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Asiamoney’s
2013
Best Domestic
Equity House
Spotlight
10 August 2015
Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor
in making their investment decision.
Please see the important disclaimer information on the back of this report
2014
Finance Asia's
Best
Equity House
Alpha
Southeast Asia
2014 Best
Research Call
FMCG Sector
Asiamoney's
2013
Best Domestic
Equity House
2015
Institutional
Investors
Highest Ranked
Local Research
House
2015
Global
Banking & Finance
Review
Best Research
House
Telekomunikasi Indonesia Sector: Telecommunication (Overweight)
BUY (Unchanged)
Rating momentum*:
Leonardo Henry Gavaza, CFA E-mail: leonardo@bahana.co.id Phone: +6221 250 5081 Ext. 3608
Price:IDR2,965–TP:IDR3,675 (From IDR3,350)
TP/consensus: 114%; TP momentum*: JCI: 4,749
Going on the offensive
Beneficiary of greater proportion of 3G smartphone users
TLKM will continue to experience increased proportion of 3G smartphone
subscribers (exhibit 7), as several leading brands are entering into the cheap
3G-smartphone segment. Additionally, TLKM has partnered with several handset
manufacturers to supply affordable Android-based 3G smartphones to
subscribers through its Android United program (exhibit 6). This development
has positively affected TLKM’s data usage (2Q15: +131% y-y) and ARPU (2Q15:
+5% y-y). Thus, we expect the data segment to continue to boost TLKM’s
revenue growth, particularly as the proportion of 3G smartphone subscribers is
still at 33%, much lower than the regional average of 40%, while data pricing is
still relatively low at USD0.0026/MB, compared to Thailand’s USD0.024/MB.
Going forward, TLKM’s focus on monetizing strong data demand will likely be the
key in optimizing its EBITDA margin.
Continuation of cellular market dominance
Helped by EXCL’s value-driven strategy and market consolidation, we expect
TLKM, as the market leader with a strong network, to maintain its dominance in
terms of market share and pricing. In 2Q15, TLKM continued to gain market
share by improving its subscriber base by 2.6mn to 144mn, +5% y-y and +2%
q-q, with stable ARPU of IDR39/month. TLKM is using its 206 pricing clusters
across Indonesia to optimize pricing strategies based on different competitive
landscapes. Thus, with around 50% of its subscribers in the outer Java area, we
expect TLKM to continue to improve voice usage and pricing in light of upcoming
regional elections and religious festivities in 2H15.
3mn IndiHome subscribers by 2017F
We expect TLKM’s new triple-play home broadband product, Indihome, to provide
an additional source of revenue growth in the next few years. Leveraging on
6.5mn homes passes (1H15) with optical-fiber networks originally built for
Telkomsel and TLKM’s corporate clients, IndiHome’s 1H15 subscribers have
reached 427k (1Q15: 245k subscribers). Furthermore, TLKM currently has 9.8mn
fixed-line customers and 3.5mn broadband (Speedy, copper-cable base) users, all
of whom are to be offered the new Indihome package. We expect IndiHome
subscribers to surpass 1mn in 2015 and reach 3mn in 2017, representing
additional revenue potential of IDR9.7tn (10% of 2015F revenue).
Maintain BUY and increase TP to IDR3,675 on solid fundamentals
At this stage, we expect rising data usage and the rational pricing environment
to support solid revenue growth, although we cut 2015 EBITDA and net profit
estimates on one-off costs in 1H15. Hence, we raise our revenue growth
assumptions on higher data growth. On valuation, we roll over using 2016 base
for our SOTP method to arrive at our new 12M TP of IDR3,675 (from IDR3,350),
reflecting 2016F EV/EBITDA (excluding Singtel’s proportion) of 9.6x, a 5%
premium to its regional peers. We believe Indonesia’s low ARPU and broadband
penetration rate as well as market consolidation will pave the way for TLKM to
book sustained solid revenue growth, allowing its ytd market outperformance to
persist ahead (exhibit 4). BUY on 24% upside potential. Risks: tougher-than-
expected competition and higher-than-expected network expenses.
Exhibit 1. Company information
Market cap (IDRtn/USDbn) : 298.9/22.1
3M avg.daily t.o.(IDRbn/USDmn) : 187.1/13.8
Bloomberg code : TLKM IJ Source: Bloomberg, Bahana
Exhibit 2. Shareholders information
Government (%) : 51.2
Est. free float (%)
: 48.8 Source: Bloomberg, Bahana
Exhibit 3. Key forecasts and valuations
Per 31 Dec 2014 2015F 2016F 2017F
Revenue (IDRb) 89,696 98,258 108,610 119,793
EBITDA (IDRb) 45,844 48,396 54,796 60,938
EBIT (IDRb) 28,713 31,143 35,838 40,275
Net profit (IDRb) 14,638 16,382 19,105 21,615
EPS (IDR) 145 163 190 214
EPS growth (%) 2.4 11.9 16.6 13.1
EV/EBITDA (x) 9.3 8.9 7.8 6.9
P/E (x) 20.4 18.2 15.6 13.8
FCFPS (IDR) 65 77 124 156
FCF yield (%) 2.2 2.6 4.2 5.3
BVPS (IDR) 673 748 832 923
P/BV (x) 4.4 4.0 3.6 3.2
DPS (IDR) 87 106 123 139
Div. yield (%) 2.9 3.6 4.2 4.7
ROAA (%) 10.8 11.1 12.1 12.7
ROAE (%) 22.9 22.9 24.0 24.4
EBIT margin (%) 32.0 31.7 33.0 33.6
Net gearing (%) 8.5 8.5 3.5 nc Source: Company, Bloomberg, Bahana estimates
Note: Pricing as of close on 10 August 2015; n.m. = not meaningful
Exhibit 4. Relative share price performance
Source: Bloomberg, Bahana
13.2
5.4
12.0
15.5 14.7
17.7
0
2
4
6
8
10
12
14
16
18
20
0
2
4
6
8
10
12
14
16
18
20
ytd 1M 3M 6M 9M 12M
(%) (%)
tlkm IJ relative to JCI
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 2
2014
Finance Asia's
Best
Equity House
Alpha
Southeast Asia
2014 Best
Research Call
FMCG Sector
Asiamoney's
2013
Best Domestic
Equity House
2015
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2015
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House
Beneficiary of greater proportion of 3G smartphone users
TLKM is experiencing increased proportion of 3G-smartphone subscribers as several leading
brands such as Samsung and Nokia continue to penetrate the cheap 3G-smartphone segment.
