Date of Report: October 18, 2024
Broker: PT Maybank Sekuritas Indonesia

Overview of Telkom Indonesia Persero (TLKM)

Telkom Indonesia Persero (TLKM) is the leading integrated telecommunications company in Indonesia, offering services across mobile, fixed-broadband, and digital infrastructure. The company has an extensive network, covering 95% of Indonesia’s population, and is a market leader in the mobile connectivity and broadband segments.

Financial Performance and Forecasts

• Revenue & Earnings: PT Maybank forecasts a 9M24 net revenue of IDR113.9 trillion, reflecting a 2.5% year-over-year (YoY) growth, while the 9M24 net income is projected at IDR18.4 trillion. For 3Q24, the estimated revenue is IDR38.7 trillion (+2.4% YoY).
• EBITDA & Margins: TLKM’s EBITDA is forecasted at IDR58.4 trillion for 9M24, maintaining an EBITDA margin of 51%. The company’s strong cost controls, particularly in personnel expenses, are highlighted as key to sustaining profitability.
• Price Target: The report maintains a “BUY” rating for TLKM, with a lower target price (TP) of IDR4,500, down from the previous IDR5,000. This TP reflects a 17.5x P/E and 2.6x P/BV for FY25E.

Key Challenges and Opportunities

• Competition & Market Dynamics: TLKM faces increasing competition, particularly as rival mobile operators improve their network quality. This has led to challenges in maintaining market share, especially in regions like Sumatra. Additionally, the company is dealing with the decline of its legacy businesses (e.g., SMS and voice calls) as consumers shift to over-the-top (OTT) messaging services.
• Growth Drivers: Despite competition, PT Maybank believes TLKM can counter these challenges due to its extensive network capabilities, financial capacity, and strategic plans to upgrade and expand its services. The company’s FY25 capital expenditure is forecasted at around IDR32 trillion, aimed at revamping its network to enhance competitiveness.

Business Segments Analysis

• Mobile Data Services: TLKM continues to rely heavily on its mobile data segment, with 3Q24 revenue forecasted at IDR19.6 trillion (+6.8% YoY). However, competitors are expanding their reach, and mobile data prices are becoming more competitive. TLKM’s strategy includes launching new, affordable products like “Telkomsel Lite” to retain market share.
• Fixed Broadband (IndiHome): IndiHome, TLKM’s fixed-broadband service, remains a significant revenue driver, with 3Q24 forecasted revenue of IDR6.3 trillion. The report notes that while competition in the fixed broadband market is rising, TLKM’s extensive network across Indonesia gives it a competitive edge, especially as the first mover in many regions.
• Legacy Services: The legacy services of TLKM, including SMS and voice, are experiencing a decline. PT Maybank forecasts a 34% YoY decrease in revenue for 9M24 in this segment, signaling the continued transition of consumers to alternative communication platforms.

Financial Metrics and Valuation

• Profitability Ratios: TLKM’s core net profit for FY24 is expected to be IDR24.5 trillion, with consistent EBITDA growth projected through FY26. The report highlights that TLKM’s dividend yield for FY25 is expected to be around 4%, maintaining a high payout ratio.
• Valuation Risks: Key risks include slower-than-expected GDP growth, higher operational expenditures, and aggressive pricing strategies by competitors that could impact revenue and profitability. Furthermore, capital outflows and potential delays in network upgrades pose risks to achieving forecasted financial targets.

Strategic Positioning and Future Outlook

• Market Leadership: PT Maybank emphasizes TLKM’s position as the most integrated telecom operator in Indonesia, benefiting from its extensive infrastructure, low gearing, and ability to manage costs effectively. The report suggests that TLKM’s strategic collaborations with other state-owned enterprises (SOEs) could accelerate its fixed-broadband penetration, further solidifying its market leadership.
• Investment Appeal: The company’s ability to leverage its network to provide digital services, combined with its significant cash flow generation, makes TLKM an attractive investment. PT Maybank maintains a “BUY” rating, citing TLKM’s robust network infrastructure, competitive edge, and strategic investments in network upgrades.

Conclusion

Telkom Indonesia Persero continues to be a dominant player in Indonesia’s telecommunications market. While facing competitive pressures, the company’s strategic network expansion, strong financial position, and ability to adapt to market changes support its long-term growth potential. PT Maybank’s analysis underscores confidence in TLKM’s ability to navigate challenges, with a focus on expanding digital infrastructure and maintaining profitability through cost control and strategic investment.