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Indosat (ISAT IJ) (Buy) - Soft 4Q24 results, as expected

Indosat (ISAT IJ) (Buy) - Soft 4Q24 results, as expected

Telco EW 389 12th Feb, 2025

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Soft 4Q24 results, as expected

We adjust our earnings estimates post 4Q24 results; maintain Buy with higher TP of IDR3,600

ISAT released expected 4Q24 results, with headline profit of IDR1.0tn (-10% q-q). The declining profitability q-q was due to: 1) weaker purchasing power; 2) a still intense competitive landscape; 3) a declining subscriber base q-q to 94.7mn (see Fig. 5); and 4) possibly the increasing presence of illegal ISPs that compete with cellular companies’ data services. Still, we reaffirm Buy on ISAT. We raise FY25F/26F earnings by +33%/ +40% on the back of the lower cost of SIM cards (-24%/-26%) and concession and license fees (-16%/-21%), and introduce forecasts for FY27F. At the operating level, we project revenue and EBITDA to be ~2% and ~4-5% higher than our previous projections. Further out, ISAT aims to divest its fiber infrastructure, which we value at an EV of ~USD500-1,500mn. It is still early, but we think the company would prefer cash and stake payments. If successful, this could be a key near-term share price catalyst for ISAT.

4Q24 results summary: Subscriber base back to 94.8mn (same level as 1Q22)

4Q revenue was IDR14.1tn (+2% q-q, +2% y-y) bringing FY24 revenue to IDR55.9tn (+9% y-y). Mobile drove growth, with 4Q24 revenue at IDR11.8tn (+1% q-q, +2% y-y), implying FY24 revenue at IDR47.0tn (+8% y-y). ISAT’s subscriber base declined to 94.7mn users (-4% q-q / y-y), while ARPU rose to IDR38,000 (+4% q-q; +1% y-y), reflecting more rational behavior (i.e., reducing sales of starter packages [SPs]). Unfortunately, competition remains intense particularly from XL Axiata (EXCL IJ, Buy) which sold cheaper SPs. Excluding these, we think ISAT’s ARPU uplift could have been higher in 4Q24. 4Q24 EBITDA was IDR6.4tn (-3% q-q, -2% y-y), bringing FY24 EBITDA to IDR26.4tn (+10% y-y). Implied EBITDA margin reached 47.2% in FY24 (up a mere 50bp y-y). For mobile, given the soft top line, EBITDA for cellular units was IDR5.6tn (-1% q-q / -3% y-y). This brings cellular-only FY24 EBITDA of IDR26.4tn (+10% y-y). 4Q24 profit was IDR1.1tn (-10% q-q / -40% y-y), translating into FY24 profit of IDR4.9tn (+9% y-y).

Valuation and risks 

We derive our DCF-based TP of IDR3,600 (up from IDR3,450) using the following key parameters: a risk-free rate 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 FY25F EV/EBITDA (vs 4.0x at the current price). 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 DecFY24FY25FFY26FFY27F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)55,88757,53358,56958,48859,505060,603
Reported net profit (bn)4,9114,0455,3714,4916,29706,870
Normalised net profit (bn)4,9114,0455,3714,4916,29706,870
FD normalised EPS152.27125.43166.53139.25195.26213.01
FD norm. EPS growth (%)-72.84.89.411.017.39.1
FD normalised P/E (x)12.6–11.5–9.8–9.0
EV/EBITDA (x)4.6–4.0–3.8–3.6
Price/book (x)1.8–1.7–1.6–1.5
Dividend yield (%)3.8–4.8–5.6–6.1
ROE (%)15.311.615.511.916.917.0
Net debt/equity (%)150.5104.3115.481.893.375.0
Source: Company data, Verdhana estimates

