AI Personalization And SIM Pricing Will Advance Telecom Performance

Key Takeaways

• AI-driven strategies and sustainable pricing aim to enhance ARPU and revenue by improving net margins and subscriber quality.
  
• Cost optimization and AI-enhanced marketing are expected to boost EBITDA growth and financial sustainability.
  
• Declining revenue and increased net debt pose financial challenges, with limited pricing power and unsustainable cost cuts impacting margins and growth prospects.

Catalysts

Provides digital telecommunication services in Indonesia.

• Indosat's implementation of AI for hyper-personalization and smart CapEx is expected to drive ARPU growth, potentially improving revenue and net margins.
  
• The introduction of a sustainable pricing strategy with increased SIM card prices may promote rational subscriber additions, impacting revenue positively.
  
• The launch of Indosat's AI TechCo business is projected to significantly contribute to revenue growth from Q3 2025, adding USD 35 million in net new revenue with high EBITDA margins around 55% to 60%.
  
• Cost optimization strategies and operational efficiencies, such as reduced OpEx and personnel costs, are expected to enhance net margins and support EBITDA growth.
  
• A more disciplined approach to marketing and cost management, supported by AI capabilities, aims to achieve sustainable financial growth, impacting EBITDA positively.

Indosat Ooredoo Hutchison Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Indosat Ooredoo Hutchison's revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 11.2% in 3 years time.
• Analysts expect earnings to reach IDR 7259.0 billion (and earnings per share of IDR 224.86) by about May 2028, up from IDR 4910.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting IDR8742.2 billion in earnings, and the most bearish expecting IDR5739.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the ID Wireless Telecom industry at 17.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.69%, as per the Simply Wall St company report.

Indosat Ooredoo Hutchison Future Earnings Per Share Growth

Risks

• Revenue showed a decline of 3.5% quarter-on-quarter due to seasonality and loss of two days in the quarter, indicating instability in revenue generation. This affects overall financial health by reducing revenue streams and could hinder future growth.
  
• Although ARPU increased by 0.8%, it is still considered under-indexed compared to the region. This suggests limited pricing power in the competitive market, posing a risk to revenue and net margins.
  
• The company experienced a one-time gain of IDR 250 billion that significantly boosted net profit. Such gains are not indicators of sustainable profitability and could lead to volatile earnings in subsequent quarters.
  
• Cost reductions, particularly in marketing and personnel, which drove an improvement in EBITDA margin, may be unsustainable over the long term. This impacts net margins, as potential future increases in these costs could reduce profitability.
  
• The net debt increased significantly from IDR 6.7 trillion to IDR 9.3 trillion year-on-year, primarily due to network rollout financing and timing of payments. This rise in debt impacts overall earnings due to increased interest obligations and financial leverage.

Valuation

• The analysts have a consensus price target of IDR2704.545 for Indosat Ooredoo Hutchison based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR3600.0, and the most bearish reporting a price target of just IDR1600.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR64894.4 billion, earnings will come to IDR7259.0 billion, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of IDR1750.0, the analyst price target of IDR2704.55 is 35.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.