Telekomunikasi Indonesia Size Matters
We expect Telkom to outperform in an uncertain market environment due to its superior fundamentals. Investors should accumulate on excessive weakness given the re-rating catalysts from the IPO of its tower assets in 1H14 and continued revenue market share gains. Telkom is executing well on most fronts when its peers are distracted by network and merger challenges. We think a more definitive capital management exercise is just a matter of time. BUY
Double digit growth in revenue and EBITDA
Telkomsel revenue grew 8% y-o-y in 3Q13 and 11% for 9MFY13, ahead of the 7.2% and 1.1% growth posted by ISAT and XL. We attribute this to the robust growth outside of Java where it has the largest share of the market for which it is also witnessing strong data take-up. Telkomsel should claw further market share in 2014 on the back of the lower competitive risks in the market and internal challenges faced by both ISAT (issues with network modernization) and XL (merger with Axis).
Tower IPO
We gather from management that the first stage of its long –awaited tower spin-off exercise should be concluded in 1Q14 with the entry of a strategic partner. The listing of its tower subsidiary, Mitratel in 2Q14 will pave the way for emergence of SingTel (ST SP, NEUTRAL, FV: SGD3.70) as a joint strategic shareholder. Mitratel currently owns a portfolio of over 5,000 towers and is looking to procure an additional 10,000 towers from Telkomsel as part of its listing plans.
Monetisation of other non-core assets
Telkom is evaluating various options to monetise some 22m sq. m of landbank valued at IDR22 trn (IDR1.5m per sq. m). It recently divested an 80% stake in its pay-TV business for USD84m to CT Corp. We believe part of the proceeds from the disposals of non-core assets and the tower listing may be returned to shareholders given the surplus cash in its books.
BUY with IDR2500 FV
We like Telkom for its overriding revenue market share, strong balance sheet and potential for capital management. The key investment risks to the stock are (i) a weaker than expected deceleration in the economy and (ii) a stronger than expected competition in the market.
