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Indosat Ooredoo (ISAT IJ. IDR2,170 BUY. TP: IDR3,500) - 16 September 2020
September 16, 2020 10:41

Indosat Ooredoo 

Creating sustainable network leverage; takeaways 

Indosat is/will remain firm on its strategy to build a strong network. In the meantime, the company is also enigmatic on the 3Q20 forecasts and on any impact the Unlimited plans from TSEL and XL may have. It predicts, however, the outcome from Unlimited offerings to be uncertain at best and will abstain from this practice. Indosat has rather neutral stance on govt-led subsidies.    

Indosat with more certainty maintains guidance. Contrary to other telcos, Indosat still offers FY20 guidance despite Covid19 headwinds. ISAT’s topline is said to be in line with the industry growth (ISAT’s 1H20 revenues reached Rp13.45tn (+9.4%yoy), while EBITDA margin guidance ranges in the high 30s for 2020F (1H20 stood at 40.4%). ISAT’s 2020F capex (excl. RoU and any possible outflow for spectrum frequency) is maintained at Rp8.5-9.5tn.    

Indosat resolute on abstaining from Unlimited offers. On Telkomsel’s Unlimited offerings, Indosat’s view is that these are defensive in nature and in response to an “Unlimited” battle between two peers. Indosat prefers not to engage; instead our price tracker shows that it has reduced a great deal the generous data offerings from the past. Indosat maintains a firm stance on avoiding Unlimited offerings that are believed not to be a sustainable strategy based on its own experience in 2017-19. It also needed circa 6 months to phase out Unlimited offerings. We also understand that network performance is a key Indosat pillar if not the most significant at this point. The data volume growth (almost on par with XL volume growth and achieving +60%yoy growth) may be data-yield dilutive, but certainly not network-dilutive (Opensignal source) and not ARPU-dilutive either. In fact Indosat’s network KPIs have improved more than the other operators. Indosat also believes that further improvements will justify better pricing and monetization.  

Indosat sees little impact from school subsidies. With regards to Social responsibility programs (CSR) and govt subsidies, Indosat has the same mindset. It suggests that the 3Q20 September govt led data offering to students will have similar content compared to March 1Q20’s CSR, i.e. access to education sites, conference apps, govt. sites etc. and it noted that it will not include YouTube. Indosat suggests that this new potential traffic can be controllable and will not affect bandwidth use and network utilization. In addition, telcos have engaged in a rush (some with more intensity, some less) to offer their own CSR minded packages ranging from 10GBs to 55GBs to tap deeper the students segment as we have seen so far, all at symbolic prices of 1Rp to 10Rp per pack to complement the govt. led subsidized data packs. However, Indosat does not believe that the govt. subsidy offered at an implied yield of Rp1,000/GB will have a significant impact on its financial numbers. This is why we think that Indosat will not intensively promote its own complementary pack of 30GB that we have also seen advertised recently. 

Maintain BUY. We remain positive on the mid and long term trajectory of the company, although there is uncertainty surrounding the results in 3Q/4Q20. Indosat is highly undervalued currently.   

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