Refer to Important disclosures on the last of this report
N o v -1 7 D e c -1 7 J a n -1 8 J a n -1 8 F e b -1 8 M a r- 1 8 A p r- 1 8 A p r- 1 8 M a y -1 8 J u n -1 8 J u n -1 8 J u l- 1 8 A u g -1 8 A u g -1 8 S e p -1 8 O c t- 1 8 O c t- 1 8 N o v -1 8 TLKM-Rebase JCI Index-Rebase
- 1STD of 8-yr mean. TLKM trades at 19F EV/EBITDA of 8.6x, near +1STD.
3.6
3.8
4.0
4.4
16.7 PBV (x)
17.9
18.5
15.8
19.1
32.5 PER (x)
27.0
19.5
9.2
1.9
7.0 Net Gearing (%)
3.4 Dividend Yield (%)
3.7
4.5
E q u it y | I n d o n e s ia | T e le c o m m u n ic a ti o n
95 100 105 110 115
90
85
80
75
70
7.9 Source: TLKM, IndoPremier Share Price Closing as of : 28-November-2018
4.1
8.6
9.1
8.7
9.5
4.5 EV/EBITDA (x)
4.2
3.4
24.9 14.4 (10.1)
8.7 Net Profit (RpBn) 19,352 22,145 19,905 20,578 22,018 EPS (Rp) 195 224 201 208 222 EPS Growth (%)
26.3 Price Performance
Major Shareholders
4,440 - 3,270
Absolute (%) 6.6 5.7 -11.4 Relative to JCI (%) 7.0 5.6 -11.3 52w high/low (Rp)
12M
6M
3M
48.8 Avg. 6m dailyT/O (US$ m)
Estimate Change; Vs. Consensus
Sharesoutstanding (m) 99,062 Marketcap. (US$ m) 25,364 Free float (%)
Upside/downside (%) +7.5
Shareprice (Rp) Rp3,720
Prior TP (Rp) Rp4,100
Target price (Rp) Rp4,000
Stock Data
Republic of Indonesia 52.1% Bank of New York Mellon 6.1% Public 41.8%
18F
5.5
Slightly decrease TP by 3% to Rp4,000 - Downgrade to Hold. Our DCF- based TP assume WACC of 10.2% (old: 10.1%; see Fig. 9). We slightly reduced TP by 3% as we revised down 22F-28F EBITDA by 2-4%. We downgrade to Hold and argue share price might be more volatile given: 1) Telkomsel in last earning call said further pricing increase might be limited (depend on competition); 2) Slightly more uncertainty in outer Java’s long-term growth (slightly higher competition risk). Our TP translates to 19F EV/EBITDA of 9.4x, 6% premium to
15.7 8.6 (6.7)
Revenue (RpBn) 116,333 128,256 133,250 144,567 158,844 EBITDA (RpBn) 59,498 64,609 60,255 63,591 69,145 EBITDA Growth (%)
Year To 31 Dec 2016A 2017A 2018F 2019F 2020F
28 November 2018 Company Update HOLD (from Buy)
Telkom (TLKM IJ)
Risks (page 5). There might still be downslide risk from concern on Telkomsel’s network gap (leadership strength) in outer Java vs. peers (depends on realization progress of other telcos’ expansion to outer Java). Upside risk: If network roll-out (capex realization) from competitors, incl. Indosat, is significantly lower than its target; no sufficient funding (balance sheet limitation) for competitor(s) to support aggressive capex.
Limited contribution from fixed broadband. We still view TLKM’s fixed broadband business (Indihome) as positive factor for TLKM, considering its market growth potential, its management and operational readiness to fulfill demand, and gradually increasing margin. However, we see limitation from Indihome’s strong growth impact to TLKM Group in near-term as we estimate Indihome’s revenue
contribution at 9-11% in 18F/19F.
19F
Modest EBITDA growth. We forecast moderate YoY growth in TLKM’s revenue and EBITDA growth of +9%YoY and +6%YoY, respectively in 2019F (vs. +4/- 7%YoY in 2018F) due to: 1) Gradual decline in voice and SMS revenue; 2) Margin pressure from growing data business; 3) More limited pricing increase opportunity as more players expand 4G network coverage in outer Java.
18F 4G coverage in outer Java at 60% vs. 2Q18 27%) and is looking for ways to fund aggressive capex in 19F-21F. Although we expect Tsel would remain as market leader, but its declining competitive advantage in network coverage vs. peers in outer Java (XL already improve its outer Java’s network earlier than Indosat) might affect the effectiveness of Telkomsel’s cluster pricing strategy. Thus, we slightly reduced TLKM’s EBITDA by 2-4% in 22F-28F.
