Telco: 1Q24 preview: TLKM’s inline 1Q24 earnings implies possible limited downside for ISAT and EXCL

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Telco

1Q24 preview: TLKM’s inline 1Q24 earnings implies possible limited downside for ISAT and EXCL

We noted Telkom’s resilient 1Q24 topline as per expectations amid seasonality which implies IOH and EXCL may also deliver inline revenue.
Expect IOH and EXCL to deliver sturdy EBITDA margins as telcos refrain from taking commercial initiatives in 1Q24, hence limited NP downside.
Maintain sector OW rating as TLKM results imply the sector remains constructive, hence recent sharp de-rating is unwarranted.

1Q24 Telkom inline revenue amid seasonality with 24% FY24 est. achieved.

Telkom combined legacy + data/Internet revenue was resilient in 1Q24 (Rp24.7tr, -4.2%qoq, +3.1%yoy) and on TSEL level (Rp21.9tr,-2.7%qoq, +2.0%yoy) (exh.6). Indihome’s revenue contracted by -2.0% qoq but TSEL portion came in flat (Rp6.6tr, -0.4%qoq). The group eased the 1Q seasonality with Interconnect and Other qoq incremental revenue, enabling TLKM to post 1Q24 topline revenue Rp37.4tr (-1.4%qoq, +3.7%yoy) well inline with our and cons forecast. (at 23.9%/24.0% of FY24F). TSEL Mobile & Indihome added +400k/+200k subs in 1Q24 while ARPUs Rp45k/242k were lower -2.6%/-2.5%qoq, due to seasonality and optimization in offerings.

Expect ISAT, EXCL’s revenue to achieve ~24% of est. in 1Q24.

Given TSEL’s inline 1Q24 revenue, we expect ISAT to achieve 1Q24 revenue at ~23.5-24.0% of FY24 est. (-5%qoq, +9%yoy) from both legacy/ data amid the expected subs growth in ex-Java. Meanwhile, we expect EXCL to continue extract ARPU from a solid subs base with the possibility to deliver flattish/+ve qoq data growth but lower legacy revenue.

Telkom higher 1Q24 EBITDA margin, ISAT may gain, EXCL mostly flattish.

We expect the telcos will avoid new commