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ISAT - 3Q19 Result Update

BETTER THAN EXPECTED

In 3Q19, it was seen that ISAT posted a resilient growth of 15% (yoy) to Rp6.6T, underpinned by stronger data revenue, albeit a drop in non-data business. Revenue reflects 70.6% of our FY19 estimate. EBITDA stood at Rp2.8T (+23.2% qoq, +70.8% yoy), which resulted in a turnaround for ISAT’s net profit of Rp47B, from previously -Rp39B.

 

STRONGER DATA TRAFFIC

In 3Q19, ISAT data traffic grew strongly by +14.7% (yoy) from 756 thousand TB to 867 thousand TB. Making it sounds impressive, year-to-date, ISAT had already booked 2.2 million TB of data traffic vs. 1.3 million TB (+71.7% yoy). As a result, 3Q19 data revenue gained +22.6% (yoy), as implied from the faster growth of revenue if compared with data traffic, suggesting that pricing war effect was subsiding from last year. Thus, ISAT succeeded in adding Rp2.8T of EBITDA (+23.2%, 70.8% yoy), pushing up its YTD EBITDA to Rp7.2T (+40.7%), and representing 67.5% of our FY19 estimate at Rp10.7T. This marks an improvement in EBITDA margin to 38.4%, YTD. Seen from its seasonality, 4Q data traffic is often the highest compared with the other quarters, solidifying our belief that ISAT could post better result in the next quarter.

 

TURNING POSITIVE!

Finance expenses, which have become an issue needs highlighting, rose +5.4% (qoq) to Rp696B, or Rp2T (+28.8% yoy), year-to-date. Indeed, despite stronger EBITDA, ISAT’s 3Q19 Net Debt to EBITDA stood at 2.7x or higher than 2.4x in 3Q18. However, this becomes less concerning, as a result of resilient top line that acted as a cushion. As a result, ISAT finally booked a positive net profit of Rp47B in 3Q19, or -Rp285B, YTD. Going forward, we still think that ISAT will post negative bottom line in the 4Q19, but indeed it could be much better than our initial estimate at -Rp311B.

 

BOOSTING TOP LINE

YTD capex realization hit Rp8.6T (+76.7% yoy), reiterating ISAT’s stance to indulge in high-capex cycle, as one of the efforts to close network gap. In fact, ISAT had added ~17,700 of 4G BTS in just a year. A sigh of relief was also seen on the growing customer base to 58.8 million, which marked the second consecutive positive subscriber additions, after major cut last year in the wake of prepaid SIM registration regulation. Going forward, despite thicker interest expenses, we think that ISAT will be able to spur its data traffic, resulting better bottom line result.

 

VALUATION

As we rollover our base year, we upgrade our HOLD to BUY recommendation with 12-month target price of Rp3,800/share (previous TP: Rp3,400/share). TP was derived from DCF and 3-year EV/EBITDA (-1SD at 3.6x) approaches. Key risk includes: weaker data traffic in the 4Q19.

Thu November 7Th, 2019

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