We believe this is the only way to improve the 3G penetration rate as most Indonesians
(around 65%) buy handsets costing below IDR1mn/USD75, with fewer than 20% of buyers
purchasing handsets at above IDR2mn/USD150 (exhibit 5). Currently, the cheap handset
market is dominated by Samsung, Nokia, Evercoss/Cross, Advan, Mito, Lenovo and other
Chinese-based handsets.
Exhibit 5. Handset sales proportion, 2015
Source: GFK
Apart from these plans, TLKM also has its own program, Android United (exhibit 6), to increase
the 3G smartphone proportion among its subscribers by collaborating with several handset
manufacturers to supply affordable Android-based 3G smartphones. It is also important for
TLKM to increase its Android-based subscribers, as TLKM has signed an agreement with
Android that allows subscribers to purchase Android-based applications using TLKM’s top-up
accounts (vouchers). This agreement should help TLKM to monetize rising Indonesian e-
commerce transactions of late by its large base of Android subscribers, as users nowadays
spend increased time on their gadgets and spend greater money online. This is due to the
recent rise in popularity of Internet business in Indonesia via online retail shops (olx.com,
elevenia.com, lazada.com), ticketing (GIAA, traveloka.com, agoda.com, booking.com) and
services (Uber, Go-Jek, GrabTaxi).
Exhibit 6. Android United program
Source: Company
About 65% of
Indonesians ...
... purchase handsets
priced lower than
IDR1mn per unit
TLKM aims to increase
smartphone users ...
... through its Android
United Program
>IDR2mn
IDR1-2mn
IDR0-1mn
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 3
2014
Finance Asia's
Best
Equity House
Alpha
Southeast Asia
2014 Best
Research Call
FMCG Sector
Asiamoney's
2013
Best Domestic
Equity House
2015
Institutional
Investors
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House
2015
Global
Banking & Finance
Review
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House
Thus, in 2Q15, TLKM’s 3G smartphone subscribers increased to 48mn (exhibit 7), +54% y-y
and +10% q-q, representing a 3G-smartphone subscriber proportion of 33% (1Q15: 31%;
2Q14: 25%). This has positively affected TLKM’s data usage (2Q15: +131% y-y; exhibit 8)
and ARPU (2Q15: +5% y-y). Thus, we expect the data segment to continue to boost TLKM’s
revenue growth, particularly as the proportion of 3G smartphone subscribers is still at 33%,
much lower than the regional average of 50%, while data pricing is still relatively low at
USD0.0026/MB, compared to Thailand’s USD0.024/MB. Going forward, TLKM’s focus on
monetizing strong data demand will likely be the key in optimizing its EBITDA margin.
Exhibit 7. TLKM 3G smartphone users, 2Q13 – 2Q15
Source: Company
Exhibit 8. TLKM data (excluding SMS) revenue, 2Q13 – 2Q15
20.325.5 33.3
42.750.9
62.3
79.0 89.6
117.6
0
20
40
60
80
100
120
140
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
(petabyte)(USDmn)
Data revenue Payload
Source: Company
Continuation of cellular market dominance
EXCL’s value-driven strategy and overall market consolidation have benefitted the cellular
market in terms of pricing, as there have been no price wars or aggressive pricing strategies of
late in the sector. We expect TLKM, as the market leader with a strong network, to maintain
its dominance in terms of market share and pricing. In 2Q15, TLKM continued to gain market
share by improving its subscriber base by 2.6mn to 144mn (exhibit 9), +5% y-y and +2% q-
q, with a stable ARPU of IDR39k/month, +5% y-y and flat q-q.
TLKM’s 2Q15
smartphone users
reached 48mn, +54% y-
y and +10% q-q,
reflecting ...
... a smartphone
proportion of 33%
(1Q15: 31%; 2Q14:
25%), allowing for …
… 2Q15 data usage to
reach 118 petabyte,
+131% y-y
EXCL’s value-driven
strategy and market
consolidation have
benefitted TLKM given ...
20.325.5 33.3
42.750.9
62.3
79.0 89.6
117.6
0
20
40
60
80
100
120
140
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
(petabyte)(IDRbn)
Data revenue Payload (RHS)
16%16%
18%
21%
23%
25%
29%31%
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
4,500
4,550
4,600
4,650
4,700
4,750
4,800
4,850
4,900
4,950
5,000
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
(%)'000 subs
Users Penetration (RHS)
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 4
2014
Finance Asia's
Best
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Alpha
Southeast Asia
2014 Best
Research Call
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Asiamoney's
2013
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2015
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Exhibit 9. Incumbent subscribers, 1Q13-1Q15
Source: Companies
Exhibit 10. Incumbent ARPU, 1Q13-1Q15
Source: Company
In an effort to maintain its growth strategy, TLKM divides Indonesia into 4 main geographical
areas and 206 clusters, implementing a different pricing and marketing scheme for each
cluster. Thus, TLKM can increase pricing in certain clusters with lower competitive landscapes,
where the network and presence of TLKM’s competitors is not significant. For instance, pricing
in eastern Indonesia is typically much higher than that in western Indonesia, as competitors’
networks in eastern Indonesia are not as solid as TLKM’s. TLKM can also increase pricing on
certain local occasions, such as religious holidays and political events, for example increasing
pricing in Bali during Hindu-related festivities such as Kuningan or Galungan. Furthermore,
pricing is also influenced by the company’s cost structure and infrastructure investment.
... its continued
improvement in
subscriber base with ...
... well-maintained ARPU
of IDR39k per month
TLKM implements
different pricing and
marketing strategies for
each cluster
35
36
37
38
39
40
22
23
24
25
26
27
28
29
30
31
32
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
EXCL ISAT TLKM (RHS)
(IDRk/mth) (IDRk/mth)
120
125
130
135
140
145
40
45
50
55
60
65
70
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
EXCL ISAT TLKM (RHS)
(mn subs) (mn subs)
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 5
2014
Finance Asia's
Best
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Exhibit 11. TLKM’s quarterly net profit growth y-y, 1Q04-1Q15
Source: Company
The ratio of TLKM subscribers in Java to outer Java is around 50:50 (exhibit 12), while
subscribers of other telco operators are mostly in Java rather than outer Java. Thus, TLKM is
more dominant in outer Java, where the company can implement a more aggressive pricing
strategy to optimize its margin. Going into 2H15, Indonesia will experience simultaneous
regional elections and several religious festivities, which we expect will benefit TLKM in terms
of pricing strategy.
Exhibit 12. TLKM subscribers by area, 2015
Source: Company; Note: Outer Java includes Sumatera, Papua, Maluku, Sulawesi and Kalimantan.
