Bangkok--17 Mar--Moody's
Moody's Investors Service expects that the Indonesian mobile telecom sector will continue to recover in 2010, as industry fundamentals remain strong, with potential for growth, according to a new report, "Indonesian Mobile Sector: Recovery after Turmoil."
The report focuses on the three largest cellular players rated by Moody's, PT Telkomunikasi Selular Tbk ("Telkomsel"), PT Indosat Tbk ("Indosat"), and PT XL Axiata Tbk ("XL").
"Revenue growth will accelerate, driven by deepening market penetration, ARPU stabilization, a continued increase in minutes of usage, and anticipated growth of mobile broadband applications," writes Sean Lynch, Moody's Associate Analyst and co-author of the report.
"Additionally, in our view, the sector's EBITDA margins will remain flat or experience marginal negative pressure, but should not rise -- given that the possibility of further cost cuts will be limited, as the market is already reasonably competitive," Lynch writes.
"Capex will drop from its 2008 peak, but the likelihood of further cuts will be limited due to increased capacity requirements, driven by the growth of mobile broadband applications," says Lynch.
"Although we have not already seen any large-scale consolidation in the sector, we believe that the strained financial positions of some of the smaller CDMA players, as well as concerns over the viability of their business profiles in the absence of meaningful scale, will drive consolidation. Nevertheless, consolidation is unlikely to change the dominant position of the top three players," writes Ivan Palacios, Moody's AVP/Analyst and co-author of the report.
"We expect that revenue growth and stable margins and capex will improve free cash flow in the sector -- a positive development for the top three players -- although the impact on their ratings may vary," says Palacios.
"We believe Telkomsel (Baa2, stable) remains the best positioned Indonesian mobile player. XL (Ba2, stable) saw its financial metrics deteriorate significantly up to Q3 2009, but has taken decisive steps to strengthen its liquidity and balance sheet and, as a result, a positive trend is developing on its rating. By contrast, Indosat (Ba1, negative) has yet to bring its credit metrics back to a level more consistent with its current rating," adds Palacios.