Recovery mostly priced-in Post-SIM-card-registration recovery mostly priced in. More uncertainty in Telkomsel’s long-term growth in outer Java TLKM group’s EBITDA growth might remain moderate Reduce TP to Rp4,000 (6% premium to +1STD) – Downgrade to Hold We expect Telkomsel’s growth to slow. We believe uncertainty in Telkomsel (Tsel)’s long-term growth outlook in outer Java has increased as Indosat, accelerating forecast its capex spending in 4G network coverage (ISAT’s target
PT Indo Premier Sekuritas [email protected]
Source: Bloomberg Paula Ruth
Latest EBITDA (Rp bn ) 60,255 63,591 Vs. Prior EBITDA (%) 2% 0% Vs. Consensus (%) -3% -7%
- 62 21 5793 1168
Source: Company, IndoPremier Source: Company, IndoPremier, Bloomberg
8
5 S e p
1
5 Ju l-
5 M a y
1
5 M a r-
12 Ja n
11
10
9
7
5 Ja n
6
5
4
Voice Data SMS Digital service Others
70 2015 2016 2017 2018F 2019F 2020F ( R p t n )
60
50
40
30
20
5 N o v
6 M a r-
Fig. 5: 2015-20F Tsel’s revenue based on service type Fig. 6: TLKM’s hist-fw. EV/EBITDA (adj. to ownership in Tsel)
7 N o v
23 Nov 2018 at 9.0x
8 TLKM Fw-EV/EBITDA Fw-EV/EBITDA avg (LHS) Fw-EV/EBITDA + 1 STD (LHS) Fw-EV/EBITDA - 1 STD (LHS)
8 N o v
8 S e p
1
8 Ju l-
8 M a y
1
8 M a r-
7 Ja n
7 S e p
1
1
7 Ju l-
7 M a y
1
7 M a r-
6 Ja n
6 N o v
6 S e p
1
6 Ju l-
6 M a y
10
Opex without D&A Source: Company, IndoPremier Source: Company, IndoPremier
Fig. 1: Tsel’s subscriber base and ARPU Fig. 2: Telkomsel’s data traffic vs. effective data yield
4Q17
10
8
6
4
2
We expect subscriber base still slightly decline in 4Q18F, but ARPU to increase as subscriber adjusting behaviour to operators’ marketing and pricing strategy post- registration of prepaid card.
Telkomsel Subscribers (LHS) Telkomsel ARPU (RHS)
3Q18 (Rp 000) (mn)
2Q18
1Q18
3Q17
14
50 100 150 200 250
50
45
40
35
30
25
20
15
10
5
12
16
G&A Marketing Interconn ect
1.0
Indihome Subscriber Indihome ARPU Personnel O&M + telecom services
3Q18 (Rp 000) (mn)
2Q18
1Q18
4Q17
3Q17
5.0
4.0
3.0
2.0
0.0
18
50 100 150 200 250 300 350
Fig. 4: TLKM’s Indihome Subscribers and ARPU Fig. 5: TLKM’s expenses excl. D&A (3Q18)
Data traffic (LHS) Effective yield (RHS) Source: Company, IndoPremier Source: Company, IndoPremier
3Q18 (Rp/MB) (PB)
2Q18
1Q18
4Q17
3Q17
2Q17
1,200
20 200 400 600 800 1,000
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 1
- 2STD 4.6 -1STD 6.0 Avg. 7.5 +1STD 8.9 +2STD 10.3
Fig. 7: Forecast drivers Description 2016A 2017A 2018F 2019F 2020F Voice
Est. chargeable outgoing minutes (bn) 205 212 208 206 204 % change 7.1% 3.4% -2.0% -0.8% -0.8% Voice revenue / est. outgoing minutes (Rp) 195 189 161 147 139 % change 2.7% -3.1% -15.0% -8.9% -5.0%
Data
Data traffic (petabyte) 959 2,168 4,418 8,361 12,708 % change 94.8% 126.2% 103.8% 89.3% 52.0% Data Rate (Rp/MB)
29 16 10 6
5 % change -29.8% -43.3% -41.5% -35.0% -20.0%
SMS
Total SMS (bn) 183 135
81
63
48 % change -16.4% -25.9% -40.0% -23.0% -23.0% Revenue / total SMS (Rp)
72
80
82
83
85 % change 15.6% 10.8% 2.0% 2.0% 2.0% Gross revenue (Rp t) 97 104 99 105
115 Net revenue (Rp t)
87
93 89 94 103 EBITDA margin 57.4% 57.5% 52.3% 51.4% 50.6% Capex / revenue 14.8% 15.0% 17.3% 17.7% 17.4%
Telkom (ex-Telkomsel)
