4Q09 results above estimates but maintain Neutral: Indosat reported headline financials on 8th March 2010 with 4Q09 revenues 4.3% higher than our estimates but down 0.5% y/y. 4Q09 EBITDA was 11.6% ahead of our estimates but declined by 6.9% y/y. EBITDA margin at 48.6% was up 3.7 percentage points q/q. Depreciation
expense increased by Rp456 bn, from Rp1,345 bn in 3Q09 to Rp1,801 bn in 4Q09. This managed to more than offset the upside surprise on EBITDA and thus Indosat reported a recurring loss of Rp26 bn in 4Q09 as compared to our forecast of Rp191 recurring income.
• FY09 EBITDA declined by 5.6%: FY09 revenues at Rp18,393 bn declined by 1.4% y/y. EBITDA at Rp8,774 bn was down 5.6% y/y while EBITDA margin declined by 2.1 percentage points to 47.7%. Recurring income at Rp705 bn was 23.9% below our forecast at Rp926 bn. Total wireless subs at 33.1 mn were in line with our estimates.
Indosat added 4.4 mn wireless subs in 4Q09 but total subscribers were down 9.3% y/y due to cleanup exercise conducted in the first three quarters of 2009.
• Impact on the stock price: We expect to see some upward revisions to consensus forecasts as analysts might have been waiting for full financials which have now been published. The results were better than expected and management seems confident of further recovery in 2010. However, we are cautious on the share price in the near term due to full valuations and risks of a price war. Telkom remains our preferred pick in Indonesia. Our estimates are currently under review.
• Price target, valuation, key risks: Our December 2010 target price for Indosat at Rp5,800 is DCF based. We use a WACC of 13.6% and a terminal growth rate of 3.0% in our DCF assumptions. At our target price Indosat would be trading at 2010E/11E adjusted PER and EV/EBITDA of 27.3x/14.1x and 6.0x/5.0x, providing a dividend yield
of 1.8%/3.5%. Increase in capex, irrational mobile competition and shortfall of demand for broadband services are the key risks to our target price.
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