JP Morgan - Indosat: signs of recovery (Tim Storey)

* We have revised our Indosat model, resulting in a +2.3%/+2.2% revision to FY10E/FY11E EBITDA. The increase is largely driven by a +0.9% revision to revenues and +0.6 percentage point revision to EBITDA margin. FY10E/FY11E adjusted profit forecasts have thus been revised by +15.1%/+6.0%. Our wireless subscriber forecast has been kept unchanged while ARPU has been revised by +1.5% for FY10E/FY11E. In line with our higher sales forecast FY10/FY11 capex has been revised by +0.9%/+0.9%. Lower net debt at the end of December 2009 and upward revision to estimates resulted in a +7.9% increase in our December 2010 DCF value for Indosat at Rp6,267. We thus revise our December 2010 DCF based price target for Indosat by +6.9% to Rp6,200.

. Management comments, new initiatives. 1) Indosat would continue to implement its strategy of acquiring value customers and would focus to improve its ARPU mix by retaining a larger share of medium to high end customers. 2) Data would be key growth driver; MIDI revenues were up 16.2% q/q. 3) Indosat expects to achieve growth in the wireless segments of ex. Java regions while growth in Java would be primarily broadband driven.

. Price target, valuation, key risks: We have revised our DCF value estimate for Indosat by +7.9% to Rp6,267 while our price target has been revised by +6.9% to Rp6,200. At our price target Indosat would be trading at 2010E/11E adjusted PER and EV/EBITDA of 25.4x/14.3x and 5.8x/4.9x, providing a dividend yield of 2.0%/3.5%. Earlier than expected recovery in market share is key upside risk to PT. Increase in capex, irrational mobile competition and shortfall of demand for broadband services are the key downside risks to our target price.