· Colin McCallum: Mobile 8 reported a 6.4% QoQ and 19.9% YoY decline in telecom service revenue in 4Q09. Mobile 8’s subscriber base has proven vulnerable to competition from cellular players after the 2008 collapse in GSM price points, and also from the aggressive on-net promotions offered by TelkomFlexi (Not listed), the CDMA fixed-wireless competitor, over the last 12-15 months. After seeking protection from creditors in 2008 (having failed to meet interest and principal repayments), Mobile 8‘s capex and marketing programmes have been all but suspended, further contributing to the loss of momentum.
· Relative to our full year projections, Mobile 8’s FY09 revenue therefore came in a full 52.0% below our forecasts. We estimate that Mobile 8’s revenue market share has declined to only 0.4%, from a peak of 1.4% in 2Q08. This in our mind represents an example of de facto consolidation versus the prospect of 10 players with nationwide spectrum attempting nationwide rollout, and bodes well for relatively stable tariffs from the top three (GSM) players, who together comprise 90.1% of market revenue.
· Sales and marketing costs declined sharply QoQ and YoY, however, the lack of top line growth has meant that the revenue generated is still not enough to cover operations, maintenance and general/administrative costs. Thus Mobile 8 remained EBITDA negative in 4Q09. Forecasts and DCF-based target price of Rp2/share maintained, though risks to our current projections look to be to the downside. We note that our target price is below the minimum Jakarta Composite Index (JCI) quote price of Rp50/share, and so we acknowledge that in practice the listed shares may not actually be able to reach this level. However, we clearly expect that the shares will continue to languish at the index minimum tick-price.
We continue to Prefer the Top-3 Incumbents from this 10-players consolidation. 4Q09 Revenue market share showed ISAT (18.1% vs 17.0% 3Q09), EXCL (16.9% vs 16.2% 3Q09) and Telkomsel (55.2% vs 56.8%). Colin’s sector Top-Buy is ISAT (@Rp5,900- 21.1x-16.6x 2010F-2011F PER & implying 20% upside to DCF Rp7,100) due to Management turnaround, while Neutral on EXCL (@Rp3,425- 20.9x-15x 2010F-2011F PER & implying 12% upside to DCF Rp3,850) and also Neutral on TLKM (@Rp7,900- 12.4x-11.2x 2010F-2011F PER with 5.4% 2010F Dividend Yield & implying 16% upside to DCF Rp9,200) despite Value emerges.
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