Profile of Indosat Ooredoo: Time to Post Profit again
Indosat Ooredoo, Indonesia's second-largest telecommunication networks and services providers, is expected to post net profit in 2016 after three straight years of net losses. Supported by its new 4G/LTE network - now available in 27 Indonesian cities (and 16 more cities are targeted to be added to this network in 2016) - the company's performance should improve. Moreover, lower US dollar-denominated debt will also contribute positively to Indosat Ooredoo's corporate earnings. At end-2015 the company had 69.7 million mobile phone subscribers.
Indosat Ooredoo's US dollar-denominated debt declined at the end of 2015. According to the latest report, the company's US dollar-denominated debt now accounts for 25 percent of Indosat's total debt. In the first quarter of 2015 this figure still stood at 55 percent. For Indonesian companies it is important to be cautious taking up US dollar-denominated debt amid a highly uncertain economic context as global shocks can lead to a severely depreciating rupiah rate. Indosat's Corporate Secretary Harsya Denny Suryo recently stated that the company plans to cut its US dollar debt ratio further to 20 percent in the foreseeable future. Reportedly, Indosat Ooredoo bought back (foreign-denominated) bonds worth USD $650 million.
In mid-2015 Indosat Ooredoo completed the modernization of its network. The company is now urging its customers to switch from the older 2G and 3G networks to 4G. The positive effects of this new network should be fully felt this year and therefore the company is estimated to post net profit in 2016 (see table below).
However, the profit margin of Indosat is expected to decline as it has to pay a new fee for the license to use the name "Ooredoo". According to the contract, it needs to pay between 0.3 - 1.0 percent of the revenue per year to its parent company in case Indosat posts net profit. Its parent company is the Qatar-based Ooredoo, a leading telecommunications services provider.
Trimegah Securities is optimistic about Indosat Ooredoo's earnings this year and therefore recommends investors to buy the company's shares (its target range is set at IDR 7,300 per piece). On Tuesday (05/04), Indosat's shares climbed 0.41 percent to IDR 6,075. So far this year, Indosat's shares have surged 10.45 percent. There are also still positive sentiments regarding Indonesia's overall telecommunications sector. Supported by expanding smartphone penetration demand for data services continues to rise in Southeast Asia's largest economy.
Two weeks ago, global credit rating agency Fitch Ratings announced it upgraded its long-term local-currency issuer default rating of Indosat Ooredoo to 'BBB+' from 'BBB'. Fitch also affirmed Indosat Ooredoo's long-term foreign-currency issuer default rating and its foreign-currency senior unsecured rating at 'BBB'. The upgrade came on the back of Indosat Ooredoo's improved standalone credit profile and its strong ties with its 65 percent-parent, Ooredoo (A+/Stable).
In early March 2016 it was announced that Indosat and US technology giant IBM formed a five-year partnership for the development of digital security and efficiency solutions for Indonesian businesses.
Future Projection Indosat's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Operating Revenues | 24,085 | 26,769 | 29,597 | 31,301 | 32,552 |
| Operating Profit |
1,603 | 2,528 | 4,011 | 4,574 | 5,212 |
| Net Income (loss) |
(2,008) | (1,310) | 1,726 | 1,868 | 2,673 |
| P/E Ratio (x) | -17 | -26 | 19.8 | 18.3 | 12.8 |
| P/BV (x) | 2,5 | 2,7 | 2,4 | 2,2 | 2,0 |
in billion IDR (rupiah), unless stated otherwise
Source: Ciptadana Securities