Credit Suisse - INDOSAT (ISAT): Disappointing 3Q09 despite a turnaround sign- reit Outperform rating

Prefer TLKM IJ in the short-term, given continued dominance of its 65%-owned subsidiary Telkomsel (55% of Revenue share), with ISAT IJ and EXCL IJ to me are tight in fighting for Revenue Share (17-18% and 15-16% respectively)! At Rp5,500/share, ISAT IJ is trading on 13.6x-11.5x 2009F-2010F PER and 5.2x-4.8x 2009F-2010F EV/EBITDA is strill trading at discount to TLKM IJ(vs TLKM IJ @Rp8,650- 14.7x-14.6x 2009F-2010F PER and 5.2x-4.9x 2009F-2010F EV/EBITDA)! I personally think it will be clearer if ISAT IJ could continue to show turnaround in 4Q09 results, while I think QTEL has a chance to achieve a turnaround given their investments/experiences in more than 10 countries already.

· Coin McCallum (Attached): PT Indosat Tbk (ISAT.JK, Rp5550.00, OUTPERFORM, TP Rp6450.00) published limited information on its 3Q09 operational performance last week - a subscriber figure, a consolidated revenue figure, an EBITDA figure, and a net profit figure . The consolidated revenue grew 1.5% QoQ, driven by a more than 5% QoQ increase in cellular revenue. IDD and MIDI revenues, however, declined, and no explanation has been given for this as yet, the strengthening Rupiah may have affected incoming IDD revenue. On the other hand, we note that this represents the first quarter that Indosat was able to report growth in cellular revenue in FY09, after two consecutive quarters of decline in 1Q and 2Q09.

· On the EBITDA level, Indosat.s EBITDA margin declined to 44.9% in 3Q09, from 48.7% in 2Q09 and 47.9% in 3Q08, resulting in a 6.3% QoQ and 12.5% YoY decline in EBITDA. We note that the new CFO commenced work at Indosat in September. Reported consolidated net income, which included the impact from non-operating items and forex gains/losses, declined by 50.1% QoQ but grew by 6.1% YoY in 3Q09, again, no explanation was given as to the drivers behind this.

· Relative to our FY09E projections, Indosat has therefore achieved only 64.9%, 62.6%, and 66.0% of our consolidated revenue, EBITDA, and reported net profit forecasts during 9M09. However, we believe that Indosat cellular revenue market share has probably already stopped declining in 3Q09 following the changes in management. We expect revenue growth to continue to accelerate into 4Q09. Indosat will publish the full details of its 9M09 unaudited results on 28th October 2009. We await the full explanation of the movement in MIDI and IDD revenues, EBITDA and net profit margins. Maintain OUTPERFORM rating.