DBS Indosat: Fully Valued; Rp5,950; TP Rp4,000; ISAT IJ

FY09 disappoints consensus
At a Glance
• FY09 net profit fell 20% y-o-y to Rp1.5tr, within our estimate but 9% below consensus
• As expected, aggressive network rollout in FY08-09 led to higher depreciation and interest charges in FY09
• Our forecasts and FULLY VALUED call are under review pending a conference call
• Expect selling pressure because result was below market

Comment on Results
As expected, aggressive network rollout in FY08 (capex up 39%) resulted in 21% and 24% y-o-y jump in depreciation charge and net interest expense, respectively, in FY09. These led to a 20% slump in FY09 net profit to Rp1.5tr. But note that this is supported by Rp1.7tr lumpy FX gain, and we do not know if there were other lumpy items (e.g. depreciation jumped 34% q-o-q in 4Q09). 4Q09 net profit fell 88% y-o-y (down 89% q-o-q) to Rp48b, which is almost breakeven for the quarter. Positively, 4Q09 EBITDA margin improved to 48.6% from 44.9% in 3Q09 on the back of 11% revenue growth led by seasonal factors. Net gearing jumped to 124% in Dec09 vs. 89% in Dec08 as free cashflow remained in the red.

Recommendation
Pending a conference call next week, our forecasts and recommendation are under review. We assumed conservative FY10F revenue growth of 5% (vs. Excelcomindo’s 15% target) and 47% EBITDA margin (vs. ISAT’s 48% in FY09). Each 1ppt increase in EBITDA margin could lift FY10F net profit and price target by 10%, due to ISAT’s low net margin. Net gearing is expected to remain high at 120% in FY10F vs. 124% in FY09, as we only expect ISAT to achieve neutral free cashflow next year.