Indosat (ISAT IJ/Upgrade) - From Telco to AI Infrastructure Play
We raise our TP for ISAT to IDR3,850 (from IDR2,700) and our recommendation to BUY, switching to a SOTP valuation across three businesses: the core telco on DCF at a 12.1% WACC, with Zankore and IFT on peer EV/EBITDA multiples, implying 6.1x FY27F EV/EBITDA. We think the growing contribution from below the line income could trigger a rerating as ISAT adds earnings beyond its core telco business, with Zankore and IFT contributing IDR1.2 2.5tr to net income over FY27 28F. We lift FY27F/28F net income by +16.8%/+33.0% to IDR7.4tr/IDR9.5tr, leaving revenue and EBITDA unchanged.
We raise our TP for ISAT to IDR3,850 (from IDR2,700) and our recommendation to BUY, switching to a SOTP valuation across three businesses: the core telco on DCF at a 12.1% WACC, with Zankore and IFT on peer EV/EBITDA multiples, implying 6.1x FY27F EV/EBITDA. We think the growing contribution from below-the-line income could trigger a rerating as ISAT adds earnings beyond its core telco business, with Zankore and IFT contributing IDR1.2-2.5tr to net income over FY27-28F. We lift FY27F/28F net income by +16.8%/+33.0% to IDR7.4tr/IDR9.5tr, leaving revenue and EBITDA unchanged.
ISAT has disclosed a USD200mn equity injection for a 37% stake in Zankore using internal cash, with NVIDIA and Nokia holding the remaining 14%, implying a USD540mn post-money valuation. That came in below our estimate, as part of ISAT's contribution was already committed at the pre-money valuation, and Zankore has secured a USD3.1bn senior long-term loan to fund the initial 100MW due in 1H27. Our assumptions are intact: the initial 100MW could generate USD126mn of earnings in year one and USD331mn in year two, giving ISAT c.USD47-122mn in FY27-28F at its 37% stake.
Following the sale of a 50.1% stake to Arsari Group, IFT has been deconsolidated, with ISAT retaining 49.9%. IFT holds 6,632km of subsea cable, 21,547km of FTTH and 58,009km of backbone and terrestrial fiber, generating IDR2.5tr of revenue and IDR1.6tr of EBITDA at just c.25% utilization, with ISAT as anchor tenant. IFT now plans a c.9,500km subsea cable to Eastern Indonesia across three phases at USD450mn capex (USD47.4k/km), with phase one starting 1Q27. A GPU rack factory also starts in 1Q27, producing 144 racks a month for Zankore on a fully committed five-year contract worth c.USD350mn of annual revenue and USD105mn of EBITDA.
The SOTP values the telco core at IDR82.4tr (4.8x FY27F EV/EBITDA), ISAT's 37% of Zankore at IDR45.4tr on 10.0x FY27F EV/EBITDA against USD1.0bn of FY27F EBITDA, and its 49.9% of IFT at IDR5.8tr on 8.0x against IDR1.6tr of EBITDA, with a 20% discount on the two non-core stakes, giving IDR123.4tr of equity value. We project IFT alone to add IDR485-594bn to ISAT's net earnings over FY27-29F. Key risks: execution risk, and slower than expected AI demand.
