Indosat Ooredoo Hutchison (ISAT IJ)

Expecting Inflection in 2H25 as Price Repair Initiatives Progress

• We cut our FY25-27F net profit est. by 6.4-1.3%, reflecting weak mobile revenue in 1H25, but see brighter outlook in 2H25 from price repair.
• ISAT raised entry-level prices by 10% and continued phasing out freebies in Jun25, supporting ARPU recovery beyond starter pack effects.
• We maintain TP at Rp2,600, blending DCF and raised EV/EBITDA to mean, reflecting room for re-rating on 2H25 yield recovery.

Price repair and AI to drive better monetization in 2H25

ISAT has initiated starter pack price adjustment (to 35k for 3GB), followed by a 10% price increase on entry-level plans and continued phasing out freebies and discounts in Jun25. We expect these efforts to pave way for ARPU recovery by +0.8% yoy in FY25. In the enterprise segment, ~15% of the targeted US$35mn in AI revenue has been booked in 1H25, with the remainder expected to materialize in 2H25, supporting a ramp-up toward US$65mn annually by FY26-27. In FTTH, ISAT aims to reach 400k subscribers by end of FY25. Management lowered FY25 EBITDA growth guidance to low single digits to reflect weakness in B2C business.

Cost efficiencies sustained; Capex execution begins to yield results

Despite soft mobile performance, ISAT managed to sustain profitability, with EBITDA margin improving to 47.6% in 2Q25 (+35bps qoq), supported by a -1% qoq reduction in cash costs. While the decline in personnel costs may be temporary (driven by lower bonus in 2Q25), we see structural efficiencies materializing in marketing, rent, and ongoing operational streamlining. We project EBITDA margin to gradually improve to 47.7-48.5% in FY25-27F. Capex guidance is maintained at Rp13tr for FY25, with 57% already spent by 1H25. The +85.3% qoq capex increase in 2Q25 reflects the accelerated network rollout (~13.6k BTS added vs. ~6k/quarter historical average), underlining its continued focus on network quality — aligns with its strong showing in the 1H25 OpenSignal results (refer to our report: Telco: 1H25 OpenSignal Results).

Forecast cut following lowered guidance; maintain TP at Rp2,600

We revised down our FY25-27F revenue forecast by 3.4-5.5%, factoring in a gradual yield recovery in 2H25, ~US$30mn in AI revenue recognition, and 400k FTTH subs target. We also lowered our FY25F EBITDA growth forecast to 3.4% yoy, down by -5.3% from previous estimate. We maintain our TP at Rp2,600 (implying 5.0x 25F EV/EBITDA), blending DCF and 5-yr EV/EBITDA mean, as we see room for re-rating on potential yield recovery in 2H25. The stock currently trades at 4.7x EV/ EBITDA, -0.5 SD to 5-year mean. Weak purchasing power and price competition remain key risks for the stock.

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