Indihome subs (m)
1.6
3.0
5.0
6.6
8.2 Indihome implied ARPU (Rp 000) 340 298 257 244 232 Fixed line subs (m)
10.7 11.0 10.9 10.9 10.9 Fixed line ARPU (Rp 000)
59.6
51.7
47.6
43.7
38.5 Telkom Consolidated Revenues (Rp t) 116 128 133 145 159 EBITDA margin 51.1% 50.4% 45.2% 44.0% 43.5% Capex/sales 25.1% 25.8% 25.0% 25.0% 24.0%
Source: Company, IndoPremier
Fig. 8: Change in estimates TLKM Consolidated YE 31 Dec (Rp bn) 2018E 2019E Tsel YE 31 Dec (Rp bn) 2018E 2019E
Revenues - Current 133,250 144,567 Subscribers - Current (mn) 171 179 Revenues - Old 131,351 144,865 Subscribers - Old (mn) 171 179 % change 1.4% -0.2% % change 0.0% 0.0% EBITDA - Current 60,255 63,591 ARPU - Current (Rp 000)
40
45 EBITDA - Old 59,227 63,554 ARPU - Old (Rp 000)
40
45 % change 1.7% 0.1% % change 0.0% -1.6% EBITDA margin - Current 45.2% 44.0% Voice Revenues - Current 33,414 30,200 EBITDA margin - Old 45.1% 43.9% Voice Revenues - Old 33,414 30,200
% change 0.0% 0.0% Net interest exp - Current 1,880 2,359 Net interest exp - Old 1,880 2,372 SMS Revenues - Current 6,635 5,211 % change 0.0% -0.5% SMS Revenues - Old 6,635 5,211
% change 0.0% 0.0% Core Profit - Current 19,905 20,619 Core Profit - Old 19,152 20,381 Data Revenues - Current 42,342 52,086 % change 3.9% 1.2% Data Revenues - Old 42,342 53,530
% change 0.0% -2.7% Capex - Current 33,313 36,142 Capex - Old 32,838 36,216 EBITDA margin - Current 52.3% 51.4% % change 1.4% -0.2% EBITDA margin - Old 52.3% 51.4% Net debt - Current 22,142 32,271 EBITDA - Current 46,431 48,369 Net debt - Old 32,838 36,216 EBITDA - Old 46,430 49,208 % change -32.6% -10.9% % change 0.0% -1.7% Capex to sales - Current 25.0% 25.0% Core Profit - Current 24,656 24,807 Capex to sales - Old 25.0% 25.0% Core Profit - Old 24,656 25,438
% change 0.0% -2.5% Capex - Current 15,390 16,625 Capex - Old 15,390 16,625 % change 0.0% 0.0% Capex to sales - Current 17.3% 17.7% Capex to sales - Old 17.3% 17.4%
Source: Company, IndoPremier
Fig. 9: Risk-free-rate and terminal EV/EBITDA assumptions
Risk-Free rate 8.0%
Equity market risk premium 6.0%
Beta 0.80 (old 0.77)
Cost of equity 12.8% (old 12.6%)
Post-tax cost of debt 6.0%
Debt/Capital ratio 38%
WACC 10.2% (old. 10.1%)
Terminal EV/EBITDA Telkomsel: 8x
Non-Telkomsel: 6x Note: If we use old WACC of 10.1%, our TP would increase by 2% to Rp4,200, assuming all else the same.
Source: Company, IndoPremier, Bloomberg Risks Upside risk: Data revenue growth (traffic and pricing); Telkomsel’s Java monetization; Indihome’s productivity and monetization; cost saving; if aggressive (capex realization) network roll-out from competitors, incl. Indosat, is significantly lower than those competitors’ target; no sufficient funding available (balance sheet limitation) for competitor(s) to support aggressive capex.
Downside risk: Concern on outer Java’s network gap (leadership) vs. peers (depends on realization progress of other telcos’ expanstion to outer Java); Competition; lag until TLKM’s EBITDA YoY growth turned positive; long-term EBITDA margin; one-off expenses; if TLKM’s forex gain (from USD asset) cannot offset impact from Rupiah depreciation; other non-Telkomsel’s business.
Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement
Net Revenue 116,333 128,256 133,250 144,567 158,844 Cost of Sales Gross Profit 116,333 128,256 133,250 144,567 158,844 SG&A Expenses (75,367) (84,093) (93,014) (102,822) (113,382) Operating Profit 40,966 44,163 40,236 41,745 45,462 Net Interest (1,094) (1,335) (1,880) (2,414) (3,174) Forex Gain (Loss) (52)
51 Others-Net (1,631) (220) Pre-Tax Income 38,189 42,659 38,356 39,331 42,288 Income Tax (9,017) (9,958) (9,821) (10,071) (10,828) Minorities (9,820) (10,556) (8,630) (8,682) (9,442) Net Income 19,352 22,145 19,905 20,578 22,018
Balance Sheet
31,238 27,318 22,138 20,173 18,333 Cash & Equivalent
7,900 9,564 9,741 10,568 11,612 Receivable 584 631 656 711 781 Inventory
7,979 10,048 10,283 10,991 12,009 Other Current Assets
47,701 47,561 42,817 42,443 42,734 Total Current Assets
114,498 130,171 144,746 160,495 176,560 Fixed Assets - Net Goodwill
15,565 18,604 29,292 37,150 47,923 Non Current Assets
179,611 198,484 219,352 242,993 270,596 Total Assets 911 2,289 1,401 1,744 1,916 ST Loans
13,690 15,791 17,711 19,460 Payable
20,640 22,087 22,574 24,393 26,722 Other Payables
4,521 5,209 6,406 3,053 4,284 Current Portion of LT Loans
39,762 45,376 47,268 46,901 52,382 Total Current Liab. 26,367 27,974 37,568 49,515 56,231
Long Term Loans 7,938 13,004 15,560 20,041 26,427 Other LT Liab. 74,067 86,354 100,397 116,457 135,040
Total Liabilities 7,769 7,817 8,031 8,031 8,031
Equity 76,615 84,896 88,192 93,842 100,426
Retained Earnings 21,160 19,417 22,732 24,663 27,099
Minority Interest 105,544 112,130 118,955 126,535 135,555 Total SHE + Minority Int.
Total Liabilities & Equity 179,611 198,484 219,352 242,993 270,596
Source: TLKM, IndoPremier
Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow
29,172 32,701 28,535 29,261 31,460 Net Income (Excl.Extraordinary&Min.Int)
4,628 3,479 18,738 20,393 22,058 Depr. & Amortization
4,154 (336) 708 930 1,788 Changes in Working Capital
(10,123) (9,290) (6,746) (7,380) (7,181) Others
27,831 26,554 41,235 43,203 48,125 Cash Flow From Operating
(18,237) (22,191) (44,000) (44,001) (48,895) Capital Expenditure
3,023 431 3,077 609 453 Others
(15,214) (21,760) (40,923) (43,392) (48,442) Cash Flow From Investing
(2,813) 3,673 9,903 8,937 8,119 Loans
1,996 (2,541) Equity
(13,547) (16,609) (14,929) (15,434) (16,513) Dividends
3,291 414 6,456 3,970 5,784 Others
(11,073) (12,522) (1,110) (2,527) (2,610) Cash Flow From Financing
1,544 (7,728) (799) (2,715) (2,928) Changes in Cash
Financial Ratios
100.0 100.0 100.0 100.0 100.0 Gross Margin (%)
35.2
34.4
30.2
28.9
28.6 Operating Margin (%)
32.8
33.3
28.8
27.2
26.6 Pre-Tax Margin (%)
16.6
17.3
14.9
14.2
13.9 Net Margin (%)
11.2
11.7
9.5
8.9
8.6 ROA (%)
19.5
20.3
17.2
16.8
16.8 ROE (%)
14.0
18.6
19.3
15.7
14.5 ROIC (%)
24.7
24.9
26.4
25.6
25.5 Acct. Receivables TO (days)
0.0
0.0
0.0
0.0
0.0 Acct. Receivables - Other TO (days)
0.0
0.0
0.0
0.0
0.0 Inventory TO (days)
0.0
0.0
0.0
0.0
0.0 Payable TO (days)
0.0
0.0
0.0
0.0
0.0 Acct. Payables - Other TO (days)
30.1
31.6
38.1
42.9
46.1 Debt to Equity (%)
0.1
0.1
0.1
0.1
0.1 Interest Coverage Ratio (x)
1.9
9.2
19.5
27.0
32.5 Net Gearing (%)
Source: TLKM, IndoPremier
Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167
INVESTMENT RATINGS
BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.