indonesia industry focus telecommunication sector telkom flexi sites fy14 ... principal business:gsm...

www.dbsvickers.com

ed-SGC / sa- MA

1Q15 results preview

Market has priced-in weak EXCL outlook

Expect strong results from TLKM

Steady growth of tower-co earnings

Prefer TOWR and TLKM , upgrade EXCL to BUY

EXCL: new guidance in line with our forecast. EXCL may reduce its topline guidance for this year due to below-industry growth. But this has been priced-in with the stock price correction. And, our FY15F revenue growth of 5% y-o-y is below the street's 9% as we have imputed a drop in effective data pricing (despite rising headline pricing).

TLKM: expect strong results from Telkomsel. EBITDA and earnings will meet our 1Q15 estimates premised on strong results from Telkomsel. However, earnings are unlikely to recover at ISAT and EXCL given their exposure to USD loans, continuous data pricing pressure, and further cannibalisation of SMS and Voice revenues.

Steady growth of tower business. Tower -co will see steady EBITDA growth in 1Q15 supported by stable rental rates, profitability and site expansion. Mitratel Tower will be consolidated into TBIG’s financial statement this year (included in our forecast), while TOWR will continue to expand its sites organically and add quality tenants (big 4 operators).

Prefer TLKM and TOWR, upgrade EXCL to Buy. We upgrade EXCL to BUY with TP intact at Rp5,200, as the 10% correction since 4Q14 results offers a good entry point. TLKM is our top pick in the sector with a DCF- based TP of Rp3,200 (19.8x FY15F PE), and we like TOWR with a DCF-based TP of Rp4,700 (13.7x FY15F EV/EBITDA),as valuation is undemanding and they have solid business fundamentals.

JCI : 5,400.8

Analyst Sachin MITTAL +65 6682 3699 [email protected] William SIMADIPUTRA +6221 30034939 [email protected]

STOCKS

Price Mkt Cap Target Performance (%)

Rp US$m Price Rp 3 mth 12 mth Rating

XL Axiata 4,365 2,864 5,200 -6.9 -10 Buy Indosat 4,100 1,713 4,250 -6.8 6.4 Hold PT Sarana Menara Nusantara 4,000 3,138 4,700 -0.7 5.3 Buy Telekomunikasi Indonesia 2,835 21,972 3,200 -0.7 21.9 Buy Tower Bersama Infrastruct. 9,375 3,457 10,400 -1.3 47.1 Hold

Source: DBS Bank, DBS Vickers

Telekomunikasi Indonesia : Fixed and cellular telecommunication services

XL Axiata : GSM telecommunications

Indosat : Fixed and cellular telecommunication services

Tower Bersama Infrastructure : Bersama provides telecommunication infrastructure services to Indonesian wireless carriers.

PT Sarana Menara Nusantara : PT Sarana Menara Nusantara Tbk, through a subsidiary, build telecommunications towers. The Company constructs, operates and rents the towers to mobile telecommunications services providers

DBS Group Research . Equity 21 Apr 2015

Indonesia Industry Focus

Telecommunication sector

Refer to important disclosures at the end of this report

Industry Focus


EXCL : Lower guidance in line with our forecast, challenging outlook priced in

EXCL’s management has guided for slower-than-industry revenue growth for FY15 at the management meeting with Axiata in Malaysia. But, we believe this has been priced in, as the stock price has corrected by 10% since our last rating downgrade after weak 4Q14 results. Our FY15F revenue growth is 5% y-o-y, below the street's 9% and industry's 7% growth estimates. We had factored in falling effective data pricing since last quarter, and hence, our forecast earnings are in line with the new guidance. However, there is downside risk to consensus estimates as we believe they have not accounted for the lower top line guidance. Moreover, the recent rumored merger between ISAT and Hutch could benefit EXCL the most as competition should ease. On the other hand, ISAT has lost more legacy revenues than EXCL, which means it will benefit less. EXCL new strategy following the appointment of a new CEO is also positive. EXCL will move away from its 'minute factory' strategy (i.e. high gross add model) and focus on improving EBITDA instead of attracting mid- and high-value subscribers. Axiata has committed to the new strategy and is willing to sacrifice some revenues in the near-term. Post-Axis integration, EXCL intends to adopt a dual brand strategy - XL will be the premium digital lifestyle brand, while Axis will be a tactical brand to serve the lower-end market. The strategy can be implemented simultaneously after EXCL completes the network integration with Axis in 1Q15. EXCL also intends to change the distribution model in Indonesia. They want to control and directly deal with the retail outlets and end customers. The role of the big distributors will change to that of a fulfillment center. This strategy will take 2-4 quarters to be fully implemented.

We are confident of TLKM

TLKM will meet our earnings expectations and management’s guidance (7% topline growth, above-industry) for 1Q15 by leveraging on its presence outside Java. Earnings growth will continue to outperform peers ISAT and EXCL ahead as it would be able to raise voice and SMS pricing to maintain profitability and earnings growth. TLKM is least affected by data pricing pressure because only 20-25% of its revenue is from Java, where competition is most intense among the operators. TLKM's main competitors, ISAT

and EXCL, are heavily exposed to the Java market and 70-80% of revenues will continue to be pressured by competitive pressure. Revenue breakdown by region

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

TLKM ISAT EXCL

Java Ex. Java

Source: Company, DBS Vickers TLKM will also meet our forecast EBITDA margin of 50.1%, slightly lower than last year (51.1%) as we have accounted for aggressive investments in the digital business. ISAT’s EBITDA margin should normalise to 42.8%; there was a one-off item in FY14 which reduced EBITDA margin to 36.4%. And, TLKM does not have exposure to USD loans, hence, bottom line should also be least vulnerable to fluctuations in foreign exchange rates. On the other hand, both ISAT and EXCL’s balance sheets carry substantial USD loans (60% of debt on average), which suggests their bottom lines will be more volatile if exchange rates fluctuate. USD loan exposure (% of total loans)

100%

70%

0%0%

20%

40%

60%

80%

100%

120%

EXCL ISAT TLKM

Series1

Source: Company, DBS Vickers

Industry Focus


Steady growth for TBIG and TOWR

TBIG and TOWR, Indonesia’s largest tower companies, will see steady earnings growth. EBITDA margins will be stable at 80% this year given their stable rental rates, site additions, and profitability. Both are exposed to the local operators’ rising capex and tower outsourcing trend, and will maintain 'asset-light operations' amid tight data pricing competition. Particularly for TOWR, site expansion rate will normalise starting 1Q15; last year, there were cancellations by Bakrie Telecom and Flexi (cancellations for 935 sites). There is no receivables issue for both TOWR and TBIG ahead as outstanding receivables had been fully written-off last year. Smaller tower companies with high exposure to both struggling operators have written-off receivables and tower infrastructure, according to our channel checks. TOWR: Sites additions in FY14

18,322

20,138

2,751

-874 -61

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

FY13 Gross tenants add

Cancellation of Bakrie sites

Expiration of Telkom Flexi Sites

FY14

Source: Company, DBS Bank, DBS Vickers TOWR will continue to grow its sites organically (build-to-suit), while TBIG's sites and EBITDA will be boosted by Mitratel towers contribution starting in 1Q15. We have accounted for the Mitratel transaction in FY15F and beyond.

ISAT will continue to focus to internal issues

We see no positive earnings catalyst for ISAT as the company will continue to focus on resolving internal issues, mainly modernise its network and restructure its balance sheet. ISAT has the capability to acquire smaller operators with fresh funds from the bond issuance, but the integration process would hurt near- to medium-term financial performance. Effective data pricing remains low

Effective data pricing has continued to drop (see chart) despite rising headline tariffs, as operators were offering larger data volumes, resulting in low pricing per MB. But if operators consolidation happen, such as the rumored ISAT and Hutch, data pricing could recover slightly. Low data pricing also means there will continue to be cannibalisation mainly at ISAT and EXCL, given their high exposure to Java subscribers. As such, we do not see an inflection point in the operators earnings trend.

Revenue per MB (Rp/MB)

0

50

100

150

200

250

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

TLKM EXCL

Source: Company, DBS Bank, DBS Vickers

Industry Focus


Stock Profiles

www.dbsvickers.com ed: SGC / sa: MA

BUY Rp4,365 JCI : 5,400.8 (Upgrade from HOLD)

Price Target :12-month Rp5,200 Reason for Report : 1Q15 result spreview, rating upgrade Potential Catalyst: Tower divestment, better-than-expected results Where we differ :We believe the new management will turnaround the company Analyst Sachin MITTAL +65 6682 3699 [email protected] William SIMADIPUTRA +6221 30034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2013A 2014A 2015F 2016F Revenue 21,351 23,106 24,206 25,924 EBITDA 8,660 8,161 9,102 9,816 Pre-tax Profit 1,390 (1,397) 1,423 1,930 Net Profit 1,033 (1,218) 1,067 1,448 Net Pft (Pre Ex.) 1,809 (1,218) 1,067 1,448 EPS (Rp) 121 (143) 125 170 EPS Pre Ex. (Rp) 213 (143) 125 170 EPS Gth (%) (63) nm nm 36 EPS Gth Pre Ex (%) (37) nm nm 36 Diluted EPS (Rp) 121 (143) 125 170 Net DPS (Rp) 55 0 69 102 BV Per Share (Rp) 1,800 1,641 1,766 1,867 PE (X) 35.9 nm 34.8 25.7 PE Pre Ex. (X) 20.5 nm 34.8 25.7 P/Cash Flow (X) 5.2 5.2 7.3 4.3 EV/EBITDA (X) 6.0 7.6 6.4 5.8 Net Div Yield (%) 1.3 0.0 1.6 2.3 P/Book Value (X) 2.4 2.7 2.5 2.3 Net Debt/Equity (X) 1.0 1.8 1.4 1.3 ROAE (%) 6.7 (8.3) 7.4 9.4 Earnings Rev (%): (19) (24) Consensus EPS (Rp): 121 209 No. of brokers following: B: 18 S: 1 H: 9 ICB Industry :Telecommunications ICB Sector: Mobile Telecommunications Principal Business:GSM telecommunications

Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P.