In 2Q15, TLKM’s voice revenue growth (exhibit 13) accelerated 10% y-y and 8% q-q
(1Q15:+6% y-y and -8% q-q) on solid chargeable minutes of usage (MoU) of 45bn, +11% y-y
and +7% q-q. TLKM improved voice usage and voice pricing in 2Q15. We expect TLKM to
continue booking strong voice growth despite strong growth in data usage, as TLKM has more
subscribers in outer Java who typically are not data users. Separately, TLKM has relatively
greater premium subscribers with higher ARPUs, who are usually less-price sensitive and still
use a great deal of voice. Furthermore, TLKM also has increased its salesforce, with the goal of
penetrating the market and maintaining its dominant market share. Moreover, TLKM has plans
to develop new areas in order to sustain revenue growth and price leadership ahead.
Historically, elections
have had a positive
impact on TLKM’s
quarterly net profit
growth
Compared to its
competitors, TLKM
benefits from having
more subscribers from
the outer Java areas,
where ...
... 50% of the
company’s subscribers
are located
In 2Q15, TLKM
experienced accelerated
revenue growth ...
-10
-5
0
5
10
15
20
25
30
35
1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14
(%)General Elections 2004 General Elections 2009 General Elections 2014
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 6
2014
Finance Asia's
Best
Equity House
Alpha
Southeast Asia
2014 Best
Research Call
FMCG Sector
Asiamoney's
2013
Best Domestic
Equity House
2015
Institutional
Investors
Highest Ranked
Local Research
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Global
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Exhibit 13. TLKM voice revenue, 2Q13 – 2Q15
Source: Company
On SMS (exhibit 14), we expect weakness to persist, especially as several applications, such
as Whatsapp, Line and BBM, can directly replace SMS functions. Nowadays, subscribers with
smartphones rarely use SMS to communicate, as there are many new applications with more
communication features where people can also send pictures, video, voice recordings and even
voice calls. The most popular messenger application currently is Whatsapp, followed by BBM.
Even popular social media sites like Facebook and Path have messenger services.
Exhibit 14. TLKM SMS revenue, 2Q13 – 2Q15
Source: Company
In order to limit the decline in SMS usage, TLKM has implemented digital advertising (exhibit
15) that utilizes SMS to promote its product. TLKM allows advertisers to market directly
through SMS to targeted customers based on several criteria such as demographics, behavior,
interests, location and handset type. Apart from that, TLKM allows advertisers to promote
based on location in order to stimulate sales directly. However, we expect these moves to only
limit the decline in SMS usage, not to increase SMS usage, as we expect data usage to
increase significantly in the next few years.
... with improving
minutes of usage, +11%
y-y and +7% q-q
Several applications are
replacing SMS functions,
...
... bringing down 2Q15
SMS usage to 57bn
units, -12% y-y and -
2% q-q
To limit the decline in
SMS usage ...
49 47.7
48.7
47
49
49.5
51
50.1
53.7
42
44
46
48
50
52
54
56
7,000
7,500
8,000
8,500
9,000
9,500
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
(bn minutes)(IDRbn)
Cellular voice revenue MOU (RHS)
65.763.3 69
68 65 62.1
61.3
5857.1
50
55
60
65
70
75
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
(bn units)(IDRbn)
SMS revenue SMS usage (RHS)
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 7
2014
Finance Asia's
Best
Equity House
Alpha
Southeast Asia
2014 Best
Research Call
FMCG Sector
Asiamoney's
2013
Best Domestic
Equity House
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Institutional
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Exhibit 15. TLKM digital advertising
Source: Company
3mn IndiHome subscribers in 2017F
The Indonesian Government has issued a 5-year national broadband plan (2014-19) with a
budget of IDR278tn. The government intends to improve the broadband penetration rate to
71% of households and 30% of the population and improve mobile penetration to 100% of the
population. In villages, the target is 49% of households and 6% of the population for
broadband penetration as well as 52% of the population for mobile penetration. This is much
higher than the 5% broadband penetration rate currently.
Exhibit 16. Broadband users, 2011-2018F
Source: Company
In line with the government’s national broadband program, TLKM, earlier this year, launched
IndiHome, a triple-play bundling program including high-speed Internet, cable TV and fixed-line
access for the home. Indihome leverages on 6.5mn homes passes (1H15) in 160 cities with
optical-fiber networks originally built for Telkomsel’s and TLKM’s corporate clients. Total homes
passed including copper and msan (a combination of fiber and copper) network is around
13.2mn. In 1H15, TLKM spent roughly 20% of its capex (IDR2tn) on its fixed-line business,
providing further support for IndiHome market penetration. TLKM currently has 9.8mn fixed-line
customers and 3.5mn broadband users (Speedy), all of whom are to be offered the new
Indihome package.
... TLKM is promoting
digital advertising
programs
The government intends
to improve urban
broadband penetration
to 71% households and
30% of population
Home broadband is
expected to continue its
substantial
improvement
In 1H15, TLKM spent
20% of its capex on
fixed-line business,
prividing further support
for IndiHome network
1789
3013
5437
193
340
860
0
1000
2000
3000
4000
5000
6000
7000
2011 2013 2018F
('000 subs)
ADSL Cable
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 8
2014
Finance Asia's
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Only 6 months following its launch, IndiHome’s 1H15 subscribers (exhibit 17) reached 427k
(1Q15: 245k subscribers), with a significant backlog of 30k subscribers as TLKM is having
difficulty keeping up with strong customer demand. This is also the reason for the significant
increase in TLKM’s 1H15 operation and maintenance (O&M) costs (+23% y-y), as the company
has incurred expenses on equipment such as set-top boxes and antennae for new IndiHome
subscribers. After installation, the subscribers make monthly rental payments to TLKM for the
equipment. Although the costs are one-off in nature and will be paid by customers later, we
expect O&M expenses to remain escalated as TLKM continues to acquire a significant number of
IndiHome subscribers. It is worth noting that TLKM’s IndiHome fast broadband subscribers has
surpassed LINK’s total broadband subscriber base, only 6 months following its launching.
Exhibit 17. Home broadband subscribers, 1H15
Source: Companies
In 2H15, we expect TLKM to accelerate its “IndiHome” installations, helping the company to
surpass total subscribers of 1mn by 2015, before reaching the 3mn level by 2017, suggesting
additional revenue potential of IDR9.7tn (10% of 2015F revenue). Going forward, we expect
IndiHome to provide a sustained additional source of revenue growth.
Mitratel deal with TBIG to be terminated; Mitratel IPO a possibility
Another interesting development at TLKM is its move to terminate a conditional share
exchange agreement (CSEA) with Tower Bersama Infrastructure (TBIG) for Mitratel, TLKM’s
tower provider subsidiary, at TLKM’s Board of Commissioners’ (BoC) request. TLKM will issue a
joint statement with TBIG on the termination of their agreement. Following this development,
we believe TLKM has 3 options. The first is to renegotiate the agreement with TBIG on
Mitratel’s and TBIG’s valuation. The second would be to invite a new tender for a tower
provider partner that could cooperate with Mitratel. The last option would be to develop
Mitratel internally and issue an IPO of Mitratel to raise funds to support future expansion.
