PT Telekomunikasi Indonesia Tbk (TLKM)
Shinhan Sekuritas Indonesia
Teuku Hendry Andrean
Background. PT Telkom Indonesia (Persero) Tbk (TLKM) is the largest StateOwned Information and communications technology enterprise and Telecommunications network in Indonesia. TLKM is also the holding company of Telkomsel which dominates cellular operators’ market share with 33.5% of the total number of national operators’ cellular customers.
Transforming to a complete digital telecommunication company. TLKM also manage to transform into a complete Digital Telecommunication company as the company successfully transformed its fixed line services to a leading digital service which uses fiber optic technology called IndiHome. IndiHome currently offers triple play services consisting of Home Internet (Fixed Broadband Internet), Home Phones (Fixed Phone) and Interactive TV (Usee TV). IndiHome also offers Dual Play Services consisting of Internet Fiber (Fast Internet) and Home Phones or Internet Fiber and Interactive TV. The existence of IndiHome service managed to keep TLKM enjoying high growth of Data, Internet & IT Service Revenue in the midst of decreasing revenue trend from Fixed Line Voice.
And becoming the largest and most integrated telecommunication network in Indonesia. TLKM also operates the largest and most integrated telecommunication network in Indonesia. Per 2016, TLKM already has 106,000 km of fiber-optic backbone network, 95,000 m2 data centers and 3 satellites (102 transponders), ensuring high data capacity for enterprise level. TLKM also has a sturdy network connection to cater retail market as it operates a 16mn home-pass network (per 2016), while its subsidiary (Telkomsel) operates 175,683 BTS per 1H2018 (71.4% were 3G/4G Network), covering around 489 cities across Indonesia. This condition eventually will ensure TLKM to be able to grab Indonesia’s growing market either in Fixed Line Business or Mobile Cellular.
Lower legacy but data remains strong in 1H2018. TLKM suffered a stagnant Revenue growth of +0.5% YoY in 1H2018 due to decreasing revenue from legacy business (Cellular & Voice) by -21.4% YoY. However, Data Revenue still seen strong with +20.7% YoY growth due to strong performance of IndiHome services. IndiHome subscribers seen to grow rapidly with subscribers reach 4.1mn per 1H2018, grew by 105.3% YoY. This condition eventually made data revenue contribution continue to gain dominance against legacy business which has been seen since 2H2017. Per 1H2018 data revenue contribution seen at 51% while legacy business seen at 32%. Spurred by continuous strong growth from data revenue, we expect TLKM’s EBITDA Margin will still be steady above 50% in 2018F and beyond.
Valuation. On the back of strong TLKM’s data revenue growth and continuous strong network dominance, we recommend overweight in TLKM. We derived our TP at IDR 4,030 as we use one year forward P/E Band methodology based on 5 year historical data. We apply +1 standard deviation for the TP which is equal to 19.9x forward P/E average.
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