At A Glance Issued Capital (m shrs) 8,534 Mkt. Cap (Rpbn/US$m) 37,253 / 2,864 Major Shareholders Axiata Group (%) 66.6 Elisalat Intl (%) 13.3 Parkmix Ltd (%) 16.0 Free Float (%) 20.1 Avg. Daily Vol.(‘000) 4,245


Indonesia Company Focus

XL Axiata Bloomberg: EXCL IJ | Reuters: EXCL.JK Refer to important disclosures at the end of this report

New management, new strategy

Guidance in-line with our forecast

Focusing on improving profitability

Upgrade to BUY with TP Rp5,200

New guidance is line. It is in line with our FY15F revenue growth of 5% y-o-y, below the street's 9% and the industry's 7% growth. EXCL’s management is likely to reduce their top-line guidance for this year because of below-industry growth. New CEO, new strategy. EXCL plans to adopt the dual brand strategy - XL will be the premium digital lifestyle brand while Axis will be a tactical brand to serve the lower-end market. EXCL also intends to change the distribution model in Indonesia. They want to control and directly deal with the retail outlets and end customers. The role of the big distributors will change to that of a fulfillment center. EXCL will also benefit most if operators consolidate. Focus on profitability. Going forward, EXCL will move away from its 'minute factory' strategy (i.e. high gross add model) and focus on improving EBITDA instead of attracting mid- and high-value subscribers. Axiata has committed to the new strategy and is willing to sacrifice some revenues in the near-term. Upgrade to BUY, TP Rp5,200. Our TP is based on DCF valuation (WACC 9.4%, terminal growth rate 1%).All the concerns have been priced in as the stock price has corrected by 10% after 4Q14 result announcement.

41

61

81

101

121

141

161

181

201

221

3,600.0

4,100.0

4,600.0

5,100.0

5,600.0

6,100.0

6,600.0

7,100.0

7,600.0

Apr-11 Apr-12 Apr-13 Apr-14 Apr-15

Relative IndexRp

XL Axiata (LHS) Relative JCI INDEX (RHS)

Company Focus

XL Axiata

INVESTMENT THESIS

Profile Rationale

XL Axiata is one of the three major listed telecom players in Indonesia and is a pure cellular player. XL Axiata is one of the three major listed telecom players in Indonesia, and is a pure cellular player

Slow industry recovery: Despite raising headline pricing, telcos have failed to

raise effective pricing per MB. Data plans are costing consumers more but telcos are also offering larger data volumes, which is hurting per MB data revenue.

Lower data pricing is hurting Indonesian telcos more due to higher reliance on SMS revenue SMS and voice services contributed 24% and 41% of

XL's service revenues in 4Q14. These will be cannibalised by rising data usage.

Valuation Risks

DCF-based target price (WACC 9.4%, terminal growth rate 1%) is Rp5,200

Disruption to benign competition If any player gets aggressive in gaining market share, the

whole sector could be affected.

Weaker Rupiah Due to high foreign debt, a weak rupiah could adversely

hurt bottom line.


Company Focus

XL Axiata

Key Assumptions

FY Dec 2012A 2013A 2014A 2015F 2016F Subscribers (m) 46.4 61.4 60.8 66.3 69.6 ARPU (Rp K) 32.0 26.8 25.9 26.4 26.7 EBITDA margins (%) 45.8 40.6 35.3 37.6 37.9 Capex (Rp tn) 10.0 8.0 7.1 7.0 7.0 Segmental Breakdown

FY Dec 2012A 2013A 2014A 2015F 2016F Revenues (Rp bn) GSM Revenue 16,759 16,634 18,445 19,706 21,288 GSM interconnect 2,642 3,033 3,007 3,127 3,252 Other GSM 192 208 197 207 217 1,685 1,476 1,457 1,166 1,166 Total 21,278 21,351 23,106 24,206 25,924 Income Statement (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Revenue 21,278 21,351 23,106 24,206 25,924 Cost of Goods Sold (3,409) (3,811) (3,465) (3,608) (3,897) Gross Profit 17,869 17,540 19,641 20,597 22,026 Other Opng (Exp)/Inc (13,193) (14,639) (18,301) (18,060) (18,981) Operating Profit 4,675 2,901 1,339 2,537 3,045 Other Non Opg (Exp)/Inc (157) (442) (1,390) (9) (9) Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (605) (293) (1,346) (1,106) (1,106) Exceptional Gain/(Loss) (113) (776) 0 0 0 Pre-tax Profit 3,800 1,390 (1,397) 1,423 1,930 Tax (1,035) (357) 179 (356) (483) Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Profit 2,765 1,033 (1,218) 1,067 1,448 Net Profit before Except. 2,878 1,809 (1,218) 1,067 1,448 EBITDA 9,745 8,660 8,161 9,102 9,816 Growth Revenue Gth (%) 13.7 0.3 8.2 4.8 7.1 EBITDA Gth (%) 4.2 (11.1) (5.8) 11.5 7.8 Opg Profit Gth (%) 0.2 (37.9) (53.8) 89.4 20.0 Net Profit Gth (%) (2.3) (62.6) nm nm 35.7 Margins & Ratio Gross Margins (%) 84.0 82.2 85.0 85.1 85.0 Opg Profit Margin (%) 22.0 13.6 5.8 10.5 11.7 Net Profit Margin (%) 13.0 4.8 (5.3) 4.4 5.6 ROAE (%) 19.1 6.7 (8.3) 7.4 9.4 ROA (%) 8.0 2.7 (2.4) 1.8 2.7 ROCE (%) 12.0 6.8 3.1 3.9 5.0 Div Payout Ratio (%) 40.0 45.0 N/A 55.0 60.0 Net Interest Cover (x) 7.7 9.9 1.0 2.3 2.8


Sensitivity Analysis 2015

GSM revenue +/- 1% Net Profit +/- 1.8% EBITDA margin +/- 1% Net Profit +/- 3.2%

Margins Trend

-6.0%

-1.0%

4.0%

9.0%

14.0%

19.0%

24.0%

2012A 2013A 2014A 2015F 2016F

Operating Margin % Net Income Margin %

EBITDA margins will improve as they continue to cut costs

In line with guidance

Company Focus

XL Axiata

Quarterly / Interim Income Statement (Rpbn)

FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 Revenue 5,467 5,526 6,069 6,041 5,933 Cost of Goods Sold (873) (854) (915) (895) (801) Gross Profit 4,594 4,672 5,154 5,146 5,132 Other Oper. (Exp)/Inc (3,827) (4,030) (4,800) (4,993) (4,351) Operating Profit 767 644 351 154 516 Other Non Opg (Exp)/Inc (418) 457 (1,220) (435) (191) Associates & JV Inc N/A N/A N/A N/A N/A Net Interest (Exp)/Inc (152) (508) (219) (299) (320) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 197 593 (1,088) (580) 5 Tax (80) (213) 225 161 5 Minority Interest 0 0 0 0 0 Net Profit 117 380 (863) (418) 10 Net profit bef Except. 117 380 (863) (419) 10 EBITDA 2,241 2,201 2,061 2,061 2,300 Growth Revenue Gth (%) (1.3) 1.1 9.8 (0.5) (1.8) EBITDA Gth (%) (0.6) (1.8) (6.4) 0.0 11.6 Opg Profit Gth (%) 12.6 (16.0) (45.5) (56.1) 235.1 Net Profit Gth (%) (52.4) 224.8 nm 51.6 nm Margins Gross Margins (%) 84.0 84.5 84.9 85.2 86.5 Opg Margins (%) 14.0 11.7 5.8 2.5 8.7 Net Profit Margins (%) 2.1 6.9 (14.2) (6.9) 0.2 Balance Sheet (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Net Fixed Assets 31,342 33,896 35,859 30,714 30,943 Invts in Associates & JVs 0 0 0 0 0 Other LT Assets 2,448 2,448 14,538 14,538 14,538 Cash & ST Invts 792 1,328 6,951 2,041 3,156 Inventory 30 32 77 42 44 Debtors 511 512 1,130 581 622 Other Current Assets 2,341 1,464 5,151 5,151 5,151 Total Assets 37,463 39,681 63,706 53,067 54,454 ST Debt 4,310 4,310 4,077 4,077 4,077 Creditor 4,062 4,440 4,444 5,748 6,105 Other Current Liab 2,863 2,346 6,877 2,468 2,636 LT Debt 9,206 11,636 27,628 19,028 19,028 Other LT Liabilities 1,634 1,634 6,720 6,720 6,720 Shareholder’s Equity 15,388 15,315 13,961 15,028 15,888 Minority Interests 0 0 0 0 0 Total Cap. & Liab. 37,463 39,681 63,706 53,067 54,454 Non-Cash Wkg. Capital (4,044) (4,777) (4,963) (2,442) (2,924) Net Cash/(Debt) (12,724) (14,618) (24,753) (21,063) (19,948) Debtors Turn (avg days) 8.2 8.7 13.0 12.9 8.5 Creditors Turn (avg days) (828.3) (796.5) (483.1) (629.2) (752.8) Inventory Turn (avg days) (6.0) (5.8) (6.0) (7.3) (5.5) Asset Turnover (x) 0.6 0.6 0.4 0.4 0.5 Current Ratio (x) 0.3 0.3 0.9 0.6 0.7 Quick Ratio (x) 0.1 0.2 0.5 0.2 0.3 Net Debt/Equity (X) 0.8 1.0 1.8 1.4 1.3 Net Debt/Equity ex MI (X) 0.8 1.0 1.8 1.4 1.3 Capex to Debt (%) 73.6 50.1 22.4 6.1 30.3 Z-Score (X) 2.1 1.8 1.0 1.3 1.4


