ISAT - Unlocking continuous network improvements

KBVS Update
Thursday, 4 July 2024

ISAT - Unlocking continuous network improvements
(Reiterate BUY - TP: IDR12,000)

EBITDA margin steady at 47.0%. ISAT's 1Q24 performances largely met our/consensus expectations, arriving within a range of 24.4% to 26.9%. 1Q24 strong EBITDA performance (+22.1% yoy; stable margin) was driven by subscriber growth, which led to increased data usage despite a rise cost of services. Lower marketing and G&A expenses helped offset this increase. ARPU recorded at IDR37.5k/subs, on track to achieve the targeted ARPU of IDR40k/subs, which was also coupled with stabilized data yield.

Network upgrades & targeted subs acquisition drive ARPU, Aiming for 8-10% HBB market shares. Through network upgrades and subs acquisition strategies, ISAT aims to capture 8-10% share in HBB markets by 2026, from its current 3%. Its recent acquisition of 327.5k MNC Play subs boosts its Indosat HiFi subs base to 339.4k. Following Telkom's lead, ISAT is also targeting B2B customers by offering AI-powered cloud solutions, through partnerships with Nvidia and Google. This expands ISAT’s revenue stream by catering to businesses’ growing need for AI integration. Furthermore, ISAT is expanding its FTTH network, offering standalone or bundled home internet, TV cable, and mobile packages. To strengthen FTTH, ISAT partnered with Asianet's extensive fiber networks. This strategic action is expected to drive subs growth, increase FTTH revenue, and improve cost efficiency. We estimate ISAT's FY24 ARPU to reach IDR39.2k (up from FY22's IDR36.9k). Additionally, EBITDA margin is expected to rise to 47.9% (up from 46.7% in FY23).

Maintained FY24 revenue forecast. Following inline 1Q24 results that met our/consensus expectations, we maintained our FY24 revenue forecast at IDR54.45 tn, reflecting 6.3% yoy growth. Meanwhile EBITDA is projected at IDR26.07 tn, translating to an 8.9% YoY growth from IDR 23.94 trillion in FY23. On bottom line, our FY24F net profit estimates increase by 6.7% YoY to IDR4.81 tn with a stable net margin at 8.8%.

Reiterate BUY with TP of IDR12,000, based on 4.0x 2024F EV/EBITDA, which is at +0.2SD of 7yrs EV/EBITDA mean.

Regards,
Steven Gunawan - KBVS Research