Indosat Ooredo Hutchison: Mobile recovery, rising AI and a catalyst
- Mobile ARPU recovery underway with key pricing initiatives taken in 1H25; In addition, GPUaaS coupled with enterprise to supplement the growth.
- FY25F EBITDA forecast of IDR27tn implies 4% y/y growth, though fibre sale should boost share price by ~17%.
- FY26F more constructive with a IDR30tn EBITDA (+10% y/y) from ARPU uplift and enterprise expansion
- Maintain BUY with an unchanged TP of IDR2,900
The potential sale of ISAT’s fibre optics business should help improve its ROIC. Meda reports, although unconfirmed, indicate Indosat’s planned sale of its fibre business assigns the unit an enterprise value of ~IDR16.4tn (USD1bn), translating to 10x EV/EBITDA. This is significant because the group as a whole trades at only ~3.9x EV/EBITDA. The fibre unit itself accounts for only around 5–6% of FY24 group EBITDA of IDR26,375bn, but ~14% of ISAT’s Enterprise Value. On a standalone basis, the fibre business generates an implied ROIC of ~6-7% after factoring depreciation and a 20% tax rate, which is perhaps below its cost of capital. By divesting this lower-return business at an attractive price, Indosat not only crystallises value but also frees up significant capital that can be used to pay dividends, strengthen its balance sheet, and reinvest in higher-ROIC areas such as mobile, enterprise, and digital services. We estimate the sale of the Fibre assets to boost the share price by ~17% as the additional USD600mn (~IDR10tn) amounts to a per share value of IDR309, ~17% of the current share price of IDR1,865.
We expect spectrum-related CAPEX to incur in FY26F. Previously, we expected the 700MHz auction and the 2.6GHz bands’ spectrum auction to take place in 2025; however, we now expect the auctions to take place in 2026. We now expect ISAT to bear the full upfront cost of acquiring spectrum instead of our previous assumption that ISAT and EXCL will share the upcoming spectrum, since the 50MHz block in 2.6GHz frequency is required, and the 2x10MHz block in 700MHz will be required too. Hence, we assume that a 50MHz block in 2.6GHz frequency and a 2x10MHz block in 700MHz are allocated for ISAT. The spectrum pricing mechanism in Indonesia is such that the winning bidder must pay 2x the winning price as an upfront fee and 1x the winning price as an annual payment for the next 10 years. We take the reference price for 2.6GHz as IDR177bn per block, which was the clearing price in 2021 for the 2.3GHz spectrum awarded to Telkomsel and Smartfren. For the 700MHz band, the reference pricing is based on the 2.1GHz clearing price in 2022, where a 2x5MHz spectrum block received a bid of IDR605bn from Telkomsel. We estimate a potential capex of IDR2,420bn in FY26F as an upfront payment for the 700MHz band, and a capex of Rp1,770bn in FY26F as an upfront payment for the 2.6GHz band.
ISAT has spent USD150mn in capex, specifically for GPUaaS. As we understand, ISAT incurs capex on GPUaaS after receiving a confirmation from the end user. We estimate this capex is likely to generate a USD150mn EBITDA, assuming a cashflow breakeven within three years starting from 3Q25. Our assumption of three-year cashflow-breakeven is a conservative figure. We estimate that an annual cash EBITDA return of USD57mn represents 1%/3% of FY25F/26F forecasted EBITDA with only four months’ contribution to FY25F. FY26F is set to benefit most from a full-year EBITDA contribution. We see a high possibility of more GPUaaS capex being spent in FY26F once ISAT delivers on its existing GPUaaS demand. Investment in GPUaaS also paves the way for future businesses in terms of more IT projects from enterprises. The timing of GPUaaS investment returns aligns well with broader market expansion and supports our thesis of accelerating earnings momentum. GPUaaS is on track to generate USD35mn in revenue in FY25, potentially doubling in FY26 as client onboarding increases. We estimate ISAT’s MIDI segment revenue, excluding revenue contribution from GPUaaS, will grow by 5% over FY24-26F.