Revenue Trend

Asset Breakdown (2014)

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

3Q

20

12

4Q

20

12

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14

Revenue Revenue Growth % (QoQ)

Net Fixed Assets -81.5%

Assocs'/JVs -0.0%

Bank, Cash and Liquid

Assets -15.8%

Inventory -0.2%

Debtors -2.6%

EBITDA margin recovered sharply to 39%, but excluding one-off items, core margin was only 36%

Company Focus

XL Axiata

Cash Flow Statement (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Pre-Tax Profit 3,800 1,390 (1,397) 1,423 1,930 Dep. & Amort. 5,070 5,759 6,821 6,564 6,771 Tax Paid (1,035) (696) (518) (798) (419) Assoc. & JV Inc/(loss) 0 0 0 0 0 Chg in Wkg.Cap. 1,055 195 362 (2,079) 419 Other Operating CF 95 528 1,881 0 0 Net Operating CF 8,985 7,177 7,150 5,110 8,701 Capital Exp.(net) (9,953) (7,981) (7,095) (1,420) (6,999) Other Invts.(net) 0 0 (9,583) 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF (48) 0 0 0 0 Net Investing CF (10,001) (7,981) (16,678) (1,420) (6,999) Div Paid (991) (1,106) (540) 0 (587) Chg in Gross Debt 2,790 2,430 16,070 (8,600) 0 Capital Issues 0 0 0 0 0 Other Financing CF (987) 17 (370) 0 0 Net Financing CF 812 1,341 15,161 (8,600) (587) Currency Adjustments 0 0 0 0 0 Chg in Cash (204) 536 5,633 (4,910) 1,115 Opg CFPS (Rp) 932 821 798 845 973 Free CFPS (Rp) (114) (95) 7 434 200


Capital Expenditure

Target Price & Ratings History


0

2000

4000

6000

8000

10000

12000

2012A 2013A 2014A 2015F 2016F

Capital Expenditure (-)

S.No. DateClosing

PriceTarget Price Rating

1: 14 May 14 5225 4200 Fully Valued 2: 22 Aug 14 5650 6700 Buy

3: 01 Oct 14 6100 6900 Buy

4: 10 Oct 14 6200 6900 Buy

5: 09 Feb 15 4950 5200 Hold

Note : Share price and Target price are adjusted for corporate actions.

1

2 3

4

5

3942

4442

4942

5442

5942

6442

6942

Apr-14 Aug - 14 Dec -14 Apr-15

Rp

Total of Rp6.9bn capex and cash from tower divestment


HOLD Rp4,100 JCI : 5,400.8 Price Target :12-month Rp4,250 Reason for Report :1Q15 results preview Potential Catalyst: Tower divestment Where we differ: We believe ISAT will continue to experience SMS and revenue and cannibalisation Analyst Sachin MITTAL+65 6682 3699 [email protected] William SIMADIPUTRA+6221 30034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2013A 2014A 2015F 2016F Revenue 23,855 24,085 26,358 27,166 EBITDA 10,326 8,758 11,275 11,558 Pre-tax Profit (2,666) (1,936) 1,077 688 Net Profit (2,782) (1,987) 666 360 Net Pft (Pre Ex.) (3,450) (1,987) 666 360 EPS (Rp) (512) (366) 122 66 EPS Pre Ex. (Rp) (635) (366) 122 66 EPS Gth (%) nm 29 nm (46) EPS Gth Pre Ex (%) (323) 42 nm (46) Diluted EPS (Rp) (512) (366) 122 66 Net DPS (Rp) 0 0 0 0 BV Per Share (Rp) 2,929 2,486 2,609 2,675 PE (X) nm nm 33.5 61.9 PE Pre Ex. (X) nm nm 33.5 61.9 P/Cash Flow (X) 12.4 3.3 2.0 2.4 EV/EBITDA (X) 4.2 4.8 3.5 3.3 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 1.4 1.6 1.6 1.5 Net Debt/Equity (X) 1.2 1.3 1.1 0.9 ROAE (%) (16.5) (13.5) 4.8 2.5 Earnings Rev (%): (2,568) nm Consensus EPS (Rp): 112 207 No. of brokers following: B: 15 S: 3 H: 7 ICB Industry :Telecommunications ICB Sector: Telecommunications Principal Business:Fixed and cellular telecommunication services


At A Glance Issued Capital (m shrs) 5,434 Mkt. Cap (Rpbn/US$m) 22,279 / 1,713 Major Shareholders Qatar Telecom (%) 65.0 Govt of Indonesia (%) 14.3 Free Float (%) 20.7 Avg. Daily Vol.(‘000) 446



Indosat Bloomberg: ISAT IJ | Reuters: ISAT.JK Refer to important disclosures at the end of this report

Increasing data usage

Normalizing EBITDA margin and growth

Focusing on resolving internal issues

Data will continue to cannibalize SMS and voice revenues in FY15

Reiterate HOLD, TP Rp4,250 s

Profitability at risk. ISAT’s EBITDA margin will normalize to 42.8% after the one-off IM2 provision charge in FY14. We estimate EBITDA will grow by 29% y-o-y to Rp11.2tn this year. However, there is downside risk to ISAT’s bottom-line in anticipation of a volatile currency this year. Focusing on resolving internal issues. We believe ISAT will focus on modernizing its network and restructuring its balance sheet. This means it does not yet have an effective strategy to improve profitability. Data will continue to cannibalize other revenues. We remain convinced SMS and voice revenues will continue to drop after ISAT completes the network modernization this year. Java subscribers will continue to diversify beyond voice and SMS to meet their communication needs by leveraging on lower effective data pricing. ISAT has high exposure to the Java market, which accounts for 80-90% of consolidated revenues. HOLD, TP Rp4,250. Our DCF-based TP is based on 10.1% WACC and 1% terminal growth rate, as we see challenging quarters ahead. The continued weak data pricing could trigger the migration to data usage.

38

58

78

98

118

138

158

178

198

218

2,790.0

3,790.0

4,790.0

5,790.0

6,790.0

7,790.0


Relative IndexRp

Indosat (LHS) Relative JCI INDEX (RHS)

Company Focus

Indosat

INVESTMENT THESIS

Profile Rationale

Telecommunication and information service provider in Indonesia that offers cellular services, fixed data/MIDI and fixed voice services.

Product - pricing are not competitive enough Voice and data pricing differential versus XL Axiata is too

high to sustain especially as XL Axiata continues to be aggressive.

Lags peers in 3G space Urgent need to improve 3G coverage and capacity,

implying upside risk to capital expenditure (capex).

Valuation Risks

Our target price of Rp4,250 is derived from discounted cash flow (DCF) method with weighted average cost of capital (WACC) and terminal growth assumptions of 10.1% and 1.0% respectively.

Disruption to benign competition If any player tries to be aggressive to gain market share,

the whole sector could be impacted.

Depreciation of Indonesian Rupiah Due to high foreign debt, a weak Indonesian rupiah could

adversely impact its bottom line.


Company Focus

Indosat

Key Assumptions

FY Dec 2012A 2013A 2014A 2015F 2016F Subscribers (m) 58.2 59.6 63.2 66.5 70.5 Blended ARPU (Rp k) 28.7 27.7 29.0 28.7 28.3 EBITDA Margin % 47.0 43.3 36.4 42.8 42.5 Capex (Rp tn) 5.8 6.0 4.9 8.2 7.9 Segmental Breakdown

FY Dec 2012A 2013A 2014A 2015F 2016F Revenues (Rp bn) FWA & IDD 1,021 1,215 1,096 1,074 1,053 Cellular 18,490 19,374 19,480 21,845 22,743 MIDI 2,908 3,266 3,509 3,438 3,370 N/A N/A N/A N/A N/A 0 0 0 0 0 Total 22,419 23,855 24,085 26,358 27,166 Income Statement (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Revenue 22,419 23,855 24,085 26,358 27,166 Cost of Goods Sold (20,159) (22,346) (23,412) (24,220) (25,110) Gross Profit 2,261 1,509 673 2,138 2,056 Other Opng (Exp)/Inc 0 0 0 0 0 Operating Profit 2,261 1,509 673 2,138 2,056 Other Non Opg (Exp)/Inc (1,051) (2,738) (345) (106) (110) Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (1,939) (2,105) (2,264) (955) (1,257) Exceptional Gain/(Loss) 1,184 668 0 0 0 Pre-tax Profit 455 (2,666) (1,936) 1,077 688 Tax 26 0 78 (269) (172) Minority Interest (112) (116) (129) (142) (156) Preference Dividend 0 0 0 0 0 Net Profit 369 (2,782) (1,987) 666 360 Net Profit before Except. (815) (3,450) (1,987) 666 360 EBITDA 10,540 10,326 8,758 11,275 11,558 Growth Revenue Gth (%) 9.0 6.4 1.0 9.4 3.1 EBITDA Gth (%) 6.5 (2.0) (15.2) 28.7 2.5 Opg Profit Gth (%) (31.9) (33.3) (55.4) 217.7 (3.8) Net Profit Gth (%) (55.8) nm 28.6 nm (45.9) Margins & Ratio Gross Margins (%) 10.1 6.3 2.8 8.1 7.6 Opg Profit Margin (%) 10.1 6.3 2.8 8.1 7.6 Net Profit Margin (%) 1.6 (11.7) (8.3) 2.5 1.3 ROAE (%) 2.1 (16.5) (13.5) 4.8 2.5 ROA (%) 0.7 (5.1) (3.7) 1.2 0.6 ROCE (%) 5.3 3.4 1.5 3.6 3.4 Div Payout Ratio (%) 50.0 N/A N/A 0.0 0.0 Net Interest Cover (x) 1.2 0.7 0.3 2.2 1.6



