Telekomunikasi Indonesia (TLKM IJ; Buy; TP IDR2,650) 1QFY14 Results Review: Off To A Good Start

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Telekomunikasi Indonesia (TLKM IJ; Buy; TP IDR2,650) 1QFY14 Results Review: Off To A Good Start

Telkom started FY14 on a positive note with 9% growth in topline and EBITDA, thanks to a respectable 10% revenue growth at Telkomsel. Its mobile revenue growth likely outdid peers in the seasonally softer 1Q14. We keep our forecast, TP and BUY rating. The group executes well across most fronts and boasts the highest dividend yield among the Indonesian telcos. The IPO of its tower unit is a key stock catalyst.

¨       In line. Telekomunikasi Indonesia (Telkom)’s revenue, EBITDA and headline earnings grew 8.7% (-1% q-o-q), 9.4% (+15.7% q-o-q) and 5% (+16% q-o-q) y-o-y respectively for 1QFY14, representing a deviation of 1-2% when annualised. Note that few one-off items (mainly impairment charges and debt provisions) coupled with the seasonally higher marketing cost crimped EBITDA in 4Q13, with EBITDA margin run-rate recovering to above 51% in 1QFY14. Telkomsel’s revenue grew a respectable 10%, ahead of XL (EXCL IJ, NEUTRAL, TP: IDR4400)’s 9% standalone growth (ex. Axis) albeit down 5% q-o-q due to the stronger acquisition momentum in the preceding quarter.

¨       Rising cash distribution. Shareholders recently approved the payment of: i) cash dividend amounting to 55% of earnings or at least IDR80.5/share and ii) special DPS amounting to 15% of net profit or at least IDR21.9 for FY13. The total dividend payable of IDR14.2trn reflects a record 70% payout ratio (65% in FY12), consistent with our view of improved capital management execution, supported by the group’s strong balance sheet.

¨       Aggressive 3G deployments to continue. We expect Telkomsel to maintain the strong Node- B deployments (39% of total sites on 3G) to capture more data customers. The telco added a record 11,600 3G sites in 2013 alone, primarily outside of Java which is experiencing robust growth in data traffic amidst improving smartphone economics (access to lower priced mid-level feature- rich 3G handsets priced under USD50).

¨       Still our top pick. We make no change to our forecasts. Our TP of IDR2,650 is premised on DCF (WACC: 12.2%, TG: 1.5%).

Best regards,

RHB OSK Indonesia Research Institute

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