CIMB Bakrie Telecom Result note - Weak profits, higher investment with Recapital

Bakrie Telecom Result note - Weak profits, higher investment with Recapital - by Kelvin Goh CFA (BTEL IJ / BTEL.JK, UNDERPERFORM - Maintained, Rp50 - Tgt. Rp41, Telecommunications)

Core net profit FY08, was 33% below CIMB, 45% below consensus, and 44% below its guidance. This is due to slightly weaker than expected revenue, high opex due to its network expansion and higher-than-expected net interest expense. We are slashing our below-consensus FY09-10 core net profit estimates by 57% and 51% respectively due to: 1) raising our opex assumptions, and 2) higher interest expense. BTel remains an UNDERPERFORM. We cut our target price from Rp75 to Rp41, both based on a 50% discount to our DCF valuation. The discount is to factor in the risks associated with BTel increasingly investing its cash with Recapital. Based on our recent conversation with BTel, we do not get the impression it plans to reduce its investment with Recapital, which we think will be a key concern by investors. Telkom Indonesia is our top Indonesian telco pick.