JAKARTA (TheInsiderStories) - Moody’s Investors Service says that Indosat Tbk (IDX:ISAT) (Indosat Ooredoo) strong financial performance in 2016 was in line with expectations and continues to support its Ba1 corporate family rating and positive outlook.
The company’s revenues for 2016 grew 9% year on year (YoY) to Rp29.2 trillion, primarily driven by solid growth (47% YoY) in data revenues, leading to 10% growth in cellular revenues. The cellular business remains the key contributor to the company’s revenue base, contributing 83% of total
revenue in 2016.
“We expect revenue to grow at 7%-8% in 2017, supported by a continued increase in the contribution from data revenue with the increase in
subscribers utilizing its 3G and 4G services,” Annalisa Di Chiara, a Moody’s Vice President and Senior Credit Officer, said in a statement.
The company’s subscriber base grew by 22.8% YoY to 85.7 million in 2016. This increase was driven by marketing campaigns, which included generous mobile data allowances, and also targeted prospective subscribers outside the main Indonesian island of Java.
While these initiatives resulted in a slight contraction in ARPUs, adjusted EBITDA margin actually increased to around 51% in 2016 from 49%
in 2015 due to tighter cost controls around selling, general and administrative expenses in 2016.
“The company’s positive outlook reflects the company’s continued strengthening of its operational metrics and ongoing stability in its
financial profile including lower leverage levels,” adds DiChiara, also the lead analyst for Indosat Ooredoo.
Leverage — as measured by adjusted debt to EBITDA — declined to around 2.1x in 2016 from 2.6x in 2015 — reflecting both lower debt levels and
higher EBITDA. In addition, the company’s US dollar debt exposure declined to 12% from around 20% in 2015. Moody’s expect a further reduction to a mid-single digit percentage over the next 12-18 months as the company continues to refinance its US dollar revolvers with rupiah bonds.
Given the continued investments needed to enhance its 3G and 4G LTE networks, Moody’s also expects Indosat Ooredoo’s cash capex in 2017 to
remain in line with its capex for 2016 of Rp7.3 trillion, which was towards the higher-end of management’s capex guidance of about Rp6.5-7.5
trillion for the year.
Moody’s estimates the company’s cash sources comprising of cash balance of Rp1.9 trillion and projected operating cash flow of around
Rp9.5-10.0 trillion over the next 12 months, will not be sufficient to cover Rp7.0-7.5 trillion in capex, Rp550 billion in dividends, and
Rp8.0 trillion of scheduled debt maturities over the same period.
However, Moody’s considers refinancing risk over the next 12 months to be limited, given the company’s strong access to local bank and bond
markets, as exhibited by its issuance of around Rp10 trillion local currency bonds in the last two years. The positive outlook reflects our expectation that Indosat Ooredoo will continue to grow and de-lever and that the competitive and regulatory environments remain benign.
The rating could be upgraded over the next 6 months if the company maintains strength in its operating profile and competitive position such
that such that adjusted gross debt/EBITDA remains below 2.5x and retained cash flow / adjusted debt remains above 30%-35%.
The outlook could return to stable if there is a material deterioration in its underlying credit strength, arising from diminishing operating
margins, weaker operating cash flows, or rising foreign-exchange risk; all of which may be reflected in (1) adjusted debt/EBITDA rising above
2.5x, or (2) retained cash flow/adjusted debt falling below 30% on a sustained basis. In addition, the one-notch uplift — based on expected
support from parent company, Ooredoo Q.S.C. (A2 stable) — could be removed if its stake falls below 50%, or if it indicates that Indosat
Ooredoo is no longer a core asset. (*)