TLKM Sep2020

TLKM

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2nd September, 2020
BUY
Price Rp 2,900
Target price Rp4,200

IndiHome and Mobile Digital Services Drive Growth

During the covid-19 outbreak and Indonesia‘s stay at home order, IndiHome and mobile data services became the growth drivers of TLKM revenues.
IndiHome added new subscribers in 1Q2020 (+252k) and 2Q2020 (+195k).
As a result IndiHome revenue grew by 19.1% YoY to IDR 10.4 trillion in 1H2020, line with the increased in subscribers of 24.2% YoY to 7.45 million.
Mobile also grew by +13.5% YoY to IDR 31.9 trillion and increased it’s share of revenue to 72.4%. Data traffic grew by +40.3% YoY to 4,156 petabyte (PB) in 1H2020 despite a slight fall in data customers by -5.5% to 105.1 million.
During covid-19 outbreak and Indonesia implements stay at home order, IndiHome and mobile digital services become the growth driver of TLKM revenues.

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Expecting Positive Income Growth

Despite growing IndiHome and mobile digital services, TLKM revenue decreased slightly by -3.6% YoY to IDR 66.8 trillion In 1H2020.
This is because of the still high portion of legacy business which is in decline and still has an impact despite the transition to data. Legacy declined by -28.7% YoY while data posted growth of +13.5%.
TLKM is managing expenses well, total expense in 1H2020 decreased by 5.4% YoY to IDR 44.6 trillion. Operation, Maintenance & Telecommunication Services costs declined significantly by 25.5% YoY to IDR 16.2 trillion due to the impact of PSAK 73 PSAK 72 adoption.
EBITDA grew by 8.9% YoY to IDR 36.1 trillion in 1H2020, with an EBITDA margin of 54%.
Net Income declined slightly by -0.8% YoY to IDR 11 trillion with a better Net Income Margin of 51.1% due to cost efficiency.
We are expecting flat to slightly positive growth in 2020F net income as we estimate the current trends will likely continue until the end of 2020 and will drive more growth of mobile and consumer broadband.

Valuation: BUY with TP 4,200

As we estimate there will be growth in mobile and consumer broadband which will offset slower other business in 2020F, we are targeting TLKM to reach IDR 4,200, 45% upside, which is a 20x PE valuation within one year. We recommend to BUY.

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