Subject: Fw: Indosat - Selling its towers?

 

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	13 Oct 2010 Indonesia
Indosat
Quick takes - Selling its towers? - by Kelvin Goh CFA
(ISAT IJ / ISAT.JK, TRADING BUY - Upgraded, Rp5,950 - Tgt. Rp6,600, Telecommunications)
We upgrade Indosat to Trading Buy from Underperform with a higher target price. The media recently reported that Indosat may be selling up to 14,000 towers for US$1.4bn in the coming months, with Telkom Indonesia and Tower Bersama the likely bidders. Indosat said it is evaluating its options. We view any such sale positively as it would help to unlock the value of these passive assets and help Indosat de-gear its balance sheet, possibly bringing down its net debt/EBITDA from 2.3x in 1H10 to 0.95x. The supply of these towers into the market would be a small negative for XL Axiata's tower-leasing operations. We upgrade Indosat to TRADING BUY with a higher target price of Rp6,600 (from Rp4,800, previously parity with DCF), now based on a 10% premium to our rolled-over DCF valuation (13% WACC) to factor in value-unlocking from tower sales. A likely re-rating catalyst is further news flow on tower sales. With our upgrade of Indosat, we upgrade our sector weighting to Overweight from Neutral.
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