To recap, last year TBIG announced its plan to acquire Mitratel in a two-step process, whereby
TBIG would issue 763mn new shares to TLKM (13.7% of the enlarged capital), assume
Mitratel’s debt of IDR2.7tn and pay IDR1.7tn in deferred cash. At that time (10 Oct 2014),
Mitratel had 3,928 towers and 4,363 tenants, reflecting 1.13x tenancy ratio and a rental rate
of IDR15mn/BTS. Apart from providing tower leasing on its own, Mitratel takes on the role as
an agent of TSEL’s towers that total almost twice as many Mitratel’s towers. The deal
represented an EV/tower of USD224k (excluding the agency business), much lower than
TBIG’s (USD416k) and TOWR’s (USD358k) valuations at that time.
Only 6 months following
its launch, IndiHome has
reached 427k broadband
subscribers ...
... surpassing LINK’s
total broadband
subscriber base
2015F IndiHome subs to
reach 1mn and 3mn in
2017F
TLKM to terminate its
Mitratel deal with TBIG
In Oct’14, the deal
represented EV/tower
of USD224k (excl.
agency business), much
lower than TBIG’s
(USD416k) and TOWR’s
(USD358k)
1.5
6.5
0
1
2
3
4
5
6
7
418
420
422
424
426
428
LINK INDIHOME
(mn homes)'000 subs
Subscribers Homes passed
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 9
2014
Finance Asia's
Best
Equity House
Alpha
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Research Call
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Asiamoney's
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2015
Institutional
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House
As Mitratel has increased the total number of its towers and tenants, the deal is currently
valued at USD120k/tower, partly due to Mitratel’s tenancy ratio which is below its peers.
Compared to the valuations of other tower providers, such as TBIG with EV/tower of USD348k
as well as TOWR with EV/tower of USD303k, Mitratel’s sale to TBIG was considered cheap,
particularly given that Mitratel has a relatively high rental rate and the potential to unlock
TSEL’s significant tower base. On the tenancy ratio, we believe it is due to TLKM management’s
intention to protect TSEL’s business, not due to Miratel’s unattractive tower locations or
quality, as Mitratel benefits from a first mover advantage. Having said that, we believe that low
tenancy ratio is something that can be addressed by the management through increased
marketing initiatives. In conclusion, we consider the termination of Mitratel’s sales to TBIG as
positive for TLKM shareholders.
Exhibit 18. Tower provider regional peers, 2016F
Source: Companies, Bloomberg, Bahana estimates; data as of 10 August 2015
As of 1H15, Mitratel had improved its assets significantly to 6,260 towers and 7,119 tenants,
reflecting a 1.13x tenancy ratio, while TSEL has around 17k towers. In the future, we believe
that TLKM may prefer the IPO route for Mitratel to unlock the value of Mitratel as the
EV/EBITDA of tower providers is greater than that of telco operators. Furthermore, an IPO is a
transparent process that involves scrutiny from global investors, limiting further disagreement
from TLKM’s BoC and government officials. Finally, by pursuing the IPO route, TLKM could reap
the upside potential from Mitratel. Although Mitratel only has 6k towers, much lower than TBIG
(11k towers) and TOWR (12k towers), the company has access to TSEL’s 17k towers, making
Mitratel the country’s largest tower provider, with access to 23k towers and the widest covered
area. Mitratel’s reach, pricing power, and expected solid growth should serve as solid catalysts
for a potential IPO, in our view.
Exhibit 19. Tower provider comparison, 1H15
Source: Bahana estimates, Companies
We consider the
termination of Mitratel’s
sales to TBIG as positive
for TLKM shareholders
Tower providers
regional peers trade at a
2016F EV/EBITDA of
17.2x, with EPS growth
of 37% y-y
We believe the Mitratel
IPO would unlock the
value of the tower
subsidiary while
capitalizing on upside
potential
Mitratel and TSEL
towers combined
represent 23k towers,
more than double that of
nearest competitor
TOWR
11,67511,154
7,0006,260
17,000
8,600
6,500
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
TOWR TBIG SUPR Mitratel TSEL ISAT EXCL
M a rk e t C a p 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F
C o m pa ny ( U S D bn)
Indo ne s ia 6 .2 2 2 .3 3 0 .1 13 .2 5 .3 0 .9 2 5 .2
So lus i Tunas P ratam a 0.6 12.2 59.1 7.9 1.4 - 12.2
To wer B ersam a Infras truc ture 2.6 18.5 35.6 13.0 4.5 0.5 25.4
Sarana M enara N usantara 3.0 27.5 19.7 14.5 6.7 1.4 27.4
U S A 6 9 .7 4 7 .2 3 0 .7 17 .9 5 .4 1.9 11.8
A m erican To wer 42.2 40.3 16.8 17.7 6.1 2.4 15.1
C ro wn C astle 27.5 57.9 52.1 18.1 4.3 1.1 6.6
Ind ia 13 .2 3 4 .6 7 1.4 14 .4 4 .9 0 .5 14 .5
B hart i Infratel 13.2 34.6 71.4 14.4 4.9 0.5 14.5
G lo ba l we igh t e d a v e ra ge 8 9 .1 10 4 .1 13 2 .2 4 5 .5 15 .5 3 .3 5 1.4
P E R ( x) E P S gwt . ( %) E V / E B IT D A ( x) P B V ( x) P E G ( x) R O E ( x)
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 10
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Minimal impact from the new interconnection policy
Mr. Rudiantara, the Indonesian Communication and Information Minister, plans to optimize the
current interconnection policy. Presently, off-net interconnections (calls to other operators) are
6 times more expensive than on-net interconnections (calls to the same operator). Earlier this
year, the minister wants to cut the off-net tariff from around 6x more expensive to around 3
times, in order to boost traffic. Should this materialize, ISAT and EXCL will benefit as they are
net interconnection payers (exhibit 20 & 21).
However, we understand that the new regulation on the interconnection rates, which will be
issued at the end of this year, could use the asymmetric method, an interconnection rate that
considers operational expenses and capital expenditures related to run the network. With this
method, interconnection rates will be different in each region, depend on the cost structure in
each region. We expect the interconnection rates in Java should be lower than those in outer
Java areas.
Although we expect lower TLKM’s interconnection revenues from Java areas, the net impact
should be slightly positive as TLKM will experience improved interconnection revenues from
outer Java areas. However, we expect this impact to be minimal as interconnection revenues
only represent around 6% of TLKM’s total revenues with EBITDA margin from interconnection
business only at around 15%, much lower than TLKM’s overall EBITDA margin of around 50%.