ARPU +/- 1% Net Profit +/-11 %

EBITDA margin +/- 1% Net Profit +/- 12%

Margins Trend

-13.0%

-8.0%

-3.0%

2.0%

7.0%

2012A 2013A 2014A 2015F 2016F


Company Focus

Indosat


FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 Revenue 6,055 5,773 5,840 6,104 6,368 Cost of Goods Sold (6,067) (5,151) (5,383) (6,934) (6,143) Gross Profit (12) 622 457 (830) 225 Other Oper. (Exp)/Inc 0 0 0 0 0 Operating Profit (12) 622 457 (830) 225 Other Non Opg (Exp)/Inc (438) 963 0 0 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (566) (592) 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit (1,015) 993 457 (830) 225 Tax 141 (162) (160) (53) (27) Minority Interest (116) (31) (25) (30) (42) Net Profit (990) 800 (574) (1,549) (664) Net profit bef Except. (990) 800 (574) (1,549) (664) EBITDA 2,341 2,611 2,421 1,210 2,459 Growth Revenue Gth (%) (0.6) (4.7) 1.2 4.5 4.3 EBITDA Gth (%) (11.8) 11.5 (7.2) (50.0) 103.2 Opg Profit Gth (%) nm nm (26.6) nm nm Net Profit Gth (%) 35.5 nm nm (170.0) 57.1 Margins Gross Margins (%) (0.2) 10.8 7.8 (13.6) 3.5 Opg Margins (%) (0.2) 10.8 7.8 (13.6) 3.5 Net Profit Margins (%) (16.4) 13.9 (9.8) (25.4) (10.4) Balance Sheet (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Net Fixed Assets 40,805 42,190 40,776 40,560 39,729 Invts in Associates & JVs 0 0 0 0 0 Other LT Assets 5,341 5,162 3,887 3,661 3,435 Cash & ST Invts 3,914 2,234 3,480 8,994 8,352 Inventory 178 36 49 226 234 Debtors 1,794 2,268 2,094 2,109 2,173 Other Current Assets 3,491 2,631 2,968 2,752 2,831 Total Assets 55,523 54,521 53,255 58,302 56,755 ST Debt 0 4,800 10,947 5,000 3,000 Creditor 535 339 691 679 702 Other Current Liab 12,276 8,355 9,510 11,059 10,971 LT Debt 19,700 17,632 11,350 20,000 20,000 Other LT Liabilities 4,574 6,877 6,561 6,561 6,561 Shareholder’s Equity 17,822 15,914 13,509 14,175 14,535 Minority Interests 617 603 687 829 985 Total Cap. &Liab. 55,523 54,521 53,255 58,302 56,755 Non-Cash Wkg. Capital (7,347) (3,759) (5,089) (6,650) (6,435) Net Cash/(Debt) (15,786) (20,198) (18,817) (16,006) (14,648) Debtors Turn (avg days) 26.7 31.1 33.1 29.1 28.8 Creditors Turn (avg days) 17.4 11.8 12.3 16.6 16.1 Inventory Turn (avg days) 4.7 2.9 1.0 3.3 5.4 Asset Turnover (x) 0.4 0.4 0.4 0.5 0.5 Current Ratio (x) 0.7 0.5 0.4 0.8 0.9 Quick Ratio (x) 0.4 0.3 0.3 0.7 0.7 Net Debt/Equity (X) 0.9 1.2 1.3 1.1 0.9 Net Debt/Equity ex MI (X) 0.9 1.3 1.4 1.1 1.0 Capex to Debt (%) 29.4 26.8 22.1 32.7 34.4 Z-Score (X) 1.2 1.1 0.9 1.1 1.2


Revenue Trend


-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

5,400

5,500

5,600

5,700

5,800

5,900

6,000

6,100

6,200

6,300

6,400

6,500

3Q

20

12

4Q

20

12

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14



Assocs'/JVs -0.0%


Assets -7.5%

Inventory -0.1%

Debtors -4.5%

FY14 performance dragged by one-off provision for IM12 case

High reliance on debt, if core business does not improve, the company may need to divest more towers

Company Focus

Indosat


FY Dec 2012A 2013A 2014A 2015F 2016F Pre-Tax Profit 455 (3,334) (1,936) 1,077 688 Dep. &Amort. 7,814 8,042 8,273 8,612 8,977 Tax Paid (112) 770 64 (210) (221) Assoc. & JV Inc/(loss) 0 0 0 0 0 Chg in Wkg.Cap. (1,026) (3,860) 316 1,502 (166) Other Operating CF (142) 184 0 0 0 Net Operating CF 6,989 1,802 6,717 10,981 9,278 Capital Exp.(net) (5,789) (6,018) (4,918) (8,171) (7,920) Other Invts.(net) 3,150 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF (10) 0 0 0 0 Net Investing CF (2,649) (6,018) (4,918) (8,171) (7,920) Div Paid 0 (602) 0 0 0 Chg in Gross Debt (2,142) 2,731 (134) 2,703 (2,000) Capital Issues 0 0 0 0 0 Other Financing CF (506) 406 (418) 0 0 Net Financing CF (2,648) 2,535 (552) 2,703 (2,000) Currency Adjustments 0 0 0 0 0 Chg in Cash 1,693 (1,681) 1,246 5,514 (642) Opg CFPS (Rp) 1,475 1,042 1,178 1,744 1,738 Free CFPS (Rp) 221 (776) 331 517 250


Capital Expenditure



0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2012A 2013A 2014A 2015F 2016F


S.No. DateClosing


1: 09 May 14 4100 3600 Fully Valued 2: 31 Mar 15 4265 4250 Hold


1

2

2945 3145 3345 3545 3745 3945 4145 4345 4545


Rp


BUY Rp4,000 JCI : 5,400.8 Price Target :12-Month Rp4,700 Reason for Report : 1Q15 results preview Potential Catalyst: M&A Where we differ:TOWR should be re-rated because of its strong business model. Analyst Sachin MITTAL+65 6682 3699; [email protected] William SIMADIPUTRA+6221 30034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2013A 2014A 2015F 2016F Revenue 3,197 4,106 4,726 5,329 EBITDA 2,651 3,418 3,921 4,421 Pre-tax Profit 228 1,211 2,145 2,574 Net Profit 169 839 1,608 1,931 Net Pft (Pre Ex.) 1,117 1,115 1,608 1,931 EPS (Rp) 17 82 158 189 EPS Pre Ex. (Rp) 109 109 158 189 EPS Gth (%) (51) 398 92 20 EPS Gth Pre Ex (%) 67 0 44 20 Diluted EPS (Rp) 17 82 158 189 Net DPS (Rp) 0 0 0 0 BV Per Share (Rp) 358 459 616 806 PE (X) 242.1 48.6 25.4 21.1 PE Pre Ex. (X) 36.5 36.6 25.4 21.1 P/Cash Flow (X) 16.8 15.6 15.1 11.6 EV/EBITDA (X) 18.3 14.1 12.2 10.5 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 11.2 8.7 6.5 5.0 Net Debt/Equity (X) 2.1 1.6 1.1 0.7 ROAE (%) 5.9 20.2 29.3 26.6 Earnings Rev (%): 2 1 Consensus EPS (Rp): 150 181 No. of brokers following: B: 11 S: 2 H: 1 ICB Industry :Telecommunications ICB Sector: Mobile Telecommunications Principal Business:PT Sarana Menara Nusantara Tbk, through a subsidiary, build telecommunications towers. The Company constructs, operates and rents the towers to mobile telecommunications services providers


At A Glance Issued Capital (m shrs) 10,203 Mkt. Cap (Rpbn/US$m) 40,812 / 3,138 Major Shareholders Tricipta Mandhala Gumilang (%) 25.6 Caturguwirantna Sumapala (%) 24.6 T Rowe Price International (%) 8.6 Free Float (%) 41.3 Avg. Daily Vol.(‘000) 97



Sarana Menara Nusantara Bloomberg: TOWR IJ EQUITY | Reuters: TOWR.JK Refer to important disclosures at the end of this report

Steady growth

Normalizing growth of tenant base

Earnings quality continues to improve

Stable rental rates and profitability

Reiterate BUY, TP Rp4,700

Normalizing sites and tenant growth. Site expansion rate will normalize starting 1Q15; last year, there were cancellations by Bakrie Telecom and Flexi (cancellations for 935 sites). There is no receivables issue for both TOWR and TBIG ahead as outstanding receivables had been fully written-off last year. Improving earnings quality. Rising revenue contribution from top operators will lift TOWR’s earnings and receivables quality. The Big Three operators plus Hutch accounted for 78% of TOWR’s total revenue in FY14. Stable rental rate, stable profitability. Besides site and tenant additions, TOWR’s steady earnings performance is also supported by stable rental rates. Hence, EBITDA margin will be stable at 80%. BUY,TP Rp4,700. Valuation is undemanding at 12.2x FY15 EV/EBITDA, or 17% discount to TBIG’s valuation. Our DCF-based target price is based on 9.2% WACC and 4% terminal growth rate. We continue to believe TOWR should be trading at the same valuation as TBIG given their similar performance, business model and execution capability.

