PT Telekomunikasi Indonesia Tbk (TLKM IJ)
Chasing the Market on its Upswing
In-line with Our Expectation, Revenue Figure looked fairly soft (-1.9% YoY)...
TLKM IJ managed to book revenues of IDR34.19 trillion in 1Q20 (+3.82% QoQ; -1.9% YoY), slightly in-line with our estimates (reaching 24.26%/24.33% MNCS/Consensus). Data, internet and IT service remains as the major contributor (52.19%) with revenue amounting to IDR17.85 trillion (+7.2% YoY), this increase was followed by revenues from Indihome (+19.70% YoY) and Interconnection (+27.10% YoY). However, these increases cannot compensate the drop in SMS, Fixed and Cellular Voice (-21.40% YoY) as well as Network and Other Telco services (-35.60% YoY).
…while Earnings Result beat Consensus Estimates, due to new IFRS 16 adjustment
Furthermore, expenses were trimmed by -2.4% YoY, which cause EBITDA in 1Q20 to rise by 7% YoY to IDR18.76 trillion with EBITDA margin at 54.86% (vs 50.32% in 1Q19). This is due to the IFRS16 adjustment on leases recognition, which made TLKM’s expenses on leases drop by -18.88% YoY. Meanwhile, TLKM posted a net profit beyond our expectations at IDR5.86 trillion (-5.82% YoY) in 1Q20, forming 30.83%/28.07% of FY20E MNCS/Consensus estimates while maintaining net margin at 17.14% level.
Legacy Business Continues to Decline and Data Services growth Picks Up
Tsel’s legacy business was slowing down with Voice and SMS traffic slipped by 16.6%/28.4% YoY respectively. However, data revenue has grown by 16.7% YoY, driven by 105.1 million data user as well as healthy growth in data payload (+41.7% YoY). We expect data traffic to rise up by 35% YoY in FY20E as data demand continues to spike during the Covid-19 outbreak. Moreover, IndiHome revenue climbed (+19.7% YoY) as a result of a 31.4% YoY increase in subscribers at 1Q20, totalling to 7.26 million subscribers. We believe TLKM will offer attractive packages at affordable price to meet customers’ needs as Indihome contributed a promising margin ~36%. Besides, management lowered its IndiHome net-subs-addition target in FY20E (only 700,000 new subscribers) due to floods in the beginning of the year and operational restrictions during the large-scale social distancing (PSBB) policies.
Netflix Unblocked: a Warm Welcome?
TLKM finally unblocked Netflix on July 07, 2020 after 4 years of negotiations. The decision came after a "change in the U.S. Company’s approach to the country". This includes Netflix offering parental controls as well as agreeing to examine complaints from Indonesia's government within 24 hours. At the same time, TLKM’s share price rose 2.3% from the previous close of 3,050. We believe, this strategies will bring a mutual benefit and adds variety content for subscribers. Management has not yet released the details scheme as well as the financial benefit.
Maintain BUY with TP: IDR3,600
We maintain our BUY rating on TLKM with a TP of IDR3,600 which implied 5.33x FY20E EV/EBITDA (close to -2STD of its 3-years mean) with 16% potential upside. Looking out in the recent quarter result, Covid-19 situation and the economic pressures will potentially increase consumer price sensitivity. Management will take a multipronged approach in terms of managing competition, which is to continue to focus on high-value customers as well as adjusting and calibrating prices. Thus, TLKM continuing to provide the sachet products, such as “Kuota Ketengan”.
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