Exhibit 20. Incumbent interconnection income, 2008-2014
Source: Company
Exhibit 21. Current mobile interconnection rates
Source: Company
There could be some
adjustments to the
interconnection rates
using ...
... asymmetric method,
where interconnection
rates in Java should be
lower than those in
outer Java areas, ...
... with limited impact to
TLKM’s profitability
TSEL benefits the most
from the current
interconnection rates
compared to others
Interconnection rates
continued to be cut in
the last few years
Local to fixed/FWA 361 261 251
to mobile 449 261 251
to satellite 574 261 251
Long distance to fixed/FWA 471 380 357
to mobile 622 493 461
to satellite 851 501 463
International 510 498 453
IDR per minute Before 2008 2008-2010 2011
(IDRbn) 2009A 2010A 2011A 2012A 2013A 2014A
TSEL
Interconnect revenues 2,528 3,173 3,148 3,651 4,104 3,981
Interconnect expenses (2,366) (2,797) (2,701) (3,244) (3,213) (3,157)
Net revenues 162 376 447 407 891 824
EXCL
Interconnect revenues 1,551 1,727 1,762 2,641 3,033 3,007
Interconnect expenses (2,028) (2,304) (2,463) (3,097) (3,726) (3,356)
Net revenues (477) (577) (702) (456) (693) (349)
ISAT
Interconnect revenues 1,492 1,253 1,182 2,175 2,431 2,023
Interconnect expenses (1,449) (1,736) (1,707) (2,558) (2,946) (2,555)
Net revenues 43 (483) (524) (383) (516) (532)
10 August 2015
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Solid revenue growth expected ahead with well-supported EBITDA margin
At this stage, we expect rising data usage and a rational pricing environment to support solid
revenue growth. We expect continued strong data growth and stable voice revenue growth to
allow TSEL to book double-digit revenue growth. We revise up TLKM’s 2015-16F revenue by 1-
3%, as we expect TLKM’s revenue to grow 10% y-y through 2017. We expect the EBITDA
margin to recover from 49% in 2015 to around the 50-51% level in 2016-17. In 2015, we
forecast TLKM’s revenue to reach IDR98tn, +10% y-y, and grow 11% y-y to IDR109tn in 2016
and IDR120tn, +10% y-y in 2017.
On one-off personnel costs and escalated network costs in 1H15, we cut our 2015F EBITDA by
4% and net profit by 2%. We note that accelerated depreciation for Telkom Flexi should be
quite minimal going forward. TLKM booked one-off personnel expenses of around IDR844bn on
692 early retirement programs (ERP) in 2Q15, while TLKM did not have an ERP in 2014. By
2019, TLKM targets its total employee to decrease to around 8.5k from 16k currently. We do
not expect an ERP to materialize in 2H15, although we expect TLKM to book additional lower
ERP expenses of around IDR500bn (2Q15: IDR844bn) in following years as TLKM expects a
significant number of natural retirements.
For 2016-17, we expect the EBITDA margin to recover from 49% in 2015 to around the 50-
51% level. We expect TLKM’s 2015 EBITDA to only grow to IDR48.4tn, +6% y-y, prior to
recovering to IDR54.8tn, +13% y-y in 2016 and IDR60.9tn, +11% y-y in 2017. On the bottom
line, we expect TLKM to book 2015 net profit of IDR16.4tn, +12% y-y, before continuing to
grow 17% y-y to IDR19.1tn in 2016 and IDR21.6tn, +13% y-y in 2017.
Exhibit 22. Earnings revisions
Old New Change (%)
2015F 2016F 2017F 2015F 2016F 2017F 2015 2016F 2017F
Revenue (USDmn) 97,141 105,287 - 98,258 108,610 119,793 1.1 3.2 -
EBITDA (USDmn) 50,590 55,235 - 48,396 54,796 60,938 (4.3) (0.8) -
EBITDA margin (%) 52.1 52.5 - 49.3 50.5 50.9
Opt profit (USDmn) 31,685 34,753 - 31,143 35,838 40,275 (1.7) 3.1 -
Opt margin (%) 32.6 33.0 - 31.7 33.0 33.6
Net profit (USDmn) 16,744 18,612 - 16,382 19,105 21,615 (2.2) 2.6 -
Net margin (%) 17.2 17.7 - 16.7 17.6 18.0
EPS 166 185 - 163 190 214 (2.2) 2.6 -
Source: Bahana estimates
Maintain BUY with higher TP of IDR3,675
As we are well into 2H15, we now roll over our valuation using 2016 as our base. We use an
SOTP valuation using DCF value of Telkomsel and other TLKM businesses, from 2016 (base
investment year) to 2025, with a terminal growth rate of 2%, 10.7% WACC and 0.86x Beta
(using TLKM’s 10-year data). Our valuation methodology results in our higher new 12-month
TP from IDR3,350 to IDR3,675, translating to 2016F EV/EBITDA of 9.6x (excluding Singtel’s
proportion), a 5% premium to its regional peers.
TSEL is expected to book
double-digit revenue
growth supporting
TLKM’s future
performance
expectation
No ERP in 2H15F; expect
lower ERP levels
EBITDA margin to
recover from 49% in
2015F to 50-51% in
2016-17F
Trimming 2015F
numbers; raising 2016F
expectations
Rolling over to next
year’s valuation using
SOTP methodology, we
arrive at ...
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 12
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Exhibit 23. TLKM SOTP, 2016F
Source: Bahana estimates
Despite TLKM currently trading higher than its 5-year historical EV/EBITDA of 7.41x (st. dev:
1.17x), we believe that the EV/EBITDA level (exhibit 23) has continued to increase in the past
few years on improved prospects ahead. In our target price, TLKM still trades within 2
standard deviation of its 5-year historical EV/EBITDA level. We argue that TLKM deserves a
premium over historical levels as well as regional peer EV/EBITDAs due to its expected solid
and sustainable growth ahead. We also note that investments in telcos are defensive in nature
while at the same time telcos currently operates under a rational pricing environment due to a
market consolidation phase. At the current low 3G-smartphone proportions as well as ARPU
levels compared to neighboring countries, we expect Indonesian telco companies to experience
sustained growth in the next few years.
