Telekomunikasi Indonesia Tbk (TLKM) Counts on Way More Healthy Competition Constrained Margin TLKM posted 4Q17 s robust growth of 23.2% y-y into IDR12.89 trillion in data revenue amid the decline in 4Q17 s data yield. Aiming to strengthen its network coverage and quality services, TLKM booked the respective upswings of 24.2% y-y and 23.1% y-y in operation & maintenance (O&M) cost and marketing cost. The upswings in costs constrained 4Q17 s margin into 47.5% (vs 3Q17 s margin of 50.2%), and caused a slight growth of 2% y-y into IDR14.4 trillion in. Aligning with the shift of TLKM into digital company and intense competition, in ahead years, its margin is likely constrained underlined by the upswings in O&M cost and marketing cost. Indihome TLKM s fixed line business posted the increment of 48.1% y-y into IDR8.2 trillion in 2017 s revenue coupled with margin of 25%; indeed, the number of Indihome s subscribers increased by 82.6 y-y into 2.96 million. In 2018, TLKM sets target of 1.5-1.7 million new subscribers. ARPU tumbling into IDR285,000 in 4Q17 (vs 3Q17 s ARPU of IDR308,000) is estimated to buoy along with the respective increment in subscribers and features, as well as the migration dual play into triple play, according to its management. Impact of Regulation Governing SIM Registration The decline in 4Q17 s data yield into IDR113/MB is TLKM s strategy for maintaining its market share. Having wit acknowledgment TLKM has on intense competition, in the given time, management confirmed the least possibility of re-offering doubled premium price topping prices offered by its peers. Telekomunikasi Indonesia, Tbk Summary (IDR bn) 2016/12A 2017/12A 2018/12E 2019/12E Revenue 116,333 128,256 137,732 148,627 Revenue growth 13.5% 10.2% 7.4% 7.9% 59,498 64,609 67,893 74,219 Net profit 19,352 22,145 23,447 25,921 EPS (IDR) 192 220 233 257 EPS growth 24.9% 14.4% 5.9% 10.5% BVPS (IDR) 1,047 1,112 1,260 1,413 margin 51.1% 50.4% 49.3% 49.9% NPM 16.6% 17.3% 17.0% 17.4% ROE 19.5% 20.3% 19.6% 19.2% ROA 11.2% 11.7% 11.3% 11.2% ROIC 22.6% 23.6% 21.7% 22.8% P/E 20.7x 16.2x 15.3x 13.8x P/BV 3.8x 3.2x 2.8x 2.5x EV/ 7.1x 6.0x 5.7x 5.3x DPS (IDR) 92 115 132 140 Dividend yield 2.3% 3.2% 3.7% 3.9% Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Report Mar 28, 2018 Buy Dec 2018 TP (IDR) 4,600 Consensus Price (IDR) 4,591 TP to Consensus Price +0.2% vs. Last Price +29.2% Shares data Last Price (IDR) 3,560 Price date as of Mar 27, 2018 52 wk range (Hi/Lo) 4,840 / 3,520 Free float 48.8% Outstanding sh.(mn) 100,800 Market Cap (IDR bn) 358,847 Market Cap (USD mn) 26,128 Avg. Trd Vol - 3M (mn) 102.39 Avg. Trd Val - 3M (bn) 412.41 Foreign Ownership 30.0% Infrastructure Telecommunication Bloomberg Reuters Arnold Sampeliling +62 21 797 6202, ext:170 arnold@nhsec.co.id Share Price Performance TLKM.IJ TLKM.JK YTD 1M 3M 12M Abs. Ret. -19.8% -11.4% -17.2% -12.7% Rel. Ret. -17.5% -5.5% -16.1% -24.8%
Of note, until the end-february 2018, Telkomsel registered around 140 million subscribers SIM equal to 70% of its overall subscribers. The SIM registration ends in the end-april; that is, the unregistered SIM might be registered prior to the official registration termination in May. The regulation governing SIM registration is projected to slid the churn level and customer acquisition; as a result, a way more healthy competition and industry are possible to persist, particularly in 2H18 according to management. 2018 s Mapping Road We project the growth in 2018 s revenue and likely slow respectively by 7.5% y-y and 5.1% y-y due to the given backdrop of price war. Nevertheless, a more healthy competition in 2H18 is an opportune moment for TLKM to offer a way more alluring investment opportunities; in fact, it impacts on 2019 s picking up margin. Likewise, 1Q18 s low share price was attributable to its alluring share valuation. Target Price of IDR4,600 We use an estimate of forward P/E of 17.9 (the 3-year average) for obtaining the target price of December 2018. The target price implies a 2018E P/E of 19.8x. Now, TLKM is traded at a 2018E P/E of 15.3x. & Margin 1Q15-4Q17 Data Yield 1Q15-4Q17 3G/4G Capable Device 1Q15-4Q17 Coverage 1Q15-4Q17 PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 22
