Research & Stock Picks

Emiten Report

12 September 2023

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TLKM: BUY (Maintain), TP at 4,500 – Telkom Investor Day 2023 Notes

Telkom Investor Day 2023 Notes

 

Indonesia remains lucrative for telco players. With a population of approximately 275 million, Indonesia has the fourth largest population in the world, and 77% of them (212.9 million) are internet users. However, in terms of internet penetration, Indonesia still ranks behind many Asian countries (Indonesia: ~67%; China: 74.9%; Thailand: 85.3; Philippines: 73.1%). The low penetration rate indicates ample room for growth for Indonesia’s telco sector, whose value is projected to reach USD 17.8 bn in 2027F  (2022-2027F CAGR: +5%). Indonesia’s 5G market is expected to grow at a CAGR of +138% in 2022-2027F, reaching USD 6.2bn in size in 2027F, while the FTTP/H broadband market size is expected to reach USD 4.9 bn in 2027F (2022-2027F CAGR: +13%). From the B2B side, enterprise ICT spending is expected to reach USD 16.6bn in 2027F (2022-2027F CAGR: +14%), giving a huge room for growth for ICT and cloud businesses in indonesia. Today, Indonesia’s B2B tech spending-to-GDP ratio comes in at ~0.7%, lower than its peers (China: 1.27%; India: 1.8%; Singapore: 7.36%; Malaysia 2.6%), while cloud spending’s comes in at 0.07% (China: 0.14%; India: 0.08%; Singapore: 0.46%; Thailand: 0.08%). We believe that digital enablement will become more popular in Indonesia since it is projected to be able to help a company cut its cost by ~5-10% and increase its overall productivity significantly, tackling the problem of low productivity in Indonesia (output/hour estimate: USD 13/hour, Malaysia: USD 26/hour; Singapore: USD 74/hour).

Updates on TLKM’s businesses. At the moment, TSEL’s Customer Value Management (CVM) contributes ~64% of its data package revenue, and customers on its CVM plan post higher ARPU (~2x higher) and lower churn rate (~10% higher propensity to keep using TSEL). It is worth noting that today, ~30% of TSEL’s subscribers contribute ~70% of its overall revenue; thus, we believe that further developments of the company’s CVM plan should positively impact its overall profitability. Regarding its pricing strategy, TSEL plans to continue its current pricing discipline for the foreseeable future, which should help create a better pricing environment in the MNO market. As for its FBB business,  we expect Indihome to maintain its dominance amid fierce competition in the FTTH market, supported by a strong subscriber base and positive feedback regarding its service quality, with an NPS of 35 (industry avg: ~29). For information, Indihome’s customer market share and traffic share both came in at ~70% in 1H23. Regarding its FMC business, TLKM’s FMC penetration rate is recorded at ~30%, with the potential for ~8mn additional household customers from both Indihome and TSEL users. For its B2B business, TLKM noticed massive growth room for the business, particularly in healthcare industry, government digitalization, education, logistics, and financial sectors. Regarding its data center business (NeutraDC), the company expects its EBITDA margin will normalize in 2 years as the company is still focusing on the consolidation of Telkomsigma (in 1H23, NeutraDC posted an EBITDA margin of ~20% [industry avg: ~40%]). As for its midterm business guidance, the company took a somewhat conservative stance, with revenue, EBITDA, and net profit all projected to grow by mid-single digit.

BUY on TLKM. We maintain our positive view on TLKM, as we believe that its dominance will help support its earnings growth and profitability in the long term. We maintain our BUY  rating for TLKM with a TP of 4,500, implying a 2024F EV to EBITDA of 7.1x. Risk: tighter competition in the telco sector.

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