Exhibit 24. Telco operator regional peers, 2016F
Source: Companies, Bloomberg, Bahana estimates; data as of 10 August 2015
... a new 12M TP of
IDR3,675
Indonesian telcos
deserve a premium on
their defensive nature
and expected
sustainable solid
growth, in our view
Telco operator regional
peers trade at a 2016F
EV/EBITDA of 9.1x
IDRbn Method Equity TLKM's 2016F
Value Ownership Value
Telkomsel DCF 534,337 65% 347,319
Other TLKM businesses DCF 23,404 100% 23,404
370,723
100,800
Value/Share (IDR) 3,678
Shares Outstanding (mn)
Total Value
Business
M a rk e t C a p 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F
C o m pa ny ( U S D bn)
Indo ne s ia 2 7 .4 16 .2 15 .9 7 .1 3 .2 2 .5 2 0 .7
Telko m Indo nes ia 22.6 15.6 16.6 7.8 3.6 1.1 24.0
XL A xiata 3.0 na (333.4) 4.5 1.5 na 4.7
Indo sat 1.9 23.1 566.4 3.4 1.6 24.6 7.0
M a la ys ia 2 0 .3 2 1.3 5 .5 10 .1 3 4 .6 4 .6 19 0 .9
D igi.co m 13.3 19.5 3.5 11.8 51.2 5.6 283.8
Teleko m M alays ia 7.0 24.8 9.3 7.0 3.0 2.7 13.6
P hill ipp ine s 19 .6 18 .0 2 .5 8 .6 4 .6 19 .4 2 6 .4
P hilippine Lo ng D is tance Tel 14.5 16.9 0.7 8.7 4.1 25.3 25.0
Glo be Teleco m 5.1 21.3 7.7 8.3 6.0 2.8 30.4
T ha ila nd 2 9 .0 18 .2 13 .1 8 .8 11.6 1.4 7 5 .6
A dvanced info Serv ice 22.1 18.4 13.7 9.8 13.7 1.3 89.0
To tal A ccess C o m m unicat io n 6.8 17.8 11.1 5.4 4.9 1.6 32.4
S inga po re 7 .8 17 .2 2 .1 9 .3 2 8 .0 14 .1 16 8 .3
Starhub 5.3 18.0 0.9 9.5 37.9 19.2 225.5
M o bileo ne 2.5 15.4 4.5 8.8 7.0 3.4 46.8
G lo ba l we igh t e d a v e ra ge 7 6 .7 18 .9 7 .2 9 .1 17 .6 8 .1 10 3 .0
P E G ( x)P E R ( x) E P S gwt . ( %) E V / E B IT D A ( x) P B V ( x) R O E ( x)
10 August 2015
PT Bahana Securities – Equity Research – TLKM IJ 13
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Exhibit 25. TLKM historical EV/EBITDA band, 2010-2015
Source: Bloomberg, Bahana estimates
At this stage of the market cycle, we believe Indonesia’s low ARPU and broadband penetration
rate as well as market consolidation will pave the way for TLKM to book sustained solid
revenue growth, allowing its ytd market outperformance to persist ahead (exhibit 4). With that
said, we retain our BUY rating on TLKM on 24% upside potential. Risks to our call include
tougher-than-expected competition and higher-than-expected network expenses.
Average EV/EBITDA
continue to increase on
improved prospects
Risks: tough competition
and high network costs
4
5
6
7
8
9
10
Agust-11 Feb-12 Agust-12 Feb-13 Agust-13 Feb-14 Agust-14 Feb-15
Average 5 years -2 STD +2 STD EV/EBITDA
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Telekomunikasi Indonesia Year to 31 December 2013 2014 2015F 2016F 2017F PROFIT & LOSS (IDRb) Sales 82,967 89,696 98,258 108,610 119,793 Gross profit - - - - - EBITDA 41,776 45,844 48,396 54,796 60,938 Depreciation 15,780 17,131 17,253 18,958 20,663 EBIT 25,996 28,713 31,143 35,838 40,275 Net interest inc./(expense) (668) (576) (766) (515) (179) Forex gain/ (losses) (249) (14) (127) 64 25 Other income/ (expense) 2,070 661 661 661 661 Pre-tax profit 27,149 28,784 30,910 36,048 40,782 Taxes (6,859) (7,338) (7,728) (9,012) (10,196) Minority interest (6,085) (6,808) (6,800) (7,931) (8,972) Extraordinary gain/(losses) - - - - - Net profit 14,205 14,638 16,382 19,105 21,615
BALANCE SHEET (IDRb) Cash and equivalents 14,696 17,672 17,075 18,482 22,419 S-T investments 6,872 2,797 3,085 3,410 3,761 Trade receivables 6,623 6,997 8,188 9,051 9,983 Inventories 509 474 671 728 795 Fixed assets 86,761 94,809 102,556 108,598 114,122 Other assets 13,094 19,073 20,751 22,937 25,299 Total assets 128,555 141,822 152,326 163,206 176,380 Interest bearing liabilities 20,256 23,452 23,452 21,452 20,452 Trade payables 12,197 12,362 13,032 13,602 14,328 Other liabilities 19,286 19,873 21,444 23,486 25,904 Total liabilities 51,739 55,687 57,928 58,540 60,683 Minority interest 16,932 18,323 18,986 20,797 22,631 Shareholders' equity 59,884 67,812 75,412 83,869 93,065
CASH FLOW (IDRb) EBIT 25,996 28,713 31,143 35,838 40,275 Depreciation 15,780 17,131 17,253 18,958 20,663 Working capital 3,587 (174) (718) (349) (274) Other operating items (30,656) (14,441) (15,958) (17,995) (19,732) Operating cash flow 14,707 31,229 31,720 36,452 40,933 Net capital expenditure (24,898) (24,667) (24,000) (24,000) (25,188) Free cash flow (10,191) 6,562 7,720 12,452 15,745 Equity raised/(bought) 1,250 576 - - - Net borrowings 981 3,196 - (2,000) (1,000) Other financing 9,538 (7,358) (8,317) (9,045) (10,808)
Net cash flow 1,578 2,976 (597) 1,407 3,937 Cash flow at beginning 13,118 14,696 17,672 17,075 18,482 Cash flow at end 14,696 17,672 17,075 18,482 22,419
RATIOS ROAE (%) 25.5 22.9 22.9 24.0 24.4 ROAA (%) 11.8 10.8 11.1 12.1 12.7 EBITDA margin (%) 50.4 51.1 49.3 50.5 50.9 EBIT margin (%) 31.3 32.0 31.7 33.0 33.6 Net margin (%) 17.1 16.3 16.7 17.6 18.0 Payout ratio (%) 70.0 60.0 65.0 65.0 65.0 Interest coverage (x) 1.2 1.1 1.1 1.1 1.2 Net gearing (%) 38.9 49.8 40.6 69.6 225.1 Debts to assets (%) 9.3 8.5 8.5 3.5 nc Debtor turnover (days) 15.8 16.5 15.4 13.1 11.6 Creditor turnover (days) 27 29 30 31 31 Inventory turnover (days) 64 75 70 68 65
MAJOR ASSUMPTIONS Subscribers ('000) 131,512 140,585 144,803 147,699 150,653 Net adds ('000) 6,366 9,073 4,218 2,896 2,954 ARPU (IDR 000) 37 39 40 43 47
Source: Company, Bahana estimates
2015-17F revenue likely to
increase 10% y-y, higher than industry growth
Well-maintained debt levels expected ...
