Telkom Indonesia (TLKM.IJ Rp3,120; BUY; TP Rp 4,400) KTA from call with Telkomsel Directors: optimizing its market position to drive FMC monetization

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Telkom Indonesia (TLKM IJ)

KTA from call with Telkomsel Directors: optimizing its market position to drive FMC monetization

Positive traction on TSEL Lite through incentivizing users from the mass segments into becoming potentially productive FMC users.
TSEL reaffirms its market leadership, highlighting its 98% network coverage surpassing its peers who are still building infra ex-Java.
Buy rating on TLKM maintained; the intact growth outlook (albeit lower vs. peers) implies the current valuation discount (-2SD) is unwarranted.

Declaring positive traction in retention rate and traffic for TSEL Lite and ByU.

We hosted a call with TSEL Directors with positive takeaways. TSEL’s renewal rates improved since its introduction of TSEL Lite, while traffic increased by 15% yoy, successfully onboarding users to the customer value engine (CVM) to engage/retain users, with TSEL looking to upsell/cross-sell. TSEL asserts that little cannibalization has taken place as new plans are offered only to new IMEI phones. TSEL sees ongoing ARPU stabilization possibly to last through to 2024, balanced between the new sales and existing subs.

TSEL’s differentiated strategy: FMC as the end-game.

TSEL's differentiated strategy prioritizes households, targeting members across various segments with tailored incentives to maximize ARPA (account) for their FMC. While they might not be active mobile users for any telco (TSEL, IOH, XL), TSEL aims to convert them into productive users without incurring OPEX. Reactivating these users gives TSEL a potential edge over its rivals. It's critical for TSEL, as an incumbent, to maintain a 50%+ market share in KPIs. This dominance translates to higher revenue share, growth, and profitability.

TSEL reaffirms its market leadership in Indonesia.

TSEL has countered recent Opensignal findings by highlighting their 98% network coverage in the country. Their reach surpasses its competitors who are still building infra and capacity in ex-Java areas. Additionally, TSEL is optimizing its multi-segment offerings (incl. youth and mass markets) to drive FMC monetization. TSEL's 8.5mn Indihome base further strengthens TSEL’s FMC position vs. its peers.

Reiterate Buy rating with a TP of Rp4,400.

We reiterate our Buy rating on TLKM with a TP of Rp4,400. We believe TLKM’s FY24 EPS growth outlook of 3-5% is intact (albeit lower than its peers). As such, we think the current valuation discount (-2SD) is unwarranted. Key catalysts are the steady TSEL 46-48% EBITDA margin with additional S&M OPEX needed to support Indihome acquisitions (target: 800k-1mn new accounts in FY24), and the high FY24 Lebaran seasonality reflected by 20-25%/75-80% in 1Q/2Q24, respectively.

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