Telkom. FY17 analyst call - key notes. Exhibit 1 : Financial Highlights. Source : TLKM, Ciptadana Estimates

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1 BUY TP: Rp4,900 (+32.9%) Telkom FY17 analyst call - key notes Sector Bloomberg Ticker Share Price Performance Telco TLKM IJ Last price (Rp) 3,710 Avg. daily T/O (Rpbn/USDmn) 463.8/33.8 3m 6m 12m Absolute (%) Relative to JCI (%) w High/Low price (Rp) 4,840/3,630 6,000 5,000 4,000 3,000 2,000 1,000 0 Outstanding shrs (mn) 99 Mkt. Cap (Rpbn/USDmn) 368/27 Estimated free float (%) 45.0 Major shareholders Government of Indonesia 52.6% Public 47.5% EPS Consensus Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 TLKM Ciptadana Cons. % Diff 2018F F F Niko Margaronis ext. 734 margaronisniko@ciptadana.com 15% 10% 5% 0% -5% -10% -15% -20% -25% 1yr Rel. to JCI (RHS) Maintain mobile market share is Telkomsel (TSEL) key priority Data trends are promising with Indonesian monthly consumption of 2.4GB/sub up from 1.7GB/sub in FY16. TSEL itself experienced 126% traffic growth increasingly more passing through its 4G network (thus faster consumption) contributing 58% of its total data traffic. The newly acquired 2300MHz spectrum will provide network efficiencies for TSEL, while it can broaden services options to its subscribers. Cluster-based pricing around the country has been TSEL s success factor in voice service, and will continue for data too for TLKM to maintain premium pricing. Competition is cut-throat with management reference on TSEL 4Q data yield Rp14/MB vs. Rp10/MB for EXCL while FY17 is Rp20/MB for TSEL vs. Rp12/MB for EXCL. Reducing the differential is needed to defend market share with TSEL standing ready to explore lower price segments if needed to defend market share. TSEL expects better outlook in 2H18 after conclusion in registration process and more rational competition. During Lebaran period ARPUs usually trend higher, and that should catalyze yield improvement in our view. Indihome steps up as TSEL is challenged TLKM has invested heavily on fiber backbone and access, clocking 18.7mn home pass installations. Indihome revenue Rp8.2 tn grew 48.5%YoY (contributing 6.4% to group revenue) driven by 1.34 mn new subs with 626k coming in 4Q only. Indihome EBITDA margin is 25% margin vs. 50.4% for TLKM group and aims to maintain this margin while targeting to acquire new subs about mn in FY18. Data business increases OPEX; network modernization to balance this effect FY17 capex represents 1.6x depreciation cost thus increasing the asset base. Capex plan will also be 25% of the group revenues in FY18 with 50-55% capex allocated for mobile segment, 40% on fixed and 5-10% on other. On the mobile, capex allocation will be 45:55 between Java region and Ex-Java and will add 22,000 4G BTS to maintain network leadership. Marketing cost increased 38% QoQ, and 27.5%YoY to incentivize dealers and distribution in order to meet data sales targets and maintain market share. Industry to grow by mid-single digit with TLKM slightly better than industry TLKM revenue guidance is in line with industry or better, expecting mid-single digit in mobile amid tight competition. It further incorporates recovery in 2H18 with players needing to monetize more than ever given additional cost for new spectrum. The slightly better than industry growth for TLKM group will be supported by fixed business and enterprise segment (aiming 20-25% YoY going forward). Group EBITDA margin will erode below 50% by ~2% as Telkomsel revenue shifts from voice to data. New segments stepping up & network leadership; enough reason to maintain Buy call We reiterate our Buy call on TLKM, for credibly defending market share with network leadership and evolution of more business segments which we believe are heavily discounted at the moment. We retain our TP of Rp4,900/sh which implies EV/EBITDA x while TLKM is currently trading at around 3-year average 6.2x. Exhibit 1 : Financial Highlights Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (Rpbn) 116, , , , ,358 Operating profit (Rpbn) 40,966 44,163 44,524 46,284 46,150 Net profit (Rpbn) 19,352 22,145 21,526 22,418 22,501 EPS (Rp) EPS growth (%) EV/EBITDA (x) PER (x) PBV (x) Dividend yield (%) ROE (%) Source : TLKM, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 2