Key data on Indosat

Income statement (IDRbn)
Year-end 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Revenue
51,229
55,887
58,569
59,505
60,603
Cost of goods sold
-37,383
-40,292
-41,207
-41,166
-41,381
Gross profit
13,846
15,595
17,362
18,340
19,222
SG&A
-835
-889
-881
-895
-912
Employee share expense
-3,695
-3,890
-4,832
-4,909
-5,000
Operating profit
9,317
10,817
11,649
12,535
13,310
EBITDA
23,938
26,375
28,344
28,691
29,102
Depreciation
-14,621
-15,558
-16,695
-16,156
-15,792
Amortisation
0
0
0
0
0
EBIT
9,317
10,817
11,649
12,535
13,310
Net interest expense
-4,394
-4,115
-4,256
-3,867
-3,854
Associates & JCEs
0
0
0
0
0
Other income
-334
31
0
0
0
Earnings before tax
4,589
6,733
7,392
8,668
9,456
Income tax
-1,156
-1,460
-1,626
-1,907
-2,080
Net profit after tax
3,433
5,272
5,766
6,761
7,375
Minorities
-269
-362
-395
-464
-506
Other items
1,343
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
4,506
4,911
5,371
6,297
6,870
Extraordinary items
0
0
0
0
0
Reported NPAT
4,506
4,911
5,371
6,297
6,870
Dividends
-2,396
-2,336
-2,954
-3,463
-3,778
Transfer to reserves
2,111
2,575
2,417
2,834
3,091
Valuations and ratios
Reported P/E (x)
3.4
12.6
11.5
9.8
9.0
Normalised P/E (x)
3.4
12.6
11.5
9.8
9.0
FD normalised P/E (x)
3.4
12.6
11.5
9.8
9.0
Dividend yield (%)
15.5
3.8
4.8
5.6
6.1
Price/cashflow (x)
0.9
3.7
2.4
2.7
2.7
Price/book (x)
0.5
1.8
1.7
1.6
1.5
EV/EBITDA (x)
4.8
4.6
4.0
3.8
3.6
EV/EBIT (x)
12.3
11.2
9.7
8.7
7.9
Gross margin (%)
27.0
27.9
29.6
30.8
31.7
EBITDA margin (%)
46.7
47.2
48.4
48.2
48.0
EBIT margin (%)
18.2
19.4
19.9
21.1
22.0
Net margin (%)
8.8
8.8
9.2
10.6
11.3
Effective tax rate (%)
25.2
21.7
22.0
22.0
22.0
Dividend payout (%)
53.2
47.6
55.0
55.0
55.0
ROE (%)
15.3
15.3
15.5
16.9
17.0
ROA (pretax %)
8.7
9.9
10.7
11.8
12.7
Growth (%)
Revenue
9.6
9.1
4.8
1.6
1.8
EBITDA
23.0
10.2
7.5
1.2
1.4
Normalised EPS
-4.6
-72.8
9.4
17.3
9.1
Normalised FDEPS
-4.6
-72.8
9.4
17.3
9.1
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
EBITDA
23,938
26,375
28,344
28,691
29,102
Change in working capital
-944
-4,180
3,446
-129
-151
Other operating cashflow
-5,549
-5,575
-5,883
-5,774
-5,935
CF from operations
17,444
16,620
25,907
22,788
23,016
Capital expenditure
-12,783
-9,938
-14,000
-14,000
-14,500
Free cashflow
4,661
6,682
11,907
8,788
8,516
Reduction in investments
0
0
0
0
0
Net acquisitions
0
0
0
0
0
Dec in other LT assets
0
0
0
0
0
Inc in other LT liabilities
0
0
0
0
0
Adjustments
-1,520
-6,128
-8,476
0
1,000
CF after investing acts
3,141
554
3,431
8,788
9,516
Cash dividends
-2,396
-2,336
-2,954
-3,463
-3,778
Equity issue
0
0
0
0
0
Debt issue
0
0
0
0
0
Convertible debt issue
Others
-5,071
1,047
0
0
0
CF from financial acts
-7,467
-1,289
-2,954
-3,463
-3,778
Net cashflow
-4,326
-735
477
5,325
5,738
Beginning cash
9,516
5,190
4,454
4,931
10,256
Ending cash
5,190
4,454
4,931
10,256
15,994
Ending net debt
48,681
50,412
41,459
36,134
31,396
Balance sheet (IDRbn)
As at 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Cash & equivalents
5,190
4,454
4,931
10,256
15,994
Marketable securities
0
0
0
0
0
Accounts receivable
3,144
3,282
2,974
3,022
3,078
Inventories
0
0
0
0
0
Other current assets
7,146
7,142
7,418
7,514
7,627
Total current assets
15,480
14,878
15,323
20,792
26,699
LT investments
0
0
0
0
0
Fixed assets
72,861
74,143
71,448
69,292
68,000
Goodwill
20,504
20,117
20,117
20,117
20,117
Other intangible assets
0
0
0
0
0
Other LT assets
5,878
5,249
5,249
5,249
5,249
Total assets
114,722
114,387
112,137
115,450
120,065
Short-term debt
9,457
10,378
0
0
0
Accounts payable
746
912
956
971
989
Other current liabilities
23,932
19,719
23,089
23,089
23,089
Total current liabilities
34,134
31,009
24,045
24,060
24,078
Long-term debt
44,414
44,488
46,390
46,390
47,390
Convertible debt
0
0
0
0
0
Other LT liabilities
2,465
2,238
2,238
2,238
2,238
Total liabilities
81,013
77,735
72,673
72,688
73,706
Minority interest
2,963
3,153
3,549
4,012
4,518
Preferred stock
0
0
0
0
0
Common stock
18,875
18,880
18,880
18,880
18,880
Retained earnings
11,871
14,618
17,035
19,869
22,960
Proposed dividends
0
0
0
0
0
Other equity and reserves
0
0
0
0
0
Total shareholders' equity
30,746
33,498
35,915
38,749
41,840
Total equity & liabilities
114,722
114,387
112,137
115,450
120,065
Liquidity (x)
Current ratio
0.45
0.48
0.64
0.86
1.11
Interest cover
2.1
2.6
2.7
3.2
3.5
Leverage
Net debt/EBITDA (x)
2.03
1.91
1.46
1.26
1.08
Net debt/equity (%)
158.33
150.49
115.44
93.25
75.04
Per share
Reported EPS (IDR)
558.92
152.27
166.53
195.26
213.01
Norm EPS (IDR)
558.92
152.27
166.53
195.26
213.01
FD norm EPS (IDR)
558.92
152.27
166.53
195.26
213.01
BVPS (IDR)
3,813.35
1,038.68
1,113.62
1,201.49
1,297.34
DPS (IDR)
297.14
72.42
91.59
107.39
117.15
Activity (days)
Days receivable
19.7
21.0
19.5
18.4
18.4
Days inventory
0.0
0.0
0.0
0.0
Days payable
7.8
7.5
8.3
8.5
8.6
Cash cycle
11.9
13.5
11.2
9.9
9.7
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 IDR3,600 using DCF valuation. Key parameters: risk-free rate 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 FY25F 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 – quarterly results table