77

127

177

227

277

769.5

1,269.5

1,769.5

2,269.5

2,769.5

3,269.5

3,769.5

4,269.5


Relative IndexRp

PT Sarana Menara Nusantara (LHS) Relative JCI INDEX (RHS)

Company Focus

Sarana Menara Nusantara

INVESTMENT THESIS

Profile Rationale

PT Sarana Menara Nusantara Tbk, through a subsidiary, builds, constructs, operates, and rents telecommunication towers to mobile telecommunication services providers.

Strong earnings growth outlook Double digit EBITDA growth outlook on stable rental rate

and solid tenancy ratio outlook.

Higher exposure to first tier operators TOWR's proven execution track record will continue to

attract first tier tenants, which will improve earnings growth and quality.

Lower tower rentals Decline in tower leasing rates

Valuation Risks

Our TP is based on DCF valuation (WACC 9.2%, terminal growth 4%) and implies 13.7x FY15 EV/EBITDA. We prefer TOWR to TBIG given its undemanding valuation (17% discount) but has lower gearing, which suggests more room for inorganic growth.

Tenancy risk Tower-co fail to find additional tenants for newly

acquired/built towers, causing tenancy and profitability to drop.

Rental rate pressure Tower leasing rates could drop.

Operators rein in network expansion, weak rupiah vs USD Slower network expansion means slower BTS rollout,

which would derail tower-co site expansion plans.


Company Focus


Key Assumptions

FY Dec 2012A 2013A 2014A 2015F 2016F Towers 8,460.0 9,746.0 11,346.0 12,818.0 14,290.0 Total tenants 14,849.0 18,322.0 21,822.0 24,797.0 27,772.0 Tenancy ratio 1.8 1.9 1.9 1.9 1.9 Capex (Rp tn) 2.0 2.4 2.2 2.3 2.1 Income Statement (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Revenue 2,265 3,197 4,106 4,726 5,329 Cost of Goods Sold (720) (1,135) (1,322) (1,413) (1,591) Gross Profit 1,546 2,062 2,784 3,313 3,738 Other Opng (Exp)/Inc (239) (339) (449) (499) (563) Operating Profit 1,307 1,724 2,335 2,814 3,176 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (522) (547) (849) (669) (601) Exceptional Gain/(Loss) (324) (948) (275) 0 0 Pre-tax Profit 460 228 1,211 2,145 2,574 Tax (114) (63) (371) (536) (644) Minority Interest 0 4 0 0 0 Preference Dividend 0 0 0 0 0 Net Profit 346 169 839 1,608 1,931 Net Profit before Except. 670 1,117 1,115 1,608 1,931 EBITDA 1,896 2,651 3,418 3,921 4,421 Growth Revenue Gth (%) 37.3 41.1 28.4 15.1 12.8 EBITDA Gth (%) 36.7 39.9 28.9 14.7 12.8 Opg Profit Gth (%) 44.4 31.9 35.5 20.5 12.8 Net Profit Gth (%) 21.9 (51.3) 398.1 91.6 20.0 Margins & Ratio Gross Margins (%) 68.2 64.5 67.8 70.1 70.1 Opg Profit Margin (%) 57.7 53.9 56.9 59.5 59.6 Net Profit Margin (%) 15.3 5.3 20.4 34.0 36.2 ROAE (%) 17.9 5.9 20.2 29.3 26.6 ROA (%) 3.6 1.3 5.1 8.4 8.5 ROCE (%) 10.6 10.1 10.9 12.2 11.5 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 0.0 Net Interest Cover (x) 2.5 3.1 2.8 4.2 5.3



Rental rate +/- 1% Net Profit +/- 3.7%EBITDA margin +/- 1% Net Profit +/- 2.3%

Margins Trend

5.0%

15.0%

25.0%

35.0%

45.0%

55.0%

2012A 2013A 2014A 2015F 2016F


We assumed organic growth strategy (tower build to suit)

Stable profitability amid stable rental rates

Company Focus



FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 Revenue 902 913 997 1,165 1,031 Cost of Goods Sold (309) (320) (334) (348) (321) Gross Profit 593 594 663 817 711 Other Oper. (Exp)/Inc (96) (96) (114) (121) (119) Operating Profit 497 498 549 696 592 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (175) (160) (160) (159) (370) Exceptional Gain/(Loss) (236) 263 (209) (130) (200) Pre-tax Profit 86 601 180 407 22 Tax (28) (152) (48) (99) (72) Minority Interest (2) 1 0 1 (2) Net Profit 57 450 133 309 (52) Net profit bef Except. 293 187 341 439 148 EBITDA 743 754 814 972 1,117 Growth Revenue Gth (%) 10.9 1.3 9.1 16.9 (11.5) EBITDA Gth (%) 10.4 1.6 7.9 19.4 14.9 Opg Profit Gth (%) 14.2 0.2 10.3 26.7 (15.0) Net Profit Gth (%) nm 692.5 (70.5) 132.5 nm Margins Gross Margins (%) 65.7 65.0 66.5 70.1 68.9 Opg Margins (%) 55.1 54.5 55.1 59.7 57.4 Net Profit Margins (%) 6.3 49.3 13.3 26.5 (5.0) Balance Sheet (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Net Fixed Assets 8,734 11,152 12,392 13,496 14,502 Invts in Associates & JVs 0 0 0 0 0 Other LT Assets 197 2,167 2,197 2,145 2,093 Cash & ST Invts 1,376 1,506 2,010 4,380 6,651 Inventory 2 1 1 1 1 Debtors 155 674 574 996 1,123 Other Current Assets 473 35 62 62 62 Total Assets 10,936 15,534 17,235 21,081 24,432 ST Debt 495 1,086 203 1,086 1,086 Creditor 179 485 472 592 667 Other Current Liab 266 849 1,365 1,358 1,466 LT Debt 7,543 8,221 9,151 10,151 11,151 Other LT Liabilities 350 1,250 1,376 1,615 1,854 Shareholder’s Equity 2,104 3,648 4,677 6,286 8,216 Minority Interests 0 (5) (8) (8) (8) Total Cap. & Liab. 10,937 15,534 17,235 21,081 24,432 Non-Cash Wkg. Capital 184 (625) (1,199) (892) (946) Net Cash/(Debt) (6,662) (7,802) (7,344) (6,857) (5,586) Debtors Turn (avg days) 21.6 47.3 55.5 60.6 72.6 Creditors Turn (avg days) 452.0 585.0 732.7 634.1 665.4 Inventory Turn (avg days) 4.7 2.2 0.9 0.8 0.8 Asset Turnover (x) 0.2 0.2 0.3 0.2 0.2 Current Ratio (x) 2.1 0.9 1.3 1.8 2.4 Quick Ratio (x) 1.6 0.9 1.3 1.8 2.4 Net Debt/Equity (X) 3.2 2.1 1.6 1.1 0.7 Net Debt/Equity ex MI (X) 3.2 2.1 1.6 1.1 0.7 Capex to Debt (%) 33.7 15.4 25.7 19.7 18.4 Z-Score (X) 3.7 2.8 2.9 2.7 2.7


Revenue Trend


-15%

-10%

-5%

0%

5%

10%

15%

20%

0

200

400

600

800

1,000

1,200

1,400

3Q

20

12

4Q

20

12

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14



Assocs'/JVs -0.0%


Assets -13.4%

Inventory -0.0%

Debtors -3.8%

Stable quarterly performance; we expect this trend to continue

Healthy gearing level

Company Focus



FY Dec 2012A 2013A 2014A 2015F 2016F Pre-Tax Profit 460 228 1,211 2,145 2,574 Dep. & Amort. 589 928 1,084 1,107 1,246 Tax Paid 0 (194) (26) (335) (536) Assoc. & JV Inc/(loss) 0 0 0 0 0 Chg in Wkg.Cap. (7) (314) 266 (509) (53) Other Operating CF 146 1,782 75 291 291 Net Operating CF 1,188 2,430 2,609 2,698 3,522 Capital Exp.(net) (2,708) (1,434) (2,404) (2,211) (2,251) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF 0 (343) 0 0 0 Net Investing CF (2,708) (1,776) (2,404) (2,211) (2,251) Div Paid 0 0 0 0 0 Chg in Gross Debt 2,000 (143) 46 1,883 1,000 Capital Issues 0 0 0 0 0 Other Financing CF 0 (495) 0 0 0 Net Financing CF 2,000 (638) 46 1,883 1,000 Currency Adjustments 0 360 0 0 0 Chg in Cash 480 376 251 2,370 2,271 Opg CFPS (Rp) 117 269 230 314 350 Free CFPS (Rp) (149) 98 20 48 125