A Glance at TLKM TLKM is a stated-owned telecommunication provider having quality services and integrated telecommunication network. It stocks with code TLKM is listed both on Indonesia Stock Exchange (IDX) and the New York Stock Exchange (NYSE). It is the shareholders of 65% Telkomsel stocks the market leader for the mobile telecommunication industry in Indonesia. Not only does Telkomsel currently have more than 190 million subscribers but it also dominates with the broadest network coverage of 110,381 BTS in Indonesia. Indonesia s Telecommunication Industry in ASEAN Indonesia as the nation with the biggest population number in ASEAN has the great potential for the telecommunication industry. This fact is coupled by the low smartphone penetration level of three biggest operators EXCL of 72%, TLKM of 51%, and ISAT of 7% in Indonesia. Additionally, the operators valuations in Indonesia are inexpensive (EV/ around 4.0x-6.9x) compared its peers valuations in ASEAN. We oversee that the growth in Singapore-based and Malaysia-based providers have reached the flat growth at around 0.8%-4.8% due to the smartphone penetration topping 70%. Meanwhile, Thailand-based providers post two-digit growth, but the growth is accompanied with the high leverage risk. ASEAN Telecommunication Operators Company Market Cap (USD mn) Total Asset (USD mn) Growth Margin Debt/ Equity ROE EV/ P/E P/BV Dividend Yield EXCL 2,241 4,145 2.9% 35.7% 90% 1.8% 5.8x 7.6x 1.4x 0.0% TLKM 26,164 14,607 10.6% 50.6% 33% 19.6% 6.9x 16.2x 3.5x 2.8% ISAT 1,916 3,755 12.7% 44.3% 167% 9.9% 4.0x 19.5x 1.8x 1.5% Singapore Singtel 42,291 34,580 0.8% 40.8% 39.6% 20.0% 9.4x 9.8x 1.9x 6.0% Malaysia Maxis 11,684 4,740 1.2% 53.5% 108.6% 37.3% 11.6x 20.3x 6.4x 3.4% Axiata Group 12,766 17,214 9.2% 37.9% 62.9% 3.8% 7.3x 53.6x 2.0x 1.5% Thailand Advanced Info Service 19,632 8,721 15.6% 44.5% 217.5% 64.8% 9.5x 20.4x 12.2x 3.8% Total Access Comm. 3,472 3,515 11.6% 38.6% 167.7% 7.5% 4.6x 51.5x 3.7x 0.5% Philippine PLDT 6,060 9,187 2.9% 38.7% 155.5% 12.5% 7.5x 23.9x 3.0x 5.2% Globe Telecom 4,024 5,556 8.7% 40.7% 197.6% 23.0% 6.8x 14.5x 3.3x 5.7% Source: Bloomberg, NHKS research PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 33
Multiple Valuation Forward P/E band Last 3 years Dynamic Forward P/E band Last 3 years Rating and target price Date Rating Target Price Last Price Consensus vs Last Price vs Consensus 5/16/2017 Buy 5,000 (Dec 2017) 4,340 4,783 15.2% 4.5% 9/8/2017 Buy 5,450 (Dec 2018) 4,720 5,113 15.5% -2.2% 12/22/2017 Buy 5,450 (Dec 2018) 4,190 4,777 30.1% 14.1% 3/28/2018 Buy 4,600 (Dec 2018) 3,560 4,591 29.2% 0.2% Source: Bloomberg, NHKS research Analyst Coverage Rating Closing and Target Price Source: Bloomberg NH Korindo Sekuritas Indonesia (NHKS) stock ratings 1. Period: End of year target price 2. Rating system based on a stock s absolute return from the date of publication Buy : Greater than +15% Hold : -15% to +15% Sell : Less than -15% PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 44
