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Telco Sector (OVERWEIGHT) Discussion takeaways with Dirjen Kemkominfo - 28 Mei 2020
May 28, 2020 10:05 WIB

Telco

Discussion takeaways with Dirjen Kemkominfo

 

Dirjen SDPPI Kemkominfo Pak Ismail remarked on telecommunications government policy objectives and delved into theoretical aspects of telco consolidation, spectrum, IMEI implementation and tower fiberization for 5G. 

Policy framework to protect telco interests. The torque to more usage of OTT and content continues to be disruptive becoming even more stressing during Covid19. Kemkominfo is working towards creating a level playing field between network operators and OTT/digital players (optimizing spectrum and license fees, taxes, pricing and regulation) to incentivize telco operators to continue investing sufficiently in networks.

Government keen supporter of consolidation if it fulfils key criteria. The government strongly supports market consolidation under certain conditions. Kemkominfo will evaluate the spectrum needs of the resulting merged telco and evaluate their commitments. The evaluation will be based on the business plan with respect to the network to be built and expected subscribers. The evaluation seeks to avoid future monopolistic behavior by the new company. Such a situation can easily arise by controlling scarce frequency resources without actually using them to deny the competition access to spectrum. The government would have to render the optimal spectrum amount for the new company.

Limited spectrum. Pak Ismail also asserted that within 2020 a spectrum of 30MHz will be available for auction in the 2300MHz for 4G. Previously 30MHz was auctioned at a price of Rp1tn in 2017 and this is the minimum cost that operators need to consider if they are willing to get a significant advantage over peers with two holders Telkomsel and Smartfren each with 30MHz on that frequency currently. Pak Ismail said entry of foreign telco players in 700MHz was a non-viable option, mainly due to operational inefficiencies using only one low band spectrum. The largest issue on the digital dividend hinges on when media companies switch off analog signals to be broadcasting over digital channels. In order to auction 5G spectrum Kominfo suggests that all communications between tower masts would have to run through fiber first at an optimal rate of ~90% minimum, or 10% max via microwave transmission for 5G latency and speed to be optimal. Kominfo analyzes calculations to optimally derive the fees for 5G to make them more bearable.

Existing policy on consolidation – no one rule fits all scenarios. Another reason for consolidation/partnerships is that spectrum resources are limited. The govt will consider initiatives only from the highest order, the owners of the operators. Kemkominfo follows the XL Axiata and Axis merger precedent as a policy yardstick for modus operandi to determine the spectrum holding for the next merger scenario and new company. Implicitly, existing telco regulation would suffice for all provisions resulting from telco consolidation. Having said that we think the government will be flexible in facilitating viable and fair solutions as emphasized in the call, and therefore we see that no one rule fits all possible merger scenarios.  

Deterring vs. detective method to clamp down on illegal IMEI devices. Kemkominfo adopted the whitelist method to deter the existence of the black market, which a priori assumes that all IMEIs of existing devices are legal by aligning with system databases that lists all IMEIs. This is a less aggressive practice vs. the blacklist method which actively searches for illegal devices in the market. Currently it appears the govt. is in the early stage to make certain that all existing devices are in the system. Pak Ismail reported that all handset sales (both legal & illegal) are down due to Covid19 uncertainties and consumers prefer now to order online, which serves well in their fight against the black market.

 

 

 

 

 

Target

Price

Market

Cap.

P/E (x)

P/BV (x)

ROE (%)

Company

Ticker

Rec

(Rp)

(RpBn)

2020F

2021F

2020F

2021F

2021F

XL Axiata

EXCL IJ

BUY

2,750

25,651.1

60.6

32.2

1.3

1.3

4.0

Indosat Ooredoo

ISAT IJ

BUY

2,900

10,840.7

n/m

n/m

1.0

1.1

(8.9)

Telkom

TLKM IJ

BUY

4,000

321,952.2

16.3

16.6

3.2

3.2

19.3

 

 

 

 

 

 

 

 

 

 

 

… read more20200528 Telco


Danareksa Equity Snapshot - 28 Mei 2020
May 28, 2020 10:04 WIB

FROM EQUITY RESEARCH

 

Bank Central Asia:  Still at a better position (BBCA IJ. IDR 24,825 BUY TP. IDR 30,200)

After the bank booked net profits of IDR6.6tn in 1Q20, we expect flat loans growth this year driven by a 10% contraction in consumer loans. In addition, with estimated restructured loans at around 22% of itsloans book, we assume the NIM will reach 5.5% this year. The gross NPLs ratio is expected to elevate to 2% with higher credit costs of 204bps. This should result in a 26.6% drop in earnings to IDR20.9tn in FY20F. BUY maintained with a lower GGM-derived TP of IDR30,200 (implying 3.8x 2020F PBV, +0.25SD of its mean).

To see the full version of this report, pleaseclick here

 

Telco: Discussion takeaways with Dirjen Kemkominfo (OVERWEIGHT)

Dirjen SDPPI Kemkominfo Pak Ismail remarked on telecommunications government policy objectives and delving into theoretical aspects of telco consolidation, spectrum, IMEI implementation and tower fiberization for 5G.