Integrating GPUaaS into ISAT’s fixed broadband offering for the MIDI segment supports strategic differentiation and ARPU expansion. By bundling advanced computing capabilities such as AI/ML processing, data analytics, and cloud rendering with connectivity, ISAT positions itself as a value-added digital partner rather than a pure-play broadband provider. This enhances service stickiness, monetises infrastructure investments, and aligns with the ongoing digital transformation of MIDI clients. The move is expected to drive higher-margin revenues while reinforcing ISAT’s positioning in the enterprise solutions space. Indosat's Home broadband subscriber base as of July 2024 was 339k. Telkomsel's IndiHome B2C ARPU in 4Q24 was IDR238k. Considering these factors, we estimate Indosat's Home broadband subscriber count at the end of 2024 as 340k and the Home broadband ARPU at IDR200k, resulting in an estimated IDR816bn in ISAT home broadband revenue in FY24, a ~10% of the total MIDI revenue in FY24, which is IDR7,987bn.
We expect ISAT to deliver a 7% EBITDA CAGR, outpacing the consensus’ 6%. We expect ISAT’s EBITDA to deliver 4%/10% EBITDA growth in FY25F/26F compared to consensus expectations of 3%/6% growth. ISAT has a unique position of being a GPU as a service (GPUaaS) provider in Indonesia in collaboration with Nvidia, which presents a high growth opportunity. Management has guided for an EBITDA growth of low-single-digits in FY25F, and our estimates are in line with management’s guidance, with GPUaaS and the enterprise business being project-based, and the timing of revenue recognition possibly playing a role.
FY25 guidance cut, but FY26F growth still on track. Considering the soft 1H25, management revised its FY25 EBITDA growth guidance from >10% to low-single-digits. Our FY25F EBITDA of IDR27tn implies a mere 4% y/y growth. FY26F remains more constructive as we expect an IDR30tn EBITDA (+10% y/y), driven by ARPU uplift and scale-up of enterprise services. Importantly, GPUaaS is on track to contribute USD35mn in FY25 revenue and double in FY26 as commercial ramp-up accelerates.
Valuation remains attractive on a mid-cycle recovery thesis. We maintain BUY with an unchanged TP of IDR2,900 (from IDR3,082), based on a 4.5x FY25F EV/EBITDA – still above the five-year average of 4.2x but below +1SD of 5.0x. We believe a full re-rating will require evidence of EBITDA momentum returning in 2H25 and stronger GPUaaS monetisation in FY26. While near-term estimates are reset, our long-term BUY stance is intact, anchored by digital enterprise monetisation and improving mobile pricing discipline.
FY Dec | 2Q2024 | 1Q2025 | 2Q2025 | % chg y/y | % chg q/q |
Revenue | 14,141 | 13,578 | 13,532 | (4.3) | (0.3) |
Cost of Goods Sold | (11,196) | (10,788) | (11,138) | (0.5) | 3.2 |
Gross Profit | 2,945 | 2,790 | 2,394 | (18.7) | (14.2) |
Other Oper. (Exp)/Inc | 0.0 | 0.0 | 0.0 | nm | nm |
Operating Profit | 2,945 | 2,790 | 2,394 | (18.7) | (14.2) |
Other Non Opg (Exp)/Inc | 58.6 | 12.3 | (14.4) | nm | (217.6) |
Associates & JV Inc | 0.0 | 0.0 | 0.0 | nm | nm |
Net Interest (Exp)/Inc | (1,051) | (1,043) | (1,133) | (7.7) | (8.6) |
Exceptional Gain/(Loss) | 0.0 | 0.0 | 0.0 | nm | nm |
Pre-tax Profit | 1,953 | 1,759 | 1,247 | (36.1) | (29.1) |
Tax | (420) | (347) | (224) | (46.6) | (35.4) |
Minority Interest | (93.2) | (101) | (76.8) | 17.6 | (24.1) |
Net Profit | 1,440 | 1,311 | 946 | (34.3) | (27.9) |
Net profit bef Except. | 1,440 | 1,311 | 946 | (34.3) | (27.9) |
EBITDA | 6,955 | 6,718 | 6,438 | (7.4) | (4.2) |
Margins (%) |
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Gross Margins | 20.8 | 20.5 | 17.7 |
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Opg Profit Margins | 20.8 | 20.5 | 17.7 |
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Net Profit Margins | 10.2 | 9.7 | 7.0 |
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