The Strongest Engine of Indonesia Economic Growth 1Q17
Information and communication sector has become the strongest engine of growth with a pace of 9.1% YoY in 1Q17. Total mobile cellular (SIM connections) stood at more than 371 mn, way more than the national population of 259 mn.Going forward, we estimate that the national information and communication sector will continue to grow by 9.7% YoY in FY17E and 10.5% YoY in FY18F, tracking increasing of Indonesian GDP of 5.1%/5.4% in FY17E/FY18F.
Key Growth Catalysts in 2017
We believe that the positive trend in 1Q17 will continue throughout the year. In 2017, we estimate the sector will continue its growth by 9%-10% YoY, mainly due to by : 1) Upside potential from increasing numbers of mobile phone and internet users in FY17E; 2) High growth of data traffic in line with increasing smart phone usage and availability of 4G LTE services; 3) Rapid development infrastructure in a growing ‘digital economy’.
Investment Risks: Focus on Interconnection Cut Rate and Network Sharing Issue
In our view, interconnection rate cuts and infrastructure sharing will be the main concerns in the near future. However we believe that the government has a best plan to create a healthier competition to increase efficiency and decrease churn rate for each operators. We expect that the government to review and provide incentives to compensate the operators who have existing infrastructure investment which will be shared to the other providers.
OVERWEIGHT Outlook with Top Picks : TLKM and ISAT
We are being OVERWEIGHT for this sector. Our top picks for the Indonesian telecommunication sector are TLKM (BUY; TP: Rp5,000), maintaining its leading position in the industry and ISAT (BUY; TP: Rp7,450) with the highest growth of subscribers and good performance during the year.
