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Telkom Indonesia (TLKM IJ.IDR. 3,510 BUY TP: IDR. 4,600) - 13 Januari 2021
January 13, 2021 14:49

Telkom Indonesia(TLKM IJ)

Sustainable layers of growth – Call takeaways


Telkom offered a positive preview of its 4Q20 performance. Tsel improved in 4Q seizing upon the data opportunities. While Indihome and the Consumer segment followed a sustainable growth path, recovery is due in the Enterprise segment. The group will experience cost hiccups in 4Q20 affecting FY20 margins, but this will not change our view. Strong BUY maintained. 


Controlling the mobile traffic, achieving a turnaround in 4Q20. At this juncture, volume growth is the only way to achieve mobile growth in the short-medium term. 4Q20 offered volume opportunities from the school subsidies and year-end festivities, which Tsel apparently exploited to the fullest extent, driving its 4Q20 quarterly revenues growth. The school subsidies generated extraordinary data volumes which pushed wholesale data traffic higher, implying that the telco peers resorted to bandwidth leases from Telkom to address a surge in volumes. Nonetheless, we were assured that Tsel was able to capture majority of the volumes generated from school subsidies. Moreover, the latest marketing efforts with Unlimited in combination with good cluster and channel management execution led to satisfactory monetization in the current climate. Third party measurements suggest that Tsel experienced relatively heavier network utilization but still maintaining a lead over its peers’ networks. We expect Singtel to make offerings adopting a more casual approach into gaming with “Storms” as a game publisher with a gaming super-app expected to be launched in Indonesia in coming months via Tsel. This is in-line with our thesis that telco products will becoming increasingly attractive.  


Enterprises and towers upbeat. The Enterprise recovery in 3Q20 is sustainable with a view to grow by high single digit yoy in 2021. The growth from solutions services including security, cloud and data centers is potent replacing the older revenues enterprise model that relied on merchandise sales. Telkom is upbeat on Mitratel’s prospects following towers acquisition from Tsel. Moreover, Telkom is very keen to conduct an IPO for Mitratel either in 4Q21 or early 2022, to unlock a valuation multiple higher than what Telkom currently is priced with.  

Consumer business. The consumer business is upbeat with a sustainable outlook as Telkom looks to penetrate further an identified 20-25mn households addressable market. The latest target for 8mn subscribers YE 2020 is likely to be reached, and Telkom provided guidance for an additional 1.5-1.6mn new subscribers in 2021. Moreover, a key use case that is expected to gain importance in 5G tech is fixed wireless access to complement fixed broadband access. Tsel’s Orbit is in its early stage of gaining subs, but we expect it to complement the Indihome deployment. Orbit commands a higher ARPU than Tsel’s blended ARPU albeit lower than Indihome’s ARPU, bridging the gap and addressing all relevant segments.    

A strong BUY. We expect OPEX to climb in 4Q20 due to one-off item(s) adjusting down our 2020 earnings forecast. This should not affect our recommendation. Dividends will still be in-line with past year payouts. Strong BUY maintained. 

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