DBS Indosat: Fully Valued; Rp5,600; TP Rp5,400; ISAT IJ

Issuing USD500m-USD800m to fund capex
According to the media, Indosat (ISAT) plans to issue USD500m-USD800m (Rp4.5tr-Rp7.2tr) in debt papers to finance its capex this year. Part of the proceeds would be used to refinance debt that are due this year, which amounts to Rp4.5tr. We are not surprised at the speculated amount because we expect ISAT to spend USD1.1b (Rp10tr) for capex this year. The company is highly geared at 1.3x net debt to equity, which we forecast to increase to 1.4x this year.

Separately, ISAT announced headline figures for its 1Q10 performance, which indicated marginally weaker net profit vs. preliminary numbers that were issued last month. Basically, its 1Q10 result came in below street consensus by >20%, and we expect the market to downgrade ISAT. Also, we noted that ISAT’s 1Q10 FWA (fixed wireless access) suffered 26% y-o-y crash in ARPU (to Rp19k), in addition to 2% y-o-y decline in subscriber base (to 689k users).
Until a full set of 1Q10 result is available, we are maintaining our FULLY VALUED call on ISAT with a DCF-based price target of Rp5,400. We expect the market to remain bearish on ISAT.