Indosat net profit down on Satelindo stake buy

Indosat net profit down on Satelindo stake buy

Edhi Pranasidhi, Dow Jones, Jakarta

PT Indonesia Satellite Corp., or Indosat, Wednesday said net
profit for the first nine months of the year fell 64 percent due
to depreciation costs and amortization of goodwill following a
stake purchase in a cellular phone company.

The country's second largest telecommunications company
reported a nine-month net profit of Rp 435.5 billion (US$48
million) compared with Rp 1.20 trillion a year earlier.

Indosat said the fall was mostly due to costs arising from the
depreciation of its assets and amortization of goodwill from its
acquisition of a 25 percent stake in cellular phone company PT
Satelit Palapa Indonesia, or Satelindo, from Deutsche Telekom AG
(DT).

Indosat now wholly owns Satelindo, the second largest cellular
phone services company in Indonesia.

Analysts said Indosat's net profit was lower than their
forecast range of Rp 550 and Rp 650 billion.

"The fall (in net profit) is quite surprising and
disappointing," said Zaki Maulani, an analyst with Samuel
Securities.

Indosat's shares were down 3 percent at Rp 7,750 soon after
the company reported its nine-month earnings, reflecting
investors' disappointment, Zaki said.

Indosat said revenue rose 22 percent to Rp 4.91 trillion from
Rp 4.02 trillion.

But the increase was offset by the cost of depreciation, which
rose 76 percent on year to Rp 1.26 trillion from Rp 717.8
billion. This caused Indosat's operating profit to fall 17
percent to Rp 1.33 trillion from Rp 1.61 trillion last year.

The company also booked losses from amortization of Rp 514.3
billion after acquiring Satelindo, compared with losses of
Rp 183.5 billion last year.

Indosat said its revenue from international call services, its
core business, fell 5.2 percent to Rp 1.62 trillion from Rp 1.71
trillion last year. It didn't offer an explanation for the drop.

It said revenue from cellular phone services rose 70 percent
to Rp 2.34 trillion from Rp 1.38 trillion, contributing around
48 percent to its total revenue.

Indosat expects that with the refocusing of its resources
toward its cellular phone business, contribution from this sector
will become the key driver for its growth in the future.

As of Sept. 30, Indosat's cellular phone subscribers through
Satelindo and Indosat Mobile Multimedia, or IM3, were at 2.78
million, up 85 percent from a year earlier.

Analysts expect Indosat to have around 3 million subscribers
this year.

Muhammad Reza, head of research at Kuo Capital Securities,
said its is high time for Indosat to further develop its cellular
phone business given the falling trend of international call
services growth.

He said the growth of international call services will
continue falling in the coming years due to the rapid development
of multimedia technology which will make people prefer using the
Internet rather than conventional international call services.

"This means that Indosat has to focus more on its cellular
business," he added.