 ISAT IDRbn 4Q231Q242Q243Q244Q24q-q %y-y %YTD FY24YTD FY23y-y
 Revenue 13,76613,83514,14113,83614,0751.72.255,88751,2299.1
 Fixed 255207252211194(8.0)(23.9)8641,006(14.1)
 Mobile 11,57611,65711,94411,63411,8011.41.947,03643,7507.5
 - Voice + SMS 201223226251145(42.3)(27.9)8451,014(16.6)
 - VAS (data / VAS) 9,37010,89711,19013,44911,668(13.2)24.547,20341,07914.9
 MIDI 1,9351,9711,9451,9912,0794.47.57,9876,47323.4
 Opex 10,98511,05811,24711,12011,6454.76.045,07041,9127.5
 IC Costs 3503573983093337.7(4.6)1,3981,431(2.3)
 Personnel 968962998980950(3.1)(1.8)3,8903,6955.3
 G&A (incl leased circuit) 26522624219922211.2(16.3)8898356.5
 Marketing 63352745947253513.3(15.5)1,9931,67718.9
 Other telco costs 4,4324,4654,3664,5384,7775.37.818,14516,6678.9
 Depreciation 3,6903,7324,0093,8723,9451.96.915,55814,6216.4
 Maintenance 64779077674988318.036.43,1972,9877.0
 As % of revenues 79.8%79.9%79.5%80.4%82.7%  80.6%81.8% 
           
 Op. income 2,7812,7782,8942,7162,429(10.5)(12.6)10,8179,31716.1
 Margin 20.2%20.1%20.5%19.6%17.3%  19.4%18.2% 
           
 EBITDA 6,4716,5096,9036,5886,375(3.2)(1.5)26,37523,93810.2
 Margin 47.0%47.0%48.8%47.6%45.3%  47.2%46.7% 
 Net profit 1,7191,2951,4401,1431,033(9.7)(39.9)4,9114,5069.0
 Margin 12.5%9.4%10.2%8.3%7.3%  8.8%8.8% 
Source: Company data, Verdhana research

 

