Tiphone Mobile, Betting On Handset Segment

TELE’s acquisition of Samsung and Apple iPhone distributors will make its full impact as well as catalyse growth in 2014. Handset sales will soar 73% y-o-y while voucher sales will see a modest 11% y-o-y growth. TELE’s margin is set to improve as handset contribution to total revenue increases. We keep our 2014 earnings forecast and maintain our BUY call, with our IDR900 TP reflecting a 13x FY14 P/E.

Handset sales to give growth a nudge
TELE will fully realise the benefits of its acquisition of handset distributors from 2014 onwards. With increasing market demand for Samsung and Apple iPhone, we believe TELE will be able to meet our target. Based on our model, we expect the handset segment to contribute 27.3% of total revenue in 2014 vs 19.6% in 2013.

This will enhance gross margin to 6.5% from 6.2% while operating margin will climb to 4.6% from 4.2% for 2013 and 2014 respectively. However, we expect net margin to remain flat at 2.8% on the back of a rise in working capital funding as well as the higher interest rates expected next year.

Impact from election year
Next year’s elections will make a positive impact on prepaid voucher usage as political parties and government candidates utilize mobile networks to extend their campaign reach. However, we also need to consider the possibility of higher inflation next year, which our economists project to be around 6.2%. Thus, we expect the voucher business to see modest growth of around 10% y-o-y in 2014 and remain as the major revenue contributor for TELE.

2014 challenges
A depreciating Rupiah will be the main challenge in 2014 as handset distributors and retailers need to pass on the cost hikes to customers. This is evidenced by the fact that when the currency declined by 15-20% in late 2013, handset prices rose by the same quantum. Higher average sales prices will in turn dampen sales volume.

Maintain BUY, IDR900 TP
We see 2014 as a promising year for TELE as it will fully realise its acquisition of handset distributors. We maintain our forecasts and BUY call on the stock, with our IDR900 TP reflecting a 13x FY14 P/E.