INDOSAT (ISAT)

Predicted Economic Growth : 5.2 %

Based on The World Bank, economic growth of indonesia is predicted rise 5.2 % in 2015. Mean while the third quarter of economic growth in 2014 is 5.1 %. Slow down of economic growth in the last two years is happening due to recovery of US economic, as the Fed rises its benchmark rate which has pulled the investment to the country.

United state is the biggest partner of indonesia in international trade. Indonesia imports various goods from US for production and consumption. The currency exchange rate is very important to indonesia.  

Based on data of statistic bureau the current account is still deficit because many company in indonesia needs raw material from over sea. They should conduct importing goods for production. Based on particular research center the current account deficit is predicted at range of 2.4 %  

If the price hike the demand will decline, and the people will decrease their consumption. The domestic consumption as the biggest part of GDP will decline and the total GDP will decrease.  

The Fed ends its quantitative easing; Russia raised its interest rate at 17 %

The Fed has finished its monetary policy, quantitative easing, which is likely a liquidity trap to the market. They sold Treasury bond with almost zero interest rate to generate their economy. Once situation start to recover, Aggregate demand move to its potential GDP, they advance the interest rate.  It is strengthening the US dollar to almost all global currency.

The Inflation rate of indonesia will rise at range of 6.5% - 7.5 % as the rupiah is weaken to US dollar and The government allocated its fuel subsidy to productive posts. The price is encouraged to shift price of goods as the transportation cost, energy cost and wages cost are increase.

While Russia increase its rate in order to rise its currency to US dollar. Russia suffered high inflation rate after US have given sanction of economic related to war in Ukraine.

Telecommunication Industry: Tariff war, merger and Technology competition

Indonesia is 4^th biggest country with almost 250 million citizens; the country is a potential market for telecommunication industry. 50 % of citizen in indonesia is under 30 years old and they are at productive age which has strong consumption in cellular service and data service.

The market is still potential; the industry grew more than 1.5 times between 2007 -2012. For data service, indonesia has relatively low internet penetration compared to other country. In 2013 indonesia only has 22 % internet penetration.  Malaysia has internet penetration 61 % and Vietnam has 34 %.

In indonesia there are commonly two kind of telecommunication operator, the CDMA and the GSM operator. The esia and smartfren, as the CDMA operators seem at its down turn as the technology of CDMA is not as fastest as the technology improvement of GSM cellular. In 2010, smart telecom did the same thing, they did merger with mobile-8 and they establish new company, Smart Fren. The two companies plan to do merger to strengthen their market share and positioning. Both of the companies impose loss of their profit. They loss its competition with GSM technology as the 3G GSM offers cheaper tariff in its service.

XL axiata, a Malaysian investment company has done acquisition of Axis Telekom Indonesia. The XL axiata gets wider spectrum of frequency, the company expand its spectrum in to bandwith of 1800 Mhz.

Indonesia is still acknowledged as potential market for Telecommunication industry, mostly cellular. Strong growth of Smartphone sales is also good signal for this industry.

The average cellular revenue per BTS of Top 3 operator in first quarter 2013 was at IDR 185 million, it is higher than first quarter of 2014. The decline is caused by higher inflation rate which force consumer to reduce their spending and price war between the operators, cheaper price is preferred.

 ISAT

Low operating profit Margin, high cash to sales ratio

Despite in 2013 revenue increase slightly at 6.4 % compared to the last year. The company still loss IDR -2,666 trillion rupiah. Loss in foreign exchange rate is amounting about IDR 3 trillion in 2013. In 2012 the company could get profit after they had sold particular asset and it was a gain amounting to IDR 1,2 trillion. In 2012 the company sold thousands of its telecommunication towers to Tower Bersama.  

The low operating profit margin causes the company hard to get positive profit margin. The biggest part of revenue contribution is in cellular segment. In 2013 it was 83 % of total sales.

Despite the net income of 2013 was negative, the EBITDA is at IDR 7,8 trillion, the high depreciation and amortization cost reduce the net profit margin of the company. The ratio of cash to sales is also high; in 2013 it was 9.4 %.

In the future the company will take position as the leader in data and smart device in its market and they also plan to reduce cost of operation. As the industry of telecommunication is still growing, The Company should be able to increase revenue. Based on merill lynch the industry grew from 6.5 in 2007 in to 10.5 in 2012, it was growing about 1.5 times. The smart phone sales in indonesia also increase sharply in 2013, based on gfk it advanced from 14,302 units in to 20,981 units. The average revenue per user in 2013 decreased compared to ARPU at 2012. The decline is happening because of hard competition with competitor, especially in its price and the usage of free internet service in several store or café. Consumer allocated their money for buying a cup of coffee for getting free internet service.

The company could expand their business in restaurant and café to capture this segment. For example, the company sells their coffee only with its e-money product as its payment.

  

Forecast

The assumption is taken with 7-10 % growth of the next 3 years. The assumption might not suit with the company’s business plan, but the assumption could be one of medium scenario. The consumption in cellular segment will drop as the inflation rate increase. The consumer may reduce their spending include buying pulse.

The growth of about 7-10 % is contributed with huge capital expenditure, 45-50 % of total revenue. The assumption used the same ration of 2013 such as activity ratio, profitability ratio and etc.