Fig. 2: ISAT – operational data

 ISAT - Operating data  4Q23  1Q24  2Q24  3Q24  4Q24  q-q %  y-y %  YTD FY24  YTD FY23  y-y 
 Total subs ('000) 98,800100,800100,90098,70094,700(4.1)(4.1)   
 Net adds ('000) (600)2,1000(2,200)(4,000)    5,440,000.0
 ytd ARPU IDR '000 37,80036,70037,50036,40038,0004.40.5  5,440.0
 Rev/BTS (IDR mn)         201.7        198.3        198.7        188.4        188.60.1(6.5)  529.2
 Employee to sales (%)             7.0            6.9            7.1            7.1            6.7(4.7)(4.0)   
 Ebitda/BTS (IDR bn)             0.1            0.1            0.1            0.1            0.1(4.5)(9.7)   
 MOU (min/subs)             6.9            6.1            5.4            5.4            5.3(1.9)(23.2)5.36.9(23.2)
 MOU (bn)             2.1            1.8            1.6            1.6            1.5(4.9)(25.0)6.68.7(23.9)
 RPM (IDR)           96.2          94.4          96.8          95.8          95.0(0.8)(1.2)   
 SMS (bn) QoQ             0.6            0.7            0.4            0.4            0.2(50.0)(66.7)1.73.4(50.0)
 Data vol QoQ (PB)         3,716        3,858        4,107        4,085        4,1190.810.816,16914,49911.5
 BTS      229,521     235,119     240,470     247,054     250,3171.39.1   
 4G / 5G BTS 179,160183,850188,321193,665196,4551.49.7   
Source: Company data, Verdhana research

 

Fig. 3: ISAT – quarterly breakdown

 ISAT QoQ basis  4Q23  1Q24  2Q24  3Q24  4Q24  q-q %  y-y %  YTD FY24  YTD FY23  y-y 
 Operating rev 13,76613,83514,14113,83614,0751.72.255,88751,2299.1
 - Cellular 11,57611,65711,94411,63411,8011.41.947,03643,7507.5
 - Fixed telco 255207252211194(8.0)(23.9)8641,006(14.1)
 - MIDI 1,9351,9711,9451,9912,0794.47.57,9876,47323.4
           
 Operating income 2,7812,7782,8942,7162,429(10.6)(12.6)10,8179,31716.1
 - Cellular 2,4232,2152,4202,2182,099(5.4)(13.4)8,9518,3307.5
 - Fixed telco 1532(13)18(31)(274.3)(298.9)639(84.9)
 - MIDI 343531486481361(24.9)5.31,86094896.2
           
 EBITDA 6,4716,5096,9036,5886,375(3.2)(1.5)26,37523,93810.2
 - Cellular 5,7355,5105,9915,6245,570(1.0)(2.9)22,69521,5335.4
 - Fixed telco 3351939(9)(122.1)(126.3)91111(18.0)
 - MIDI 703948904925813(12.1)15.63,5902,29556.4
Source: Company data, Verdhana research

 

Fig. 4: ISAT – quarterly margins

 QoQ margin %  4Q23  1Q24  2Q24  3Q24  4Q24    YTD FY24  YTD FY23 
 Op. Margin 20.220.120.519.617.3  19.418.2
 - Cellular 20.919.020.319.117.8  19.019.0
 - Fixed telco 6.015.2(5.0)8.3(15.8)  0.73.9
 - MIDI 17.727.025.024.117.4  23.314.6
          
 EBITDA margin           47.0          47.0          48.8          47.6          45.3  47.246.7
 - Cellular 49.547.350.248.347.2  48.349.2
 - Fixed telco 12.924.83.418.6(4.5)  10.511.0
 - MIDI 36.448.146.546.439.1  44.935.5
Source: Company data, Verdhana research

 

Fig. 5: ISAT – post-merger subs and ARPU

Source: Company data, Verdhana research

 

Fig. 6: ISAT – earnings forecast changes

Source: Company data, Verdhana estimates

 

Fig. 7: ISAT – operational estimates

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. 

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Rating Table

Rating
Remains
Buy
Target price
Increased from IDR 3,450
IDR 3,600
Closing price
10 February 2025
IDR 1,920
Implied upside+87.5%
Market Cap (USD mn)3,789.6
ADT (USD mn)2.1


Source: LSEG, Verdhana
M cap (USDmn)
3,789.6
Free float (%)
14.0
3-mth ADT (USDmn)
2.1
(%)
1M
3M
12M
Absolute (IDR)
-19.3
-11.9
-19.2
Absolute (USD)
-20.1
-15.6
-22.7
Rel to Jakarta Stock Exchange Composite Index
-14.4
-4.5
-12.3

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: TELECOMS, ISAT, ISAT JK, ISAT IJ, Erwin Wijaya
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