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Business

P.T. Indosat - Operating with Some Promise

By Scott B. MacDonald

Despite ongoing concerns about the political and economic situation in Indonesia, not everything is gloom and doom. Indeed, Indonesia’s long distance telephone company, P.T. Indosat (Indonesian Satellite) reported 2001 earnings that were better than expected.

Indosat (IIT ticker for New York Stock Exchange ADRs) connects Indonesia to the rest of the world and is majority-owned by the state. With a market capitalization of $1 billion, IIT is Indonesia's primary carrier of international telecommunications, including voice circuits, data, and leased lines. Close to 80% of the traffic is carried by undersea cable, with the rest handled by satellite. The company also is Indonesia's official link to the Inmarsat and INTELSAT satellite networks and offers such services as Internet access, satellite telephony, and satellite relay of TV programming. IIT owns interests in several undersea cables and stakes in a host of affiliates, including operations in Cambodia, Malaysia, Singapore, and the US. 

Results for 2001 reflects an 11% fall in net profit to IDR1,465m, which was due to a swing of IDR0.9t in one-off and non-cash items. The strength of the results was obvious from the 23% jump in operating profit. Q4 cellular growth was strong, with 0.4m users added. It appeared that pent up cellular demand in the market remains high, which could provide further upside in 2002. At the same time, international minutes registered fell 8% to 683m due to illegal competition. IIT is seeking to counter this development by launching a number of countermeasures.

IIT’s ADR has recently been on the rise, indicating that it is becoming attractive to international investors. It traded in the past at over $24 a share (1999) and as low as a little under $7 in March 2001. Recently the stock has climbed up into the $9-10 range. Considering the improvement in the company’s performance, the growing need for telecom and other related services in Indonesia, and the gradual shift towards political stability in the country, IIT stock should continue to rise back toward the $14-16 range over the next six months.