2 Exhibit 2: Forward EV/EBITDA band 8.0x 7.5x 7.0x 6.5x 6.0x 5.5x 5.0x TLKM EV/EBITDA band 01/14 04/14 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 10/17 01/18-2stdev -1stdev Average EV/EBITDA +1stdev +2stdev EV/EBITDA Source : Bloomberg and Ciptadana Sekuritas Exhibit 3: 4Q/FY17 financial results Rp bn FY17 FY16 Δ YoY 4Q17 3Q17 Δ QoQ 2017F Realization Operating Revenue 128, , % 31,253 32, % 129, % Operation & Maintenance -36,603-31, % -9,493-8, % -37, % Depreciation & Amortization -20,446-18, % -5,765-5, % -19, % Personnel -13,529-13, % -2,934-3, % -14, % Marketing -5,268-4, % -1,866-1, % -4, % Others -8,477-9, % -2,853-2, % -7, % Total Operating Expense -84,323-77, % -22,911-21, % -83, % Operating Profit 43,933 39, % 8,342 11, % 46, % Operating margin (%) (9.1) 35.9 EBITDA 64,609 59, % 14,560 16, % 66, % EBITDA margin (%) (0.8) (4.4) 50.9 Total other income (expenses) -1,274-1, % % -1, % Pre-tax profit 42,659 38, % 8,018 11, % 45, % Tax -9,958-9, % -1,330-2, % -10, % Minority interest -10,556-9, % -2,465-2, % -11, % Net profit 22,145 19, % 4,223 5, % 22, % Net profit margin (%) (4.1) 17.6 Segment Revenue Breakdown FY17 FY16 Δ YoY 4Q17 3Q17 Δ QoQ Voice 37,246 38, % 8,619 9, % SMS 13,192 15, % 3,135 3, % Cellular Voice + SMS 50,438 54, % 11,754 12, % Data & Internet 55,343 42, % 12,892 15, % Fixed Line Voice 6,665 7, % 1,239 1, % Interconnection 5,175 4, % 1,460 1, % Network & Other 10,635 7, % 3,908 2, % Operating Revenue 128, , % 31,253 32, % Source : TLKM & Ciptadana Sekuritas Please see analyst certification and other important disclosures at the back of this report 3

3 Exhibit 4: TLKM revenue breakdown 4Q/FY17 Operational Data FY17 FY16 Δ YoY 4Q17 3Q17 Δ YoY No. of Subscriber (Mn unit) Cellular (Post & Pre-Paid) % % Indihome Subscribers % % Total BTS ('000 unit) % % 2G % % 3G % % 4G % % Source : TLKM and Ciptadana Sekuritas Please see analyst certification and other important disclosures at the back of this report 4

4 Exhibit 5 - Income Statement Year to 31 Dec (Rpbn) 2016A 2017A 2018F 2019F 2020F Revenue 116, , , , ,358 COGS Gross profit 116, , , , ,358 Oper. expenses -75,367-84,093-92, , ,209 Oper. profit 40,966 44,163 44,524 46,284 46,150 EBITDA 59,498 64,609 67,591 71,950 74,208 Interest income 1,716 1,434 1,370 1,759 2,255 Interest expense -2,810-2,769-3,344-3,739-3,936 Other income (exp.) -1, Pre-tax profit 38,189 42,659 42,330 44,084 44,248 Income tax -9,017-9,958-9,881-10,291-10,329 Minority interest -9,820-10,556-10,923-11,376-11,418 Net profit 19,352 22,145 21,526 22,418 22,501 Exhibit 6 - Balance Sheet Year to 31 Dec (Rpbn) 2016A 2017A 2018F 2019F 2020F Cash & cash equivalent 31,238 27,318 29,879 38,048 47,483 Acct, receivables 7,363 9,222 8,814 9,496 10,055 Inventory Other curr, asset 8,516 10,390 10,190 10,978 11,624 Total current asset 47,701 47,561 49,532 59,222 69,902 Fixed assets - net 114, , , , ,990 Other non-curr.asset 17,412 20,752 19,082 19,917 19,500 Total asset 179, , , , ,391 ST debt + curr. maturity 5,432 7,498 8,364 9,124 9,504 Acct, payable 13,518 15,574 15,545 16,748 17,733 Advances received Other curr. liab 20,812 22,304 23,039 24,821 26,282 Long term debt 26,367 27,974 31,974 35,974 37,974 Other non-curr, liab, 7,938 13,004 10,471 11,738 11,104 Total liabilities 74,067 86,354 89,393 98, ,597 Shareholder equity 84,384 92,713 98, , ,878 Minority interest 21,160 19,417 23,112 26,935 30,916 Total liab + SHE 179, , , , ,391 Exhibit 7 - Per Share Data (Rp) 2016A 2017A 2018F 2019F 2020F EPS BVPS , ,139.5 DPS FCF per share Source : TLKM, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 5

