UBS Indosat 4Q08 Results

4 Q08 margin surprise

Q408 revenue in-line, EBITDA above UBSe
Indosat reported 4Q08 revenues of Rp5.0tn, in line with UBSe and EBITDA was Rp2.6tn vs. UBSe Rp2.4tn. EBITDA margin was 51.9%, higher than our 47.4% forecast. Mobile revenues grew 3.3% QoQ, an encouraging result after Excelcomindo posted an 11% QoQ revenue decline. Net income was Rp0.4bn vs. UBSe Rp0.3bn, due to lower depreciation and deferred tax credits. Full year revenue growth was 13.2% and EBTIDA margin was 50%, in line with management guidance of 13-15% and 48-52% respectively.

Strategy unchanged: focus on higher value subscribers
In 4Q08, Indosat’s MOU and minutes carried fell slightly while revenue/minute increased as management continued to tweak their promotions with the goal of limiting abusive behaviour from subscribers. Improving network quality and focusing on subscribers who generate revenue without congesting the network remains management’s focus.

2009 guidance likely to be released in March
Indosat will be co-ordinating its 2009 guidance release with shareholder Qatar Telecom (QTEL) and indicated guidance announcement will take place in March. Management did acknowledge though that 2009 will be challenging.

Valuation: Neutral, Rp5,100 PT We maintain our Neutral rating as we see a lack of catalysts due to expected decline in EBIT and earnings. We remain cautious on Indosat. Our DCF based price target assumes a WACC of 15.9% and terminal growth rate of 2%.