Capital Expenditure



0

500

1000

1500

2000

2500

3000

2012A 2013A 2014A 2015F 2016F


S.No. DateClosing


1: 10 Nov 14 4150 3900 Hold

2: 06 Feb 15 4095 4700 Hold

3: 27 Mar 15 3950 4700 Hold


1

2

3

3420 3520 3620 3720 3820 3920 4020 4120 4220 4320


Rp


BUY Rp2,835 JCI : 5,400.8 Price Target :12-month Rp3,200 Reason for Report : 1Q15 result preview Potential Catalyst: Dividend, quarterly result and tower divestment Where we differ: We believe TLKM competitive advantage in ex. Java market will sustain Analyst Sachin MITTAL+65 6682 3699 [email protected] William SIMADIPUTRA+6221 30034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2013A 2014A 2015F 2016F Revenue 82,967 89,696 92,202 95,424 EBITDA 41,776 45,844 46,163 48,124 Pre-tax Profit 27,149 28,784 30,898 32,985 Net Profit 14,205 14,638 16,130 17,087 Net Pft (Pre Ex.) 14,205 14,638 16,130 17,087 EPS (Rp) 142 147 162 171 EPS Pre Ex. (Rp) 142 147 162 171 EPS Gth (%) 11 3 10 6 EPS Gth Pre Ex (%) 11 3 10 6 Diluted EPS (Rp) 142 147 162 171 Net DPS (Rp) 100 110 129 137 BV Per Share (Rp) 607 679 697 699 PE (X) 19.9 19.3 17.5 16.6 PE Pre Ex. (X) 19.9 19.3 17.5 16.6 P/Cash Flow (X) 7.7 7.3 6.8 6.7 EV/EBITDA (X) 7.1 6.6 6.6 6.3 Net Div Yield (%) 3.5 3.9 4.6 4.8 P/Book Value (X) 4.7 4.2 4.1 4.1 Net Debt/Equity (X) CASH 0.0 CASH CASH ROAE (%) 26.5 22.8 23.5 24.5 Earnings Rev (%): (5) (6) Consensus EPS (Rp): 168 184 No. of brokers following: B: 15 S: 2 H: 14 ICB Industry :Telecommunications ICB Sector: Telecommunications Principal Business:Fixed and cellular telecommunication services


At A Glance Issued Capital (m shrs) 100,800 Mkt. Cap (Rpbn/US$m) 285,768 / 21,972 Major Shareholders Govt. of Indonesia (%) 51.0 Free Float (%) 49.0 Avg. Daily Vol.(‘000) 90,123



Telekomunikasi Indonesia Bloomberg: TLKM IJ | Reuters: TLKM.JK Refer to important disclosures at the end of this report

Strong growth Results should meet expectations

Solid profitability outlook

Monetizing ex-Java advantage

Retain BUY rating and Rp3,200 TP

TLKM will meet our estimate. We believe TLKM will meet our estimate and the management’s guidance (top-line growth above industry growth of 7%)for 1Q15 given its ability to leverage on its presence outside Java, where its competitors are weak. Earnings growth will continue to outperform peers ISAT and EXCL, premised on its ability to raise voice and SMS pricing because ex-Java subscribers still rely on voice and SMS for communication. This will help TLKM to continue to register stable profitability and earnings growth ahead. Strong profitability outlook, no exposure to foreign

debt. TLKM will also meet our forecast EBITDA margin of 50.1%, which is only 1 ppt below last year’s, as we accounted aggressive investments in the digital business, in-line with guidance. And bottom-line will be least vulnerable to exchange rate movements because TLKM does not have exposure to USD loans. BUY, TP Rp3,200.Besides strong fundamentals, the stock is also trading at attractive 17.5x FY15F and 16.6x FY16F PE, at a discount to XL's 34x and 33x, respectively. TLKM also trading at 15% discount to its ASEAN peers’ average (19x FY15F PE).

73

93

113

133

153

173

193

213

1,198.8

1,698.8

2,198.8

2,698.8

3,198.8


Relative IndexRp

Telekomunikasi Indonesia (LHS) Relative JCI INDEX (RHS)

Company Focus

Telekomunikasi Indonesia

INVESTMENT THESIS

Profile Rationale

Fixed and cellular telecommunication services.

Benign competition may lead to further price hikes Telkomsel has been raising voice and SMS pricing across

its micro clusters and will continue to do so. While data pricing has declined so far, Tsel is willing to test the waters by raising data pricing in the near term.

Monetizing ex-Java advantage. Java accounts for only 20-25% of Telkomsel's revenue

versus 80-90% for Indosat and 60-70% for XL. Telkomsel has been raising voice and SMS pricing especially in ex-Java region where no one has a comparable 2G and 3G network.

Valuation cheap versus peers in Indoneisa Currently TLKM is trading at 17xFY15F & 16x FY16F PER

and is the only net cash telco in our coverage. XL is trading at 40x FY15F and 29x FY16F PER, while the ASEAN average is 19x FY15F PER. Potential divestment of tower subsidiary would be a key catalyst.

Valuation Risks

Our target price of Rp3,200 is derived from discounted cash flow (DCF) method with weighted average cost of capital (WACC) and terminal growth assumption of 9.4% and 1.0% respectively.

Fixed line business If fixed line business does not stabilise, Telkom may not

achieve our forecast and target price.


Company Focus


Key Assumptions

FY Dec 2012A 2013A 2014A 2015F 2016F GSM Subscribers (m) 108.8 125.1 140.6 149.3 157.2 Blended ARPU (Rp k) 37.5 37.0 37.0 36.4 35.6 EBITDA Margin % 51.5 50.4 51.1 50.1 50.4 Net Capex (Rp tr) 17.4 19.6 18.8 18.6 18.6 Segmental Breakdown

FY Dec 2012A 2013A 2014A 2015F 2016F Revenues (Rp bn) Fixed Line 7,395 9,701 8,881 8,437 8,353 Wireless Voice 28,355 32,138 34,290 34,290 34,290 Interconnection 9,710 4,843 4,708 4,577 4,577 Data/Internet & SMS 27,485 31,709 36,432 38,982 41,711 4,198 4,576 5,385 5,916 6,494 N/A N/A N/A N/A N/A Total 77,143 82,967 89,696 92,202 95,424 Income Statement (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Revenue 77,143 82,967 89,696 92,202 95,424 Cost of Goods Sold (37,401) (41,191) (43,852) (46,039) (47,301) Gross Profit 39,742 41,776 45,844 46,163 48,124 Other Opng (Exp)/Inc (14,843) (15,780) (17,131) (16,712) (16,886) Operating Profit 24,899 25,996 28,713 29,451 31,238 Other Non Opg (Exp)/Inc (122) 1,850 664 2,099 2,099 Associates & JV Inc 0 (29) (17) (18) (18) Net Interest (Exp)/Inc (643) (668) (576) (635) (333) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 24,135 27,149 28,784 30,898 32,985 Tax (5,792) (6,859) (7,338) (7,415) (7,917) Minority Interest (5,492) (6,085) (6,808) (7,353) (7,982) Preference Dividend 0 0 0 0 0 Net Profit 12,850 14,205 14,638 16,130 17,087 Net Profit before Except. 12,850 14,205 14,638 16,130 17,087 EBITDA 39,742 41,776 45,844 46,163 48,124 Growth Revenue Gth (%) 8.3 7.5 8.1 2.8 3.5 EBITDA Gth (%) 6.4 5.1 9.7 0.7 4.2 Opg Profit Gth (%) 6.8 4.4 10.5 2.6 6.1 Net Profit Gth (%) 23.6 10.5 3.0 10.2 5.9 Margins & Ratio Gross Margins (%) 51.5 50.4 51.1 50.1 50.4 Opg Profit Margin (%) 32.3 31.3 32.0 31.9 32.7 Net Profit Margin (%) 16.7 17.1 16.3 17.5 17.9 ROAE (%) 29.1 26.5 22.8 23.5 24.5 ROA (%) 11.9 11.8 10.9 11.3 11.5 ROCE (%) 21.4 19.6 19.3 19.0 19.4 Div Payout Ratio (%) 65.0 70.0 75.0 80.0 80.0 Net Interest Cover (x) 38.7 38.9 49.8 46.4 93.7



Wireless revenue +/- 1% Net Profit +/-1.2%EBITDA margin +/- 1% Net Profit +/- 2.4% Margins Trend