... despite capex remaining above IDR24tn in 2015-17F
Margin improvement in 2016-17F
on cost efficiencies and
normalization of expenses
We expect improvements in ARPU to continue
10 August 2015
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Exhibit 26. TLKM forecast, 2015F-2025F
Source: Bahana, Company
Exhibit 27. TLKM key performance data, 1Q13-2Q15
Source: Bahana, Company
Exhibit 28. Results summary q-q y-y 2Q15/ y-y 1H15/ 1H15/ (IDRb) 2Q14 1Q15 2Q15 (%) (%) 2Q15F 1H15 (%) 2015F Cons
Sales 22,292 23,616 25,224 6.8 13.2 103.9 48,840 12.2 50.3 46,1540 Operating expenses (15,219) (16,352) (17,741) 8.5 16.6 (34,093) 15.3 52.1
Operating profit 7,073 7,264 7,483 3.0 5.8 14,747 5.5 46.5
EBITDA 11,288 12,362 11,178 (9.6) (1.0) 88.4 23,540 0.0 46.5
Net int. income/(expense) (169) (129) (275) 113.2 62.7 (404) 78.0 64.5
Forex gain (expenses) (94) (12) 37 (8.9) (5.6) 25 (117.1) (19.6)
Other income/(expense) 169 195 157 (19.5) (7.1) (27) (81.1) 29.3
Pretax profit 6,979 7,318 7,402 1.1 6.1 14,720 6.4 46.6
Taxation (1,769) (1,810) (1,931) 6.7 9.2 (3,741) 7.0 47.4
Minority Interest (1,509) (1,694) (1,838) 8.5 21.8 (3,532) 15.8 50.8
Net profit 3,701 3,814 3,633 (4.7) (1.8) 86.8 7,447 2.2 44.5
BS & Ratio analysis 2Q14 1Q15 2Q15 1H14 1H15 2014A 2015F 2016F EBITDA margin (%) 55.3 52.3 44.3 50.8 48.2 51.1 52.1 52.5
Operating margin (%) 31.7 30.8 29.7 32.1 30.2 32.0 32.6 33.0
Net margin (%) 16.6 16.2 14.4 16.7 15.2 16.3 17.2 17.7
Inventory days 5 3 4 5 4 3 4 4
Receivable days 25 28 28 26 29 29 30 31
Payable Days 62 53 66 64 68 75 71 69
Total cash (IDRb) 16,828 20,282 24,286 16,828 24,286 17,672 19,235 20,863
Total debt (IDRb) 23,710 23,438 29,555 23,710 29,555 23,452 23,452 21,452
Net gearing (%) 11.4 3.5 6.4 11.4 6.4 8.5 5.6 0.7
Source: Bahana, Company, Bloomberg
IDRbn 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Revenues 98,258 108,610 119,793 131,651 144,709 158,990 174,487 191,164 208,947 227,723 247,340
TSEL 73,950 81,740 90,157 99,081 108,909 119,657 131,320 143,871 157,255 171,386 186,150
Other TLKM businesses 24,308 26,869 29,636 32,569 35,800 39,333 43,167 47,292 51,692 56,337 61,190
EBITDA 48,396 54,796 60,938 67,336 74,381 82,085 90,446 99,443 109,037 119,167 129,750
TSEL 40,761 45,729 50,816 56,122 61,966 68,356 75,291 82,753 90,711 99,113 107,891
Other TLKM businesses 7,635 9,067 10,122 11,214 12,415 13,729 15,155 16,690 18,326 20,054 21,859
Net Profit 16,382 19,105 21,615 24,290 27,329 30,742 34,520 38,684 43,222 48,080 53,234
TSEL 14,110 15,968 17,880 19,865 22,078 24,521 27,192 30,080 33,169 36,433 39,839
Other TLKM businesses 2,272 3,137 3,735 4,425 5,251 6,221 7,328 8,605 10,054 11,647 13,395
Capex 24,000 24,000 25,188 26,437 27,742 29,094 30,484 31,902 33,335 34,771 36,195
TSEL 15,600 15,600 16,372 17,184 18,032 18,911 19,814 20,736 21,668 22,601 23,527
Other TLKM businesses 8,400 8,400 8,816 9,253 9,710 10,183 10,669 11,166 11,667 12,170 12,668
Key Indicators Unit 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Subscribers mn 120.6 125.1 127.9 131.5 132.7 137.4 139.4 140.6 141.5 144.1
ARPU IDRk 36 39 37 39 37 37 38 39 39 39
MoU (Total) bn minutes 46 49 48 49 47 49 50 51 50 54
MoU ( Chargable) bn minutes 33 35 35 37 37 41 40 43 42 45
SMS (total) bn units 62 66 63 69 68 65 62 61 58 57
SMS (chargable) bn units 29 39 37 41 38 39 32 30 29 31
Data volume PB 18 20 25 33 43 51 62 79 90 118
BTS (total) units 57,664 62,225 65,653 69,864 74,326 79,560 83,346 85,420 90,552 96,915
BTS (3G) units 17,758 20,828 23,438 27,037 30,575 34,274 37,082 38,439 43,006 48,200
Smartphone users units 18,056 19,902 20,041 23,662 28,170 31,207 35,363 40,420 43,731 48,128
Head Office Surabaya Branch
Graha Niaga, 19th Floor Wisma BII, Ground Floor
Jl. Jend. Sudirman Kav. 58 Jl. Pemuda 60-70
Jakarta 12190 Surabaya 60271
Indonesia Indonesia
Tel. 62 21 250 5081 Tel. 62 31 535 2788
Fax. 62 21 522 6049 http://www.bahana.co.id Fax. 62 31 546 1157
Fakhrul Fulvian
fakhrul.fulvian@bahana.co.idEconomistext 3602
Melvin Mikha Reminov
melvin@bahana.co.idResearch Associate
ext 3621
Research: +62 21 250 5081
Harry Suharry.su@bahana.co.id
Senior Associate DirectorHead of Research
Strategy, Consumer
ext 3600direct: +62 21 250 5735
Dealing Room: +62 21 527 0808 (Foreign Institutional)
Teguh Hartanto
teguh.hartanto@bahana.co.idAssociate Director
Deputy Head of Research
Banks, Cement, Aviationext 3610
Leonardo Henry Gavaza, CFAleonardo@bahana.co.id
Senior Research ManagerAuto, Heavy equipment, Telco
ext 3608
Chandra Widjanarka
chandra.widjanarka@bahana.co.idTechnical Analyst
ext 1252
+62 21 250 5508 (Domestic Institutional)
Ashish Agrawal
ashish@bahana.co.idVice President
Institutional Equity Salesext 2550 / 2553
Reynard Poernawan
reynard@bahana.co.idInstitutional Equity Sales
ext 2528
John M. Dasaaddasaad@bahana.co.id
Equity Salesext 2549
Yohanes Adhi Handoko
yohanes@bahana.co.idManager, Surabaya Branch
ext 7250
Suwardi Widjaja
Suwardi@bahana.co.idEquity Sales
ext 2548
Amelia Husada
amelia@bahana.co.idVice President
Institutional Equity Salesext 2552
Michael W Setjoadi michael@bahana.co.id
Research AnalystConsumer, Healthcare, Poultry
ext 3613
Nurul Farida
nurul@bahana.co.idEquity Sales
ext 2543
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adrian@bahana.co.idResearch AnalystIndustrial Estate
ext 3614
Hanna Marionda
hanna@bahana.co.idSales Trader
ext 2525
Adriana Kosasih
adri@bahana.co.idSales Executive
ext 2541
Ari Santosa
ari.santosa@bahana.co.idSales Trader
ext 2554
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adi.saputra@bahana.co.idResearch Associate
ext 3693
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robin@bahana.co.idResearch Analyst
Propertyext 3620
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agustinus.reza@bahana.co.idResearch Analyst
Plantations, Shipping, Transportationext 3616
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Research AnalystCement, Infratructure,Toll roads
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wafi@bahana.co.idTechnical Analyst
ext 3609
+62 31 535 2788 (Surabaya Branch)
Arandi Ariantaraarandi@bahana.co.id
Research AnalystCoal, Metals, Oil & Gas
ext 3619
Edy Sujosoedy.sujoso@bahana.co.id
Head of Equity Sales & TradingInstitutional Equity Sales
ext 2545
Made Ayu Wijayati
made.ayu@bahana.co.idResearch Executive
ext 3607
Sanni Satrio Dwi Utomo
sanni@bahana.co.idResearch Associate
ext 3611
Andre Natala Susanto
andre@bahana.co.idResearch Associate
ext 3601
Bagus Adi Yoga Prawira
yoga.prawira@bahana.co.idResearch AnalystConsumer, Media
ext 3604
Zefanya Halim
zefanya@bahana.co.idCA Manager
ext 3612
Novianty Permata Sari
novianty@bahana.co.idCA
ext 3618
Disclaimer This publication is prepared by PT.Bahana Securities and reviewed by Daiwa Securities Group Inc. and/or its affiliates, and distributed outside Indonesia by Daiwa Securities Group Inc. and/or its affiliates, except to the extent expressly provided herein. Certain copies of this publication may be distributed inside and outside of Indonesia by PT. Bahana Securities in accordance with relevant laws and regulations. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Any review does not constitute a full verification of the publication and merely provides a minimum check. Neither Daiwa Securities Group Inc. nor any of its respect ive parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.
