Telkom Indonesia (TLKM IJ)

FMC strategy poised to gain further momentum; near-term catalyst from improving prices

 

  • TSEL FMC strategy, through single billing, is set to gain further momentum amid stronger data traffic and improving outlook catalysts.
  • We expect TLKM’s network convergence and infra investments to help sustain EBITDA margins at >51%, despite recent OPEX volatilities.
  • We believe TLKM is significantly undervalued at 4x EV/EBITDA (-2sd of 5-year mean). We maintain Buy with ST catalyst from price increases.

 

Telkomsel: FMC Convergence to Drive Future Growth

To broaden and deepen market engagement, TSEL has launched several initiatives, including Super Seru (2H23), TSEL Lite, ByU, and new data plans. These efforts have driven increased traffic market share in 3Q24 (exh. 3). Furthermore, the company launched Telkomsel One (early 2H23) and EZnet (Jun24). We anticipate similar fixed broadband success and expect strong cross-selling potential with its FMC (Fixed-Mobile Convergence) offerings, further enabled by the planned single billing system launch in 4Q24/1Q25.

 

Catalysts in place for the FMC strategy to start bearing fruits

TLKM's 3Q24 revenue decreased 2.7% qoq, with core EBITDA margin contracting 140bps to 50.6%, reflecting weak macro conditions. However, several catalysts suggest a potential 4Q24 recovery: a) stabilizing consumer spending in Oct24 (per TSEL and industry peers); b) we noted price increases for short-validity Ketengan, Hot Promos and 28-day Super Seru packages (aligning with TSEL's 5-10% near-term guidance); c) strong seasonality (elections, holidays, Lebaran FY25). We project 2% qoq revenue growth for Telkomsel and the sector in 4Q24, setting a positive stage for FY25.

 

The best long-term growth play in the sector amid its FMC and Infraco

We believe TSEL’s FMC strategy offers the greatest upside potential, leveraging its substantial captive market and network traffic consolidation. Furthermore, unlike competitors, TLKM retains ownership of fiber assets, with Infraco poised for monetization in FY25-26. We forecast EBITDA margin to remain at a minimum of 51%, with a relatively unleveraged balance sheet.

 

BUY rating on Telkom’s FMC and infrastructure plays

Telkom currently trades at 4x EV/EBITDA at -2SD from its 5yr and 7yr mean. We believe this is significantly undervalued, given TSEL's recent transformation and Telkom's strategic investments in data centers, fiber, and towers, positioning it for further monetization.  We maintain our BUY rating with a DCF-based TP of Rp4,250. Illegal internet proliferation remains key risk.

 

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