Credit Suisse Indosat (ISAT IJ, BUY, TP IDR 5,900)

Pricing in low expectations
Indosat is scheduled to report its consolidated Q2 2010 results on August 19 and we expect a recovery in revenue growth as Indosat monetizes the strong growth in net subscriber additions acquired in Q1 (+36% QoQ) by cross-selling data and other services to its subscribers. Coupled with cost and capex discipline initiatives to improve operating efficiencies, we expect Indosat to yield margin improvement in the coming quarters. In addition, Indosat has begun to increase its presence in selected non-Java markets and this is also expected to contribute to top-line growth. The market in pricing in low expectations for the restructuring at Indosat and we expect increasing signs of a sustainable operational turnaround at the quarterly results as a key catalyst for the stock.


Upgrade to BUY
The share price of Indosat has corrected over 20% since we downgraded the stock in May. We are upgrading Indosat to a BUY recommendation due to the attractive valuations. We maintain our view on Indosat being a restructuring story and forecast EBITDA margin to reach 46.5% in FY 2010 before improving further to 48% in FY 2011. We maintain our HOLT-derived 12M target price of IDR 5,900, implying an undemanding one-year forward P/E of 13 and trading at a discount to its peers and the broad market.