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)