by Credit Suisse
Sales commentary: ISAT is currently the most expensive telco operator in our coverage universe, which trades at 2011/12 PE of 26.1x/15.3x with -2% 3-year earnings CAGR – which is not exciting, in our view. We prefer TLKM amid its massive recent underperformance and trading cheaply at 11.4x/10.5x 2011/12 PE with 8% 3-year earnings CAGR. In addition, TLKM is three times more liquid than ISAT in the market.
ISAT 2Q11 net cellular top line grew 7.5% QoQ, vs Telkom’s (TLKM, O, PT Rp9,750) and XL Axiata’s (EXCL, O, PT Rp7,200) at 5.6% and 1.7% respectively. Analyst Colin McCallum views the turnaround in industry’s revenue growth was due to termination of cut throat price competition that plagued the industry between 4Q10-1Q11.
ISAT 2Q11 normalized EBITDA margin grew 2ppt to 50% driven by cost efficiencies and aggressive voluntary separation scheme (VSS). ISAT’s 2Q11 headline earnings before FX and VSS grew 68% QoQ and more than doubled YoY – mainly due to Rp130 bn FX gains vs Rp155 bn FX loss in 1H10.
Colin believes the rebound in industry revenue, on-going opex and capex control and new management execution have not been priced-in into ISAT share price.