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Telco Sector (NEUTRAL) Takeaways with Hutchison 3 Indonesia: Capacity for more growth in 2H20
September 16, 2020 10:43

Telco 

Takeaways with Hutchison 3 Indonesia: Capacity for more growth in 2H20 


The Vice CEO of Hutch3, Pak Danny, offered another interesting take on the current state of telcos. Hutch3 is said to have capacity to grow market share in several selected areas in ex-Java and east Java and elevate its revenues growth in 2H20. Hutch3 maintains a rather negative view on the school subsidies. Hutch3 reiterates its market commitment to make bid in the upcoming spectrum auction. Erosion of consumer income is a given, may have lasting effects, and is enough to make operators look further at their consolidation options.  

Hutch3 sets a high FY20F target. Hutch3 sets the bar high at 18-20%yoy for 2020F topline growth from the 12%yoy growth estimated in 1H20. Hutch3 may adjust due to the aggressiveness of Telkomsel with Unlimited offerings and tap the students’ market, but Hutch3 remains committed to its target. Hutch3 says it is imperative to go to market given the availability of capacity in selected areas where they have the coverage.  

Ex-Java continues to be a lucrative market. Following the results in 2Q20, Hutch3 picked up pace. The company can do well in Makassar, Manado, Gorontalo, and North Sumatra where they capacity and coverage and be able to take share from the incumbent even of 1%. The ex-Java growth is more upbeat and currently 30% of Hutch3 revenues are coming from ex-Java areas. In the other areas where Hutch’s position is at par vs peers, the company will try to improve the yield and ARPU such as Jakarta and Tangerang, taking a constructive view.  

Hutch3’s negative view on school subsidies. In terms of school subsidies, Hutch 3 said that the first batch may have ended on 15th September, but will be followed by another deadline on the 25th Sept. for those who did not make it in the 1st batch. Hutch also confirms that it rewards students with a one-time 30GB education data bonus by submitting a Hutch 3 number to the Dapodik/Education Ministry. Nonetheless, the CSR and school subsidies are deemed to cause friction rather than being a benefit on 2 fronts. Firstly, the ARPU for Hutch3 students ranges currently from Rp80-100k, (govt. led program bringing it down to around Rp35k), and secondly Hutch3 is forced to sell at below cost. Moreover, Hutch3 asserts that there is a 5GB allocation for school students in the package to access all apps incl. YouTube (15GB for tertiary students). Be that as it may, we still believe there is a grey area given the fact that the Ministry has not yet offered the specifications/allocations of the 35GB pack. 18-20% of Hutch3 subs are students, and it is believed that ~50% of them will register in this govt-led program. As such, there are still several moving variables to determine whether this program is network dilutive and/or ARPU dilutive.  

Hutch3 and the 2300MHz spectrum auction. Hutch3 will definitely participate in the upcoming auction to take place by YE20 being the lowest holder of spectrum in Indonesia currently. Hutch3 is still evaluating its options depending on how the govt will set the rules of this auction for 30MHz of spectrum in 2300MHz. The scenario considered on the table now is 3x10MHz, i.e. aiming for 3 winners in this auction. Hutch3 stated that the optimum size for its subs base would be 20MHz, nonetheless would still consider bidding for 10MHz only.  

A more Neutral Sectoral View. Our talks with Indosat and Hutch3 make us rethink our sector view and we take a more neutral stance, mainly due to the lasting effects on disposable income for telco services perceived from Covid19.   

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