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

29.0%

31.0%

33.0%

35.0%

2012A 2013A 2014A 2015F 2016F


Slightly lower EBITDA due to digital business

Continues to see strong data growth

No exposure to USD loans

Company Focus



FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 Revenue 21,468 21,250 22,292 22,299 23,855 Cost of Goods Sold (11,970) (10,259) (10,954) (10,992) (11,647) Gross Profit 9,498 10,991 11,338 11,307 12,208 Other Oper. (Exp)/Inc (4,708) (3,948) (4,215) (3,873) (5,095) Operating Profit 4,790 7,043 7,123 7,434 7,113 Other Non Opg (Exp)/Inc 1,734 (70) 84 506 127 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (123) (58) (169) (178) (171) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 6,401 6,915 7,038 7,762 7,069 Tax (1,739) (1,726) (1,766) (1,943) (1,903) Minority Interest (1,514) (1,540) (1,510) (1,784) (1,974) Net Profit 3,148 3,649 3,762 4,035 3,192 Net profit bef Except. 3,148 3,649 3,762 4,035 3,192 EBITDA 9,498 10,991 11,338 11,307 12,208 Growth Revenue Gth (%) 0.6 (1.0) 4.9 0.0 7.0 EBITDA Gth (%) (19.5) 15.7 3.2 (0.3) 8.0 Opg Profit Gth (%) (37.6) 47.0 1.1 4.4 (4.3) Net Profit Gth (%) (19.9) 15.9 3.1 7.3 (20.9) Margins Gross Margins (%) 44.2 51.7 50.9 50.7 51.2 Opg Margins (%) 22.3 33.1 32.0 33.3 29.8 Net Profit Margins (%) 14.7 17.2 16.9 18.1 13.4 Balance Sheet (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Net Fixed Assets 81,029 86,761 94,809 96,722 98,437 Invts in Associates & JVs 0 0 0 0 0 Other LT Assets 8,913 8,115 12,324 12,306 12,288 Cash & ST Invts 14,377 21,568 20,469 21,431 27,940 Inventory 548 509 474 569 584 Debtors 4,629 6,026 6,465 6,697 6,931 Other Current Assets 4,310 4,972 6,354 6,077 6,213 Total Assets 113,805 127,951 140,895 143,803 152,394 ST Debt 491 5,525 7,709 491 491 Creditor 10,323 11,600 11,830 12,965 13,321 Other Current Liab 9,972 11,312 12,247 12,574 13,026 LT Debt 9,168 14,731 15,743 15,298 14,853 Other LT Liabilities 12,085 7,359 7,241 7,241 7,241 Shareholder’s Equity 46,497 60,542 67,807 69,563 69,810 Minority Interests 25,268 16,882 18,318 25,671 33,652 Total Cap. & Liab. 113,805 127,951 140,895 143,803 152,394 Non-Cash Wkg. Capital (10,809) (11,405) (10,784) (12,196) (12,618) Net Cash/(Debt) 4,718 1,312 (2,983) 5,642 12,596 Debtors Turn (avg days) 21.1 23.4 25.4 26.1 26.1 Creditors Turn (avg days) 159.2 157.4 160.0 154.3 157.7 Inventory Turn (avg days) 8.4 7.6 6.7 6.5 6.9 Asset Turnover (x) 0.7 0.7 0.7 0.6 0.6 Current Ratio (x) 1.1 1.2 1.1 1.3 1.6 Quick Ratio (x) 0.9 1.0 0.8 1.1 1.3 Net Debt/Equity (X) CASH CASH 0.0 CASH CASH Net Debt/Equity ex MI (X) CASH CASH 0.0 CASH CASH Capex to Debt (%) 180.0 94.7 80.2 118.0 121.2 Z-Score (X) 6.0 5.2 5.7 5.6 5.6


Revenue Trend


-6%

-4%

-2%

0%

2%

4%

6%

8%

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

3Q

20

12

4Q

20

12

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14



Assocs'/JVs -0.0%


Assets -14.8%

Inventory -0.4%

Debtors -5.4%

Company Focus



FY Dec 2012A 2013A 2014A 2015F 2016F Pre-Tax Profit 24,135 27,149 28,784 30,898 32,985 Dep. & Amort. 14,843 15,780 17,131 16,712 16,886 Tax Paid (5,763) (7,395) (6,660) (7,938) (7,791) Assoc. & JV Inc/(loss) 0 29 17 18 18 Chg in Wkg.Cap. 1,010 2,429 (701) 1,935 297 Other Operating CF (4,000) (1,418) 143 0 0 Net Operating CF 30,225 36,574 38,714 41,624 42,395 Capital Exp.(net) (17,388) (19,176) (18,818) (18,625) (18,600) Other Invts.(net) 0 270 2,612 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF 0 (3,802) 0 0 0 Net Investing CF (17,388) (22,708) (16,206) (18,625) (18,600) Div Paid (8,084) (13,044) (12,979) (14,374) (16,840) Chg in Gross Debt (445) (2,151) 3,196 (7,663) (445) Capital Issues 0 0 2,545 0 0 Other Financing CF 0 1,868 74 0 0 Net Financing CF (8,529) (13,327) (7,164) (22,037) (17,285) Currency Adjustments 0 0 0 0 0 Chg in Cash 4,309 539 15,344 962 6,509 Opg CFPS (Rp) 293 342 395 398 422 Free CFPS (Rp) 129 174 199 230 238


Capital Expenditure


Source: DBS Vickers

16000000

16500000

17000000

17500000

18000000

18500000

19000000

19500000

2012A 2013A 2014A 2015F 2016F


S.No. DateClosing


1: 02 Jun 14 2520 2500 Buy

2: 31 Jul 14 2650 2900 Buy

3: 25 Aug 14 2685 2900 Buy

4: 12 Feb 15 2895 3200 Buy

5: 10 Mar 15 2945 3200 Buy


1

2

3

4

5

2151 2251 2351 2451 2551 2651 2751 2851 2951 3051

Apr-14 Aug -14 Dec -14 Apr-15

Rp

Capex-to-sales ratio is 20.2%


HOLD Rp9,375 JCI : 5,400.8 Price Target :12-Month Rp10,400 Reason for Report : 1Q15 results preview Potential Catalyst: M&A Where we differ: Factored in positives from Mitratel transaction Analyst Sachin MITTAL+65 6682 3699 [email protected] William SIMADIPUTRA+6221 30034939 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2013A 2014A 2015F 2016F Revenue 2,691 3,307 5,202 5,985 EBITDA 2,205 2,718 4,275 4,940 Pre-tax Profit 1,178 1,431 2,320 2,513 Net Profit 1,248 1,301 1,510 1,629 Net Pft (Pre Ex.) 1,265 972 1,510 1,629 EPS (Rp) 260 256 297 320 EPS Pre Ex. (Rp) 264 191 297 320 EPS Gth (%) 35 (2) 16 8 EPS Gth Pre Ex (%) 90 (28) 55 8 Diluted EPS (Rp) 260 256 297 320 Net DPS (Rp) 52 57 59 64 BV Per Share (Rp) 831 783 1,472 1,728 PE (X) 36.0 36.6 31.6 29.3 PE Pre Ex. (X) 35.5 49.0 31.6 29.3 P/Cash Flow (X) 28.4 41.0 29.7 19.6 EV/EBITDA (X) 25.9 23.2 16.3 14.3 Net Div Yield (%) 0.6 0.6 0.6 0.7 P/Book Value (X) 11.3 12.0 6.4 5.4 Net Debt/Equity (X) 2.9 3.7 1.8 1.6 ROAE (%) 30.7 32.7 26.3 20.0 Earnings Rev (%): (21) (24) Consensus EPS (Rp): 370 460 No. of brokers following: B: 8 S: 2 H: 7 ICB Industry :Technology ICB Sector: Technology Hardware & Equipment Principal Business:Bersama provides telecommunication infrastructure services to Indonesian wireless carriers.


At A Glance Issued Capital (m shrs) 4,797 Mkt. Cap (Rpbn/US$m) 44,967 / 3,457 Major Shareholders Provident Capital (%) 23.8 Wahana Anugerah (%) 23.8 Saratoga Infrastruktur (%) 17.0 Free Float (%) 35.4 Avg. Daily Vol.(‘000) 1,933


IndonesiaCompany Focus

Tower Bersama Infrastructure Bloomberg: TBIG IJ | Reuters: TBIG.JK Refer to important disclosures at the end of this report

Mitratel to boost earnings Mitratel started to contribute in 1Q15

Focus on adding tenants

Stable profitability

Maintain HOLD, TP Rp10,400

Mitratel to contribute from 1Q15.We estimate EBITDA will jump by 57% to Rp4.3tn in FY15, even with our conservative assumptions for sites (+1,927) and tenants (+3,928) which implies a tenancy ratio of 1.56x, lower than last year’s 1.67x. Minimal execution risk.The integration of operations post-Mitratel transaction will be smooth, like in 2012 when TBIG acquired 2,500 towers from ISAT. There was visible positive impact from the first year. Stable profitability. TBIG’s EBITDA margin will remain at 80% premised on stable rental rates. There will be minimal impact from changes to Telkomsel’s rental rate (power costs charged to Telkomsel now vs absorbed by TBIG previously. TOWR implemented the new lease term last year but there was no impact on EBITDA. HOLD, TP Rp10,400.Despite strong fundamentals and earnings growth outlook, TBIG's valuation is demanding at 16.2x FY15F EV/EBITDA, at 17% premium to our top pick TOWR although their business fundamentals are similar. The key upside risk to our call is better-than-expected impact form the Mitratel integration especially if TBIG can boost tenancy ratio to above 1.7x.

73

123

173

223

273

323

1,638.0

2,638.0

3,638.0

4,638.0

5,638.0

6,638.0

7,638.0

8,638.0

9,638.0

10,638.0


Relative IndexRp

Tower Bersama Infrastructure (LHS) Relative JCI INDEX (RHS)

Company Focus

Tower Bersama Infrastructure

INVESTMENT THESIS

Profile Rationale

PT Tower Bersama Infrastructure Tbk provides telecommunication infrastructure services to Indonesian wireless carriers. The Company develops and operates telecommunication supporting infrastructure including tower and in-building systems across Indonesia.

Demanding valuation TBIG is trading at 16.3x FY15F EV/EBITDA, at 17%

premium to TOWR's 12.3x.

Positive impact on Mitaratel transaction TBIG will be further leveraged toTelkomsel's network

expansion and tower divestment plans after the transaction. Bigger size means better operating leverage, supported by cost synergies and stable margins.

