Indosat Ooredoo Hutchison (ISAT IJ)

FY24 earnings missed; Growth story intact despite intensified competition and weak consumption

• IOH diversifies growth into non-cellular revenue, driving higher OPEX amid intensified mobile competition and weak consumption.
• IOH’s mobile strategy is intact, focused on rural expansion to boost ARPU with personalization and cross-selling, building competitive moat.
• We adjust our valuation, averaging the 3yr EV/EBITDA and DCF valuation, lowering TP to Rp3,200 while maintaining our BUY rating.

4Q24 weak earnings amid competition and more exposure to B2B segment

IOH posted 4Q24 net profit of Rp1.1tr (-3.4%qoq, -19.2%yoy), impacted by a compressed EBITDA margin of 45.3% (-230bps qoq), well below company guidance. Revenue growth remained soft at Rp14.1tr (+1.7%qoq, +2.2%yoy), with management attributing this to intensified competition at the starter pack level, where prices fell from Rp25k to Rp10k nationwide, and the weak consumer demand. In response, IOH maintained its base of productive subs at 94.7mn while shedding 4mn non-productive ones and improving ARPU to Rp38.8k (+4.6%qoq). Concurrently, IOH focused more on B2B and wholesale projects, driving up installation, partnership, and maintenance OPEX.

FY24 earnings miss as IOH shifts gear to grow the non-cellular biz

IOH posted FY24 net profit of Rp4.9tr (+38.1%yoy), meeting only 92.6%/94.6% of ours/cons est., hence, below expectations. FY24 revenue reached Rp55.9tr, in line with estimates, while EBITDA of Rp26.4tr was only broadly in line (97.3%/98.2% of ests). IOH expects to again outpace sector revenue growth in FY25, driven by mobile expansion in deep rural areas and higher ARPU through personalization, increased own app MAU, and later, cross-selling fixed BB and FWA. Additionally, IOH will start recording revenue from AI contracts worth US$30mn p.a. on H100 GPUs from 2Q25, while potentially acquiring GB200 Blackwell GPUs after securing more clients. With a stronger focus on non-cellular business, IOH expects FY25 EBITDA to grow by >10% yoy.

Mobile strategy intact with non-cellular gaining momentum, maintain Buy

Following FY24 earnings, we adjust the OPEX structure, largely aligning with IOH’s FY25 guidance, as its mobile strategy remains intact and its shift to non-cellular businesses gains traction. Accordingly, we revise our 2025-27F earnings by -5.8%/-6.6%/-1.2%. Additionally, we incorporate IOH’s newly implemented dividend policy, targeting a 70% payout ratio for FY26 earnings. We also adjust our valuation, now averaging our DCF method with IOH’s 3yr average EV/EBITDA 4.5x, thus arriving at a lower TP of Rp3,200. We maintain our Buy rating on ISAT’s attractive growth outlook. The key risk remains persistent competition, weak consumption and heavy spectrum costs.

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