Neither Daiwa Securities Group Inc. nor any of its affiliates is licensed to undertake any business within the Republic of Indonesia. Any display of any trade name or logo of the Daiwa Securities Group Inc. on this publication shall not be deemed to be an undertaking of any business within the Republic of Indonesia.
Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time may have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.
Japan
Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.
Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc.
Investment Banking Relationship
Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Modern Land (China) Co. Ltd (1107 HK); China Everbright Bank Company Limited (6818 HK); econtext Asia Ltd (1390 HK); Lotte Shopping Co (023530 KS); Rexlot Holdings Ltd (555 HK); Neo Solar Power Corp (3576 TT); Accordia Golf Trust (AGT SP); Hua Hong Semiconductor Ltd (1347 HK).
*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of:
• Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司)
• Daiwa Capital Markets Singapore Limited
• Daiwa Capital Markets Australia Limited
• Daiwa Capital Markets India Private Limited
• Daiwa-Cathay Capital Markets Co., Ltd.
• Daiwa Securities Capital Markets Korea Co., Ltd
Disclosure of Interest of Bahana Securities
Investment Banking Relationship
Within the preceding 12 months, Bahana Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: PT Telekomunikasi Indonesia (Persero) Tbk (TLKM IJ); Garuda Indonesia (Persero) (GIAA IJ); Wijaya Karya Beton Tbk PT (WTON IJ); J Resources Asia Pasific Tbk PT (PSAB IJ)
Hong Kong
This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationship
For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Relevant Relationship (DHK)
DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
DHK market making
DHK may from time to time make a market in the securities covered by this research.
Singapore
This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.
Australia
This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
India
This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance
on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to ,or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited.
Taiwan
This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.
Philippines
This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange
Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc.
in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors
independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a
proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets
mentioned in the publication or may have performed other services for the issuers of such securities.
For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and
http://www.pse.com.ph/ respectively.
United Kingdom
This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.
This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Germany
This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.
Bahrain
This research material is distributed by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113
This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent.
United States
This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon
as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect
PT.Bahana Securities’ or DCMA’s views at any time. Neither PT.Bahana Securities, DCMA nor the preparer has any obligation to update this report
or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report
says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses.
Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives,
financial situation and needs. This report does not recommend to U.S. recipients the use of any of PT.Bahana Securities’ or DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to
such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this
material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of
securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities
discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should
contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).
Ownership of Securities
For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .
Investment Banking Relationships
For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .
DCMA Market Making
For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .
Research Analyst Conflicts
For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The
principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material
relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as
noted: no exceptions.
Research Analyst Certification
For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at
https://daiwa3.bluematrix.com/sellside/Disclosures.action . The views about any and all of the subject securities and issuers expressed in this
Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm
producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific
recommendations or views contained in this Research Report.
For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect:
Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more. "Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%. "Reduce": the price of the security is expected to decline by 5% or more.
Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”. “Overweight”: positive fundamentals for the sector. “Neutral”: neither positive nor negative fundamentals for the sector. “Underweight”: negative fundamentals for the sector.
Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .
Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Relevant Relationships (Bahana Securities) Bahana Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research.
Additional information may be available upon request.
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law
(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.
In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since
commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for
each transaction.
In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are
a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with
you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.
There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest
rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss
could exceed the amount of the collateral or margin requirements.
There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.
Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts
as certified public accountants.
*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd.
Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108
Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan
Japan Securities Investment Advisers Association
Type II Financial Instruments Firms Association
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