Summary of Financials TLKM Summary Last Price (IDR) March 27, 2018 3,560 Target Price (IDR) Dec 2018 4,600 2016/12A 2017/12A 2018/12E 2019/12E Analyst: Arnold Sampeliling Rating: Buy ROE 19.5% 20.3% 19.6% 19.2% ROA 11.2% 11.7% 11.3% 11.2% INCOME STATEMENT ROIC 22.6% 23.6% 21.7% 22.8% /Equity 58.0% 59.2% 56.4% 54.4% In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E /Assets 33.4% 34.1% 32.4% 31.8% Revenue 116,333 128,256 137,732 148,627 Cash Dividend (IDR bn) 9,293 11,627 13,287 14,068 Growth (% y/y) 13.5% 10.2% 7.4% 7.9% Dividend Yield (%) 2.3% 3.2% 3.7% 3.9% Operating Expenses (77,138) (84,323) (92,803) (99,270) Payout Ratio (%) 60.0% 60.1% 60.0% 60.0% EBIT 39,195 43,933 44,929 49,358 DER 30% 32% 32% 33% EBIT Margin 33.7% 34.3% 32.6% 33.2% Net Gearing 39% 39% 40% 41% Depreciation 18,532 20,446 22,477 23,930 LT Debt to Equity 29% 30% 30% 31% 59,498 64,609 67,893 74,219 Capitalization Ratio 23% 23% 23% 24% Margin 51.1% 50.4% 49.3% 49.9% Equity Ratio 59% 56% 58% 58% Interest - net (1,006) (1,274) (906) (1,267) Debt Ratio 18% 18% 18% 19% EBT 38,189 42,659 44,023 48,091 Financial Leverage 174% 174% 174% 171% Income Tax (9,017) (9,958) (10,527) (11,061) Current Ratio 120% 105% 139% 160% Minority Interest (9,820) (10,556) (10,049) (11,109) Quick Ratio 118% 103% 138% 159% Net Profit 19,352 22,145 23,447 25,921 Cash Ratio 75% 55% 81% 94% Growth (% y/y) 24.9% 14.4% 5.9% 10.5% Par Value (IDR) 50 50 50 50 Net Profit Margin 16.6% 17.3% 17.0% 17.4% Total Shares (mn) 100,800 100,800 100,800 100,800 Share Price (IDR) 3,980 3,560 3,560 3,560 Market Cap (IDR tn) 401.2 358.8 358.8 358.8 BALANCE SHEET In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E Cash 29,767 25,145 33,720 41,351 Price /Earnings 20.7x 16.2x 15.3x 13.8x Receivables 7,363 9,222 9,090 10,240 Price /Book Value 3.8x 3.2x 2.8x 2.5x Inventories 584 631 545 552 Price/Revenue 3.4x 2.8x 2.6x 2.4x Total Current Assets 47,701 47,561 58,133 70,637 PE/EPS Growth 0.8x 1.1x 2.6x 1.3x Net Fixed Assets 114,498 130,171 141,119 153,225 EV/ 7.1x 6.0x 5.7x 5.3x Other Non Current Assets 17,412 20,752 18,276 19,767 EV/EBIT 10.8x 11.4x 11.3x 10.0x Total Assets 179,611 198,484 217,528 243,629 EV (IDR bn) 424,376 388,592 389,287 391,621 Payables 13,518 15,574 13,862 14,237 Revenue CAGR (3-Yr) 12% 13% 10% 9% ST Bank Loan 911 2,289 1,320 1,665 EPS CAGR (3-Yr) 11% 15% 15% 10% Curr Maturities of LT Debt 4,521 5,209 5,338 6,534 Basic EPS (IDR) 192 220 233 257 Other Current Liab. 20,812 22,304 21,348 21,642 Diluted EPS (IDR) 192 220 233 257 LT Debt 26,367 27,974 33,373 38,209 BVPS (IDR) 1,047 1,112 1,260 1,413 Other Non Current Liab. 7,938 13,004 15,289 18,910 Revenue PS (IDR) 1,154 1,272 1,366 1,474 Total Liabilities 74,067 86,354 90,529 101,197 DPS (IDR) 92 115 132 140 Shareholders' Equity 105,544 112,130 126,999 142,432 CASH FLOW STATEMENT In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E Net Income 19,352 22,145 23,447 25,921 DCF (IDR bn) Deprec & Amortization 18,532 20,446 22,477 23,930 NOPAT 29,940 33,678 34,185 38,005 Chg. In Working Capital 9,347 6,814 (4,666) (4,204) +Depr./Amor. 18,532 20,446 22,477 23,930 CFO 47,231 49,405 41,259 45,647 -CAPEX (30,160) (29,551) (33,785) (36,188) Capex (30,160) (29,551) (33,785) (36,188) -Incr. (Decr.) in Working Cap. 9,347 6,814 (4,666) (4,204) CFI (27,557) (34,262) (28,664) (33,907) (Unlevered) FCFF 27,659 31,386 18,212 21,544 Dividends Paid (9,293) (11,626) (13,287) (14,068) WACC Net Borrowing (PMT) (2,813) 3,673 4,559 6,377 Cost of Debt (Tax Adj.) 8.2% 6.4% 6.8% 7.2% CFF (17,905) (25,445) (4,020) (4,020) Cost of Equity (COE) 9.7% 11.2% 9.8% 10.1% Net Changes in Cash 1,769 (10,302) 8,575 7,631 WACC (%) 9.6% 10.8% 9.5% 9.8% RIM OWNERSHIP PROFITABILITY & STABILITY VALUATION INDEX DCF, RIM & EVA Spread (FROE-COE) (%) 11.0% 9.8% 11.1% 10.3% Residual Income (IDR) 10,312 10,376 12,471 13,082 By Geography % Shareholders % Equity Charge 9,040 11,769 10,977 12,839 Indonesia 70.0 Rep. of Indonesia 51.2 EVA United States 18.4 Bank of New York 6.4 Invested Capital (IDR bn) 128,040 137,343 147,602 167,030 Luxembourg 4.1 Vanguard Group 1.7 ROIC-WACC (%) 13.8% 13.8% 13.6% 12.9% Norway 1.2 Blackrock 1.6 EVA (IDR bn) 17,700 18,888 20,130 21,604 DISCLAIMER This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. 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