Valuation Risks

Target price of Rp10,400 is based on DCF valuation (WACC 9.2%, terminal growth 4%) and implies 16.8x FY15 EV/EBITDA, or 17% premium to TOWR's valuation.

Tenancy risk Towerco fails to find additional tenants for the newly

acquired/built towers, which would result in a drop in tenancy and profitability.

Rental rate pressure Change in industry competitive landscape and bargaining

power with telcos potentiallylead to rental rate pressure.

Weak rupiah vs USD High USD denominated debt may hit earnings if

Indonesian currency depreciates.

Operators network expansion slowdown Slower network expansion means slower BTS rollout,

which would hurt tower-co site expansion outlook.


Company Focus


Key Assumptions

FY Dec 2012A 2013A 2014A 2015F 2016F Tower sites 7,055.0 8,866.0 10,825.0 17,129.9 19,395.9 DAS & shelter only sites 1,383.7 1,466.9 993.0 1,040.1 1,089.5 Tower tenants 12,324.0 15,309.0 18,081.0 26,778.2 31,033.5 Tower tenancy ratio 1.7 1.7 1.7 1.6 1.6 Capex (Rp tn) 5.6 2.6 2.3 4.9 2.5 Segmental Breakdown

FY Dec 2012A 2013A 2014A 2015F 2016F Revenues (Rp bn) Tower revenue 1,477 2,471 3,267 4,403 5,168 Shelter-only & DAS revenue 234 219 40 799 817 Total 1,711 2,691 3,307 5,202 5,985 (Rp bn) Income Statement (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Revenue 1,711 2,691 3,307 5,202 5,985 Cost of Goods Sold (265) (396) (510) (783) (1,082) Gross Profit 1,446 2,295 2,797 4,419 4,902 Other Opng (Exp)/Inc (171) (242) (292) (459) (528) Operating Profit 1,275 2,052 2,505 3,960 4,375 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (540) (858) (1,404) (1,640) (1,862) Exceptional Gain/(Loss) 264 (17) 329 0 0 Pre-tax Profit 999 1,178 1,431 2,320 2,513 Tax 14 174 (58) (396) (437) Minority Interest (85) (104) (71) (414) (446) Preference Dividend 0 0 0 0 0 Net Profit 927 1,248 1,301 1,510 1,629 Net Profit before Except. 664 1,265 972 1,510 1,629 EBITDA 1,398 2,205 2,718 4,275 4,940 Growth Revenue Gth (%) 76.4 57.2 22.9 57.3 15.1 EBITDA Gth (%) 82.9 57.7 23.2 57.3 15.6 Opg Profit Gth (%) 80.2 60.9 22.1 58.1 10.5 Net Profit Gth (%) 88.3 34.6 4.3 16.0 7.9 Margins & Ratio Gross Margins (%) 84.5 85.3 84.6 84.9 81.9 Opg Profit Margin (%) 74.5 76.3 75.8 76.1 73.1 Net Profit Margin (%) 54.2 46.4 39.4 29.0 27.2 ROAE (%) 27.8 30.7 32.7 26.3 20.0 ROA (%) 9.0 7.7 6.4 5.6 4.9 ROCE (%) 13.1 13.5 12.9 13.1 11.6 Div Payout Ratio (%) 20.0 20.0 22.1 20.0 20.0 Net Interest Cover (x) 2.4 2.4 1.8 2.4 2.3



Rental rate +/- 1% Net Profit +/-

3.7% EBITDA margin +/- 1%

Net Profit +/- 2.4%

Margins Trend

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

2012A 2013A 2014A 2015F 2016F


Mitratel acquisition lifts number of towers and tenants

Mitratel will also lift earnings, ensure stable profitability

Company Focus



FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 Revenue 735 781 800 850 875 Cost of Goods Sold (114) (121) (122) (133) (134) Gross Profit 621 661 678 717 741 Other Oper. (Exp)/Inc (60) (67) (70) (73) (82) Operating Profit 561 594 608 645 659 Other Non Opg (Exp)/Inc 156 55 36 367 (457) Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (237) (273) (293) (372) (466) Exceptional Gain/(Loss) (21) 265 (245) (121) 431 Pre-tax Profit 459 640 106 518 166 Tax (24) (85) 36 8 (17) Minority Interest (12) (29) (5) (51) 14 Net Profit 423 527 137 475 163 Net profit bef Except. 444 262 383 596 (268) EBITDA 605 641 658 699 706 Growth Revenue Gth (%) 7.5 6.2 2.4 6.3 2.9 EBITDA Gth (%) 8.1 6.0 2.7 6.2 1.0 Opg Profit Gth (%) 7.9 5.8 2.5 6.0 2.1 Net Profit Gth (%) nm 24.5 (74.0) 246.2 (65.7) Margins Gross Margins (%) 84.5 84.6 84.8 84.4 84.6 Opg Margins (%) 76.3 76.0 76.0 75.8 75.3 Net Profit Margins (%) 57.5 67.4 17.1 55.8 18.6 Balance Sheet (Rp bn)

FY Dec 2012A 2013A 2014A 2015F 2016F Net Fixed Assets 8,738 220 474 10,194 12,144 Invts in Associates & JVs 0 0 0 0 0 Other LT Assets 3,695 15,901 18,408 18,408 18,408 Cash & ST Invts 651 855 902 251 447 Inventory 3 328 404 634 730 Debtors 352 603 491 1,167 1,342 Other Current Assets 386 812 1,355 1,355 1,355 Total Assets 13,825 18,719 22,034 32,009 34,424 ST Debt 856 2,331 7,311 5,031 3,131 Creditor 16 126 178 242 267 Other Current Liab 597 1,475 1,635 1,844 1,885 LT Debt 7,864 10,650 8,740 14,400 16,900 Other LT Liabilities 60 24 39 39 39 Shareholder’s Equity 4,154 3,988 3,981 7,489 8,792 Minority Interests 279 126 150 2,964 3,410 Total Cap. &Liab. 13,825 18,719 22,034 32,009 34,424 Non-Cash Wkg. Capital 128 144 437 1,070 1,274 Net Cash/(Debt) (8,068) (12,126) (15,149) (19,180) (19,584) Debtors Turn (avg days) 63.0 64.8 60.4 58.2 76.5 Creditors Turn (avg days) 31.4 106.5 186.1 163.7 179.8 Inventory Turn (avg days) 6.8 249.1 449.3 404.9 481.7 Asset Turnover (x) 0.2 0.2 0.2 0.2 0.2 Current Ratio (x) 0.9 0.7 0.3 0.5 0.7 Quick Ratio (x) 0.7 0.4 0.2 0.2 0.3 Net Debt/Equity (X) 1.8 2.9 3.7 1.8 1.6 Net Debt/Equity ex MI (X) 1.9 3.0 3.8 2.6 2.2 Capex to Debt (%) 50.9 3.3 14.5 25.4 12.6 Z-Score (X) 3.5 2.5 2.0 2.0 2.1


Revenue Trend


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

100

200

300

400

500

600

700

800

900

1,000

3Q

20

12

4Q

20

12

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14



Assocs'/JVs -0.0%


Assets -39.7%

Inventory -17.8%

Debtors -21.6%

Stable EBITDA margin on stable rental rates

Company Focus



FY Dec 2012A 2013A 2014A 2015F 2016F Pre-Tax Profit 999 1,178 1,431 2,320 2,513 Dep. &Amort. 123 153 212 316 568 Tax Paid 0 (102) (122) (187) (396) Assoc. & JV Inc/(loss) 0 0 0 0 0 Chg in Wkg.Cap. 155 (676) (359) (841) (246) Other Operating CF 0 1,033 0 0 0 Net Operating CF 1,277 1,586 1,162 1,607 2,438 Capital Exp.(net) (4,442) (434) (2,335) (4,935) (2,515) Other Invts.(net) 0 (2,529) 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF (1,131) 371 0 0 0 Net Investing CF (5,572) (2,591) (2,335) (4,935) (2,515) Div Paid (394) (288) (288) (302) (326) Chg in Gross Debt 4,100 2,125 3,070 680 600 Capital Issues 450 0 0 2,300 0 Other Financing CF 231 (956) 0 0 0 Net Financing CF 4,387 881 2,783 2,678 274 Currency Adjustments 0 273 0 0 0 Chg in Cash 92 149 1,610 (651) 197 Opg CFPS (Rp) 234 472 299 481 528 Free CFPS (Rp) (660) 240 (230) (654) (15)


Capital Expenditure



0

1000

2000

3000

4000

5000

6000

2012A 2013A 2014A 2015F 2016F


S.No. DateClosing


1: 21 Aug 14 7925 7200 Fully Valued 2: 14 Oct 14 8500 7600 Fully Valued 3: 11 Nov 14 9000 7600 Fully Valued 4: 06 Feb 15 9400 10400 Hold

5: 03 Mar 15 9300 10400 Hold

6: 27 Mar 15 9175 10400 Hold


1

23

4

5

6

5937 6437 6937 7437 7937 8437 8937 9437 9937


Rp

Industry Focus


DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation 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 for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date of the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have proprietary position Indosat recommended in this report as of 28 Feb 2015.

2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 21 April 2015.

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates received compensation, within the past 12 months,

Industry Focus


and within the next 3 months may receive or intends to seek compensation for investment banking services from China Indosat, Sarana Menara Nusantara.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or

located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd.

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

Company Regn. No. 196800306E

indonesia industry focus telecommunication sector telkom flexi sites fy14 ... principal business:gsm...

Documents