Deutsche Indo Telecom : Good 1H10 operating results, but mixed NP

Major Indonesian telecom operators have released their 1H10 results (see table below for details). They had good operating results. On qoq basis, revenue rose by 4.6% to Rp26.0tr with most of the growth coming from Telkom's 5.7% increase followed by Indosat's 4.1%. Meanwhile EBITDA rose to Rp14.4tr (+7.5% qoq) with Indosat growing at slowest pace of 6.8% qoq (vs Telkom's 7.7% and XL's 7.8%). However, at NP line, it is a mixed bag. While the industry delivered an 8.4% qoq increase in NP; Indosat saw a reduction of 96.7% qoq to Rp9bn in 2Q10. This is the worst results amongst its peers which may be due to inefficient asset turnover, high depreciation charges and interest costs. On the flip side, XL had highest NP growth qoq of 21.3% followed by Telkom's 16.2%.

On yoy basis, the industry reported a revenue of Rp50.8tr (+9.2% yoy), mostly driven by XL's 34.7% increase in revenue to Rp8.4tr. While Telkom and Indosat had similar revenue growth trends of 5.1% and 5.8%. Industry EBITDA of Rp27.8tr is up 10.6% yoy - a healthy growth considering the still intense competition in cellular space.

However, at NP level, the industry reported a decline of 1.8% yoy to Rp7.6tr. Mostly this is due to Indosat's -71.5% decline in NP to Rp287bn (from 1H09 of Rp1.0tr). On the back of this, we retain our BUY calls on Telkom and XL Axiata. While XL remains
most attractive in terms of growth and value, Telkom is our top pick as it has better stock trading liquidity.