To see the full version of this report, pleaseclick here

 

United Tractors: Another month of soft Komatsu sales (UNTR IJ. IDR 14,950 BUY TP. IDR 21,000)

United Tractors (UNTR) reported another month of anemic Komatsu sales volume at only 100 units in April 2020 (-33.3% mom, -61.7% yoy). In 4M20, Komatsu sales were down by 50.3% yoy to 717 units as the Covid-19 global pandemic negatively impacted coal prices and weakened demand for heavy equipment in the mining sector. Given the latest sales figure, we cut our Komatsu sales volume estimate to 2,000 units in 2020 and lower our TP to IDR21,000 (based on DCF valuation).

To see the full version of this report, pleaseclick here

 

Malindo Feedmill Indonesia: Dragged down by lower volume and ASP of DOC (MAIN IJ. IDR 500 HOLD TP. IDR 500)

MAIN reported net profits of IDR14bn in 1Q20 (-85% y-o-y). The turnaround from net losses in 4Q19 is mainly due to the gain on change of fair value of derivatives of IDR36bn. Excluding this, forex losses, and changes in biological asset value, MAIN recorded net losses of IDR20bn during the quarter. Maintain HOLD with TP of IDR500.

To see the full version of this report, pleaseclick here

To see the full version of this snapshot, pleaseclick here

 

MARKET NEWS

MACROECONOMY

Government: Social assistance via village fund has been distributed.

The Ministry of Villages and Underdeveloped Regions stated as of 26 May 2020 that the direct cash benefit from village fund has been distributed to 47k villages. The proportion of village funds distributed varies in some regions, and there are still 38 districts that have not distributed the village fund in East Nusa Tenggara and Papua. (Investor Daily)

 

SECTOR

Consumer: GAPMMI estimates slower F&B sales growth of 4-5% yoy in 2020

The Indonesia’ association of food and beverage company (GAPMMI) stated that the sales of F&B in 2020 Ramadhan festive season was lower compared to the same period last year, following the impact of Covid-19 pandemic. Therefore, it is estimated to see lower growth of 4-5% in the F&B industry compared to 2019’ achievement of 7.97%. In 1Q20, the sales of F&B industry only grew 3.94%. The consumer has shifted the trend to healthier/organic food with increasing preference toward online channel (+500 to 600% yoy). However, stronger sales through online platform was not sufficient to offset the tepid sales in offline channels (i.e general trade). (Investor Daily) 


Bank Central Asia (BBCA IJ. IDR24,825 BUY. TP: IDR30,200) - 28 Mei 2020
May 28, 2020 10:03 WIB

Bank Central Asia

Still at a better position

 

After the bank booked net profits of IDR6.6tn in 1Q20, we expect flat loans growth this year driven by a 10% contraction in consumer loans. In addition, with estimated restructured loans at around 22% of its loans book, we assume the NIM will reach 5.5% this year. The gross NPLs ratio is expected to elevate to 2% with higher credit costs of 204bps. This should result in a 26.6% drop in earnings to IDR20.9tn in FY20F. BUY maintained with a lower GGM-derived TP of IDR30,200 (implying 3.8x 2020F PBV, +0.25SD of its mean).

1Q20 highlights. The IDR6.6tn of net profits are inline with our forecast/the consensus with 12.3% yoy loans growth driven by strong 25.4% yoy growth in the corporate segment. The NIM, meanwhile, dipped by c.10bps to 6.1% coming from 40bps lower loan yields and a 30bps reduction in the blended CoF. In addition, the credit costs rose to 143bps from 1Q19’s figure of 73bps with a higher gross NPLs ratio of 1.6% as of March 2020.

Better risk management policy to shield the bank in the current climate. Amid the COVID-19 outbreak and dimmer outlook for global and domestic economic growth, BBCA’s management.  has stated that there might be changes to its business on a daily basis. However, with a well-balanced loans mix among corporate, commercial SME and consumer loans, BBCA should be better placed to navigate the challenges than other big banks. Of note is the bank’s appetite to provide loans for the top tier corporate names in each sector and its requirement for a lower Loan-To-Value (LTV) for mortgages and other consumer loans. This strict policy can mitigate downside risks in our view.

Lower earnings due to higher credit costs. Being known for its conservative style, BBCA’s management emphasised that potential loans to be restructured should be around 22% of its loans book. This amount may be dominated by vehicle loans, both 2W and 4W. Yet for this segment, BBCA only provides longer tenor schemes. We thus expect the NIM to decline to 5.5% with a higher gross NPLs ratio of 2.0% by December 2020F and credit costs of 204bps. This would lead to a 26.6% drop in earnings to IDR20.9tn in FY20F.

Maintain BUY, new TP of IDR30,200. We maintain our BUY call on BBCA with a new GGM-derived TP of IDR30,200 (implying 3.8x 2020F P/BV) assuming 6.7% CoE, 17.0% sustainable ROAE and 3% long-term growth

…. Read more 20200528 BBCA