdhana estimates
Company profileIndosat Ooredoo Hutchison is one of the largest full service telecom company in Indonesia. Its primary business is providing cellular services as well as multimedia services. The co is the result of merger between Inodsat Ooredoo and Hutchison 3 Indonesia; hence the name change to Indosat Ooredoo Hutchison
Valuation MethodologyWe derive our TP of IDR3,450 using the DCF valuation. Key parameters: risk-free rate rf of 6.2%, an equity risk premium of 7.4%, beta of 1.2x and a terminal growth rate of 2.5%. At our TP, the stock would trade at 7.0x FY24F EV/EBITDA. The benchmark index for this stock is JCI.
Risks that may impede the achievement of the target priceKey risks include adverse macroeconomic trends that could impact purchasing power, lower price increases or subscriber bases, higher opex due to slower post-merger network integration, and/or irrational competition leading to price cuts.
ESGAs a leading telecom company in Indonesia, Indosat Ooredoo Hutchison (Indosat) is committed to carry out social responsibility towards all of its stakeholders. Specifically, it will focus on areas such as digital education through one of its CSR programme. In addition, Indosat is also committed to woman empowerment with its various programme with the aim to promote gender equality. At the same time, the co is commited to promote green environment with its carbon reduction programme.

Fig. 1: ISAT — Changes in EPS forecasts post stock-split

Source: Company data, Verdhana estimates

 

Fig. 2: ISAT – DCF valuation

 ISAT DCF IDRbn 23A24F25F26F27F28F29F30F
 EBIT 9,31710,23610,14311,22011,94012,59313,19513,088
 Depreciation & amort 14,62115,70216,93216,34515,97615,68115,44515,256
 Provisions/Charges 00000000
 Disposals 00000000
 Chgs in wk cap (944)27(334)(141)(152)(154)(155)(157)
 Cash from Ops 22,99425,96526,74027,42427,76428,12128,48528,187
 Tax paid (on core business) (1,156)(1,154)(1,209)(1,342)(1,497)(1,637)(1,776)(1,758)
 Capex (12,783)(13,500)(14,000)(14,000)(14,500)(14,500)(14,500)(14,500)
 Free cash flow 9,05411,31111,53112,08211,76711,98312,20911,930
 t=              -               -                 1               2               3               4               5                 6
 Risk-free rf  6.2%      
 Equity risk premium k  7.4%      
 Beta x              1.2      
 CoD   9.0%      
 WACC  9.4%      
 g =   2.5%      
 Terminal multiple          14.58      
 Terminal value         
 FCF + terminal value         11,531      12,082      11,767      11,983      12,209      185,823
 Discounted of core businesses        10,544     10,102       8,997       8,378       7,805     108,628
         
 NPV of core businesses 154,453Sum of discounted of core businesses   
 Cash (43,520)      
 NPV 110,934      
 Number of shares mn 32,251      
 ISAT NAV per share (IDR)        3,440Rounded to IDR3,450    
Source: Company data, Verdhana estimates

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Increased from IDR 3,438
IDR 3,450
Closing price
15 October 2024
IDR 2,490
Implied upside+38.6%
Market Cap (USD mn)5,156.0
ADT (USD mn)3.3

Relative performance chart

 

Source: LSEG, Verdhana

M cap (USDmn)
5,156.0
Free float (%)
14.0
3-mth ADT (USDmn)
3.3
(%)
1M
3M
12M
Absolute (IDR)
-8.4
-12.8
-5.4
Absolute (USD)
-9.5
-9.5
-4.7
Rel to Jakarta Stock Exchange Composite Index
-6.0
-17.6
-15.5

Research Analysts

Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: Telecoms, ISAT JK, ISAT IJ, Nicholas Santoso, Erwin Wijaya
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