Indosat's shares prices remain undervalued

Indosat's shares prices remain undervalued

JAKARTA (JP): The shares of PT Indosat, the only Indonesian
company listed on the New York Stock Exchange (NYSE), remain
undervalued despite an increase in their prices over recent
weeks, says a noted stock analyst.

Andrew Harrington, a research director at the Hong Kong office
of Salomon Brothers, said yesterday that Indosat's shares should
be worth Rp 9,000 each on the Jakarta Stock Exchange (JSX), or
US$41 per American Depository Share (ADS) on the NYSE.

Indosat listed about 25 percent of its shares on the NYSE and
another 10 percent on the JSX and the Surabaya Stock Exchange
last October.

The price of Indosat shares, which dropped to a low of Rp
7,800 last month, has risen in recent weeks as a result of
reports of improvements in its financial performance. The
company's share price closed at Rp 8,150 on the JSX yesterday.

"Discounted cash flow methodology and comparative analysis
shows that Indosat is worth Rp 9,000 per share ($41 per ADS)," he
said.

Harrington, who was here on a business trip, said that Indosat
is set to benefit from a significant expansion in the volume of
international calls over the next five years, flowing from the
increased penetration of International Direct Dialing (IDD)
services in the country.

In addition, he said, the company's exposure to the developing
cellular industry and, potentially, to the development of the
domestic fixed-wire network, would also have a positive impact on
its future earnings.

"These factors indicate that Indosat represents a low-risk
investment, providing exposure to Indonesia's economic
development," he said, adding that he anticipated around 25
percent compound growth in Indosat's annual rupiah-denominated
earnings in the 1994-1999 period.

In Indosat's case, the bulk of international call volume seems
to derive from a relatively low number of subscribers. Only 12
percent of all access lines in Indonesia offer IDD. Of those,
only about 33 percent, or 100,000 subscribers, are active users.

This indicates that Indosat's user base is almost entirely
made up of relatively large business customers and that volume
growth is highly dependent on the level of business activity in
the country, Harrington said. (hen)