5 Exhibit 8 - Cash Flow Year to 31 Dec (Rpbn) 2016A 2017A 2018F 2019F 2020F Net income 19,352 22,145 21,526 22,418 22,501 Depreciation 16,895 19,352 21,833 24,293 26,557 Chg in working cap. 5, ,619 1,803 Other CF-Oper activities 41,469 40,563 43,416 48,330 50,861 Capital expenditure -27,693-35,025-34,266-33,964-31,272 Others -2,851-3,340 1, CF-Investing activities -30,544-38,365-32,596-34,799-30,854 Net change in debt -2,813 3,673 4,866 4,760 2,380 Net change in equity 1, Dividend payment -11,213-13,546-15,502-15,068-15,692 Other financing 2,755 3,053 1,138 5,102 3,342 CF-Financing activities -9,275-6,820-9,498-5,206-9,970 Net cash flow 1,650-4,622 1,322 8,324 10,037 Cash - begin of the year 28,117 29,767 25,145 26,467 34,791 Cash - end of the year 29,767 25,145 26,467 34,791 44,828 Exhibit 9 - Key Ratios Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Growth Revenue (%) Operating profit (%) Net profit (%) Profitability Ratios Gross margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) ROA (%) ROE (%) Liquidity Ratios Current ratio (x) Quick ratio (x) Cash conversion cycle (days) Activity Ratio Inventory turnover (days) Receivable turnover (days) Payable turnover (days) Solvency Ratio Interest cover (x) Debt to equity ratio (x) Net debt to equity (x) Net Cash Source : TLKM, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 6

6 HEAD OF RESEARCH ANALYST ANALYST Arief Budiman Erni Marsella Siahaan, CFA Yasmin Soulisa Strategy, Automotive, Heavy Equipment, Banking Property, Plantations Construction, Shipping T ext 919 T ext 799 T ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com E budimanarief@ciptadana.com ECONOMIST ANALYST ANALYST Imanuel Reinaldo Niko Margaronis Fahressi Fahalmesta T ext 820 Telecommunication, Tower, Healthcare Cement, Toll Road, Poultry E reinaldoimanuel@ciptadana.com T ext 734 T ext 735 E margaronisniko@ciptadana.com E fahalmestafahressi@ciptadana.com ANALYST ANALYST TECHNICAL ANALYST Stella Amelinda Fransisca Maharani Putri Trevor Gasman Consumer Media, Retail T ext 934 T ext 740 T ext 760 E gasmantrevor@ciptadana.com E amelindastella@ciptadana.com E putrifransisca@ciptadana.com RESEARCH ASSISTANT Sumarni T ext 920 E sumarni@ciptadana.com EQUITY SALES Co HEAD OF INSTITUTIONAL SALES Dadang Mulyana Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2 Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59 Jakarta Jakarta T ext 838 T ext 807 Co HEAD OF INSTITUTIONAL SALES The Fei Ming F F E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com BRANCH OFFICES JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6 Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman Jakarta Jakarta Surabaya T T T F F F SEMARANG Gedung Menara Suara Merdeka 6th Floor Unit 02 Jl. Pandanaran No.30 Semarang T F Please see analyst certification and other important disclosures at the back of this report 7

7 Analyst Certification Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation. Disclaimer This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into any transaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting this report, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any transaction and our disclaimer as to these matters. The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PT CIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. Disclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities mentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or warranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any other member of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of the information contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this document is subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed. Please see analyst certification and other important disclosures at the back of this report 8