Tiphone Mobile Indopnesia (TELE IJ, BUY, TP IDR1,000) Results Review: Better Quarters Ahead

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Tiphone Mobile Indopnesia (TELE IJ, BUY, TP IDR1,000) Results Review: Better Quarters Ahead

Tiphone’s revenue during 1Q14 was IDR3trn (-14.4% q-o-q), while its net profit was IDR60.7bn (-33.3% q-o-q), reflecting 23% and 16.5% of FY14 target respectively. Handset contributed 37% to total revenue during the quarter, increasing from 28.6% from a quarter earlier. Margins declined slightly due to the impact of slow handset sales season. We currently maintain our BUY call on the stock with an unchanged IDR1,000 TP, reflecting 14.5x FY14 P/E.

¨       Overall performance was intact. Tiphone Mobile (Tiphone)’s revenue was IDR3trn while its net profit was IDR60.7bn. As its handset business faced slower seasonality compared with more prepaid voucher business, we consider the performance during 1Q14 to be in line with our expectation. Margins declined slightly during the quarter with gross margin lowered to 5% in 1Q14 from 5.4% in 4Q13, EBIT margin down to 2.6% in 1Q14 from the previous quarter's 3.3%, while net profit margin also decreased to 1.6% in 1Q14 from 2.1% in 4Q13.

¨       Expect better quarters ahead. Handset sales showed improvement in 1Q14, registering 37% growth compared with 28.6% from the earlier quarter. We expect the trend from handset sales to remain positive as new handsets are still being introduced into the domestic market, coupled with a market preference that is shifting from low end handsets to mid-range handsets. As a result, margins will likely improve for the remaining quarters as handset margins are significantly better than prepaid voucher business.

¨       Election’s impact on prepaid voucher business. We predict a 10%-15% y-o-y growth as election candidates increase the use of prepaid vouchers during campaigns. We also expect higher spending on prepaid vouchers from lower income earners as they enjoy enhanced revenue arising from election spending. However, going forward, we expect prepaid voucher’s contribution to sales to decline overtime.

¨       Still our Top Pick. We maintain Tiphone as our Top Pick. We expect it to fully realise its growth this year from its acquisition of Samsung's handset distributor, and that the short-term catalyst from the election year to fuel prepaid voucher spending. Maintain BUY on the stock with TP IDR1,000, reflecting 14.5x FY14 P/E.

Best regards,

RHB OSK Indonesia Research Institute

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