ISAT - Riding the recovery momentum

We maintain our sanguine view on ISAT for '22F/'23F as better pricing environment is expected to continue, while we believe that data yield downtrend seems to have receded. In addition, the company's efforts to integrate Indosat-Tri networks has come to fruition as over 20,000 sites out of total c.43,000 have been fully integrated with full spectrum potential, which is ahead estimate. Amid operational improvement and accelerated integration, we raise our '22F/'23F EBITDA and revenue forecasts by 5.0%/7.1% and 8.4%/7.9%, respectively. Maintain BUY, with a higher price target of IDR8,250, implying 3.6x 2023F EV/EBITDA, while it is trading at 2.7x or above -1SD 5-year historical mean. Financial performance recovery post-merger remains intact ISAT's 3Q22 revenue increased 3.0% qoq to IDR12.0 tn, bringing 9M22 to be at IDR34.53 tn, +49.8% or accounting 75.8%/75.0% of ours/consensus. The higher revenue mostly came from data in line improving pricing environment during 1H22 and fixed connectivity amid higher demand from corporate clients. Meanwhile, 9M22 EBITDA jumped 35.6% yoy to IDR14.1 tn, translating into 76.3%/73.6% of our/consensus estimates. In qoq basis, EBITDA grew 2.3% in 3Q22 to IDR4.91 tn despite higher expenses, especially cost of service and personnel. However, EBITDA margin contracted from 41.2% in 2Q22 to 40.9% in 3Q22. ISAT's 9M22 net gearing lowered to 1.8x largely pertaining to post-merger impact. Better pricing environment The company's 3Q22 operational performance was mostly boosted by improving data yields of +1.2% qoq, demonstrating data pricing downtrend has bottomed out since 4Q21. We highlight data yields rebound is in line with the industry. Amid improving pricing, ISAT also managed to add +2.5% qoq subscriber in 3Q22, which could indicate its price competitiveness and suspected subscribers shift from incumbent or downtrading amid high inflation and economic uncertainty. However, 3Q22 blended ARPU decreased 1.4% qoq to IDR34.5K, largely due to impact of strong seasonality in 2Q22 amid festive season. Tailwind from network integration With better-than-expected performance in 9M22, we uplift our ‘22F revenue and EBITDA forecasts by +8.4% and 5% as we expect price adjustment to continue in 4Q22. For 2023, we expect competition to improve further, thus providing potential data pricing upside. As part of integration efforts, ISAT has shut down c.8,000 sites and is targeting to reach 10,000 by-year end which could be translated into more cost savings especially in the form of tower leases and other operational costs. Reiterate BUY on acceleration of network initiatives In line with our uplift revision, we reiterate BUY call with upgraded price target of IDR8,250 (previously: IDR8,000), implying 3.6x 2023F EV/EBITDA or slightly below 5 year- historical mean. Our recommendation is based on 1) accelerated progress on network integration; 2) pricing improvement; and 3) better leverage metrics. Nevertheless, we note several downside risks, including 1) intense competition; 2) high capex and 3) interest rate.