Indosat Ooredoo Hutchison (ISAT.IJ Rp 10,175; BUY; TP Rp 13,300) KTAs from meeting with CFO: setting foundations for more revenue diversification

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Indosat Ooredoo Hutchison (ISAT IJ)

KTAs from meeting with CFO: setting foundations for more revenue diversification

IOH aims to grow inline with its spectrum holdings and sees new merger to result in more efficiencies; Starlink will complement market.
IOH key priority is the investments in distribution while it aims to improve profitability at the micro level amid its expansion in ex-Java.
Maintain Buy rating with TP Rp13,300. IOH adds more growth layers with higher contribution from B2B investing in GPUs and 5G.

Competing in sustainable manner in amenable competition landscape.

ISAT aims to grow subs/revenue market share (currently at 10% in many areas in ex-Java) to correspond with their cost of frequency license fees which equates to 30% of the available spectrum. Management sees the possible EXCL-FREN merger to foster a more efficient market conduct, referencing to its own ARPU improvements to close to Rp38k, from Rp33k, and the 3x price improvements in FY23. IOH has seen a positive performance so far in 2Q24 with possible Rp40k ARPU still in the cards. Management sees Starlink’s satellite service as a market complementary to address service gaps in remote areas, to support backbone in the islands primarily in Indonesia’s eastern parts.

Aiming to achieve profitability at micro level amid its expansion mode.

IOH network is now 70-75% fiberized and it has added more core networks spread across country, hence improving network latency. Its capex plan is to roll out ~3,000 sites/year, (~50,000 total sites now), with objective to achieve profitability for each site. IOH’s key priority is to improve product awareness, hence a) its investments in distribution/resellers b) policy for transparent pricing (no gimmicks and product T&Cs and product simplification).

Laying foundations for growth and higher contribution from B2B/enterprises.

IOH promises to increase dividend but concurrently plans to achieve 30-40% topline contribution from B2B/ enterprise segment in next 3-4yrs through several initiatives. First, IOH has become NVIDIA’s eligible partner to source the latest version of GPU units, receiving big interest from clients (e.g., Pertamina and banks for AI products and IT security). Second, it holistically sees the upcoming spectrum auctions with the 700MHz to be useful for the propagation of 5G which will utilize the 3.5GHz and 2.5-2.6GHz spectrums due for auction too in FY25-26. IOH sees great potential from 5G use cases for enterprises.

Reiterate Buy rating and unchanged TP of Rp13,300.

We reiterate our view that ISAT has clear pathways to achieve superior growth in coming years (our FY24-26F forecast of 16% CAGR). Revenue upside from business clients shall sustain the outlook. Key risk is price competition.

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