● In an environment of rising price points in Indonesia, Bakrie
Telecom has also raised tariffs, with the standard price for on-net
calls in doubling from Rp1/second to Rp2/second. We therefore
expect a revenue bounce (circa 6.0% QoQ) into 4Q11.
● On the other hand, 9M11 revenue figures were very weak, and so
we have revised down our FY11 revenue and EBITDA forecasts
by 14.5% and 20.1%, respectively. The projected FY11 net loss
per share expands five-fold.
● Bakrie Telecom has three initiatives to grow revenues: (1) it will
launch full mobility CDMA cellular services in 2Q12, (2) its dongle
business is being expanded, and (3) it will launch Internet access
via set top boxes that connect directly to TV sets.
● We are positive on the prospects of a new revenue stream over
Bakrie Telecom’s under-utilised network, and our DCF-based
target price rises 17.8% from Rp185 to Rp218. However, we
would expect capex and opex (which are being crunched near
term) to rise if the product is successful. UNDERPERFORM.
A short-term revenue bounce looks likely…
We have forecast a recovery in overall Indonesian cellular revenue in
FY12, as cellular market leader Telkomsel (Not listed) has shifted from
tariff cuts (4Q10-1Q11) to tariff hikes (2Q11 onwards). Bakrie Telecom
has also raised tariffs, with the standard price point for on-net calls in
Jabotabek and Bandung from 8.00 am to 11.59 pm doubling from
Rp1/second to Rp2/second.
We expect this to result in a return to revenue growth in 4Q11, though
the magnitude of QoQ revenue growth (circa 6.0% QoQ) will be
dampened by the ban on unregistered premium SMS services.
…but the core business remains under threat
On the other hand, 9M11 revenue figures were very weak, and so
even assuming a 4Q11 recovery, we have revised down our FY11
revenue and EBITDA forecasts by 14.5% and 20.1%, respectively,
and the projected net loss per share expands five-fold.
New initiatives will help, but only to a certain extent
Bakrie Telecom expects to receive its fully operational cellular licence
in 2Q12. The service will rely on exactly the same CDMA network and
handsets but customers who opt for cellular will be issued a new
number, and will be able to roam without difficulty across the 82 cities
in which Bakrie Telecom has infrastructure. We suspect that this may
only appeal to customers outside of Jabotabek and Bandung and we
expect Bakrie Telecom’s mobile services to remain niche in size, and
to continue to grow more slowly than the ‘big 3’ cellular players.
Perhaps in acknowledgment of this, Bakrie Telecom continues to
launch new services to utilise its existing capacity. The broadband
wireless (dongle) business unit now has over 250,000 customers
generating ARPU of circa Rp70,000 and Bakrie Telecom will in 2Q12
launch a new EVDO set top box with a keyboard that plugs into a TV
to give internet access (without a computer). The boxes will cost
prospective customers US$100 upfront (there will be no subsidy) and
the service charge will be Rp125,000 per month. We believe that this
could attract customers in Indonesia given very low broadband
penetration. However, even under the assumption that 200,000 set
top box subscribers are added in FY12 this might generate Rp112 bn
in revenue (3.4% of total gross revenues). It is only in the longer term
that this new business might move the overall revenue trajectory more
materially, but growth of this operation into large scale over time could
drive significantly higher capex and opex.
Balance sheet stretched, capex under downward pressure
The net debt to annualised EBITDA ratio reached 5.7x as at 3Q11,
and while we forecast this will decline to 4.1x as at 4Q11, in our view
this remains uncomfortably high.
Bakrie Telecom’s reaction has been to slash capex. While the
company looks on track to spend US$140 mn in FY11, higher than our
previous forecast of US$92 mn, FY12 capex budget looks set to be
cut to only US$30 mn (versus our previous forecast of US$85 mn).
Management’s view is that there is enough empty capacity on the
network to facilitate ongoing wireless broadband (dongle) growth,
together with the new TV internet access business, without any pickup
in either capex or opex (a ‘viral’ marketing campaign is planned).
However, as mentioned above, this sounds ambitious. Successful
take-up would, in our view, likely lead to higher capex resuming.
Earnings revised down, but DCF-based target price raised
We have also revised down our FY12 revenue and EBITDA forecasts
by 6.4% and 11.1%, respectively, and the projected net loss per share
doubles to Rp17.
On the other hand, the new business launches look to be positive, at
least initially, by driving additional revenues over an under-utilised
network. Our DCF-based target price rises 17.8% from Rp185 to
Rp218, but this still represents 19.3% downside from current levels.
Download file : BTEL, New business units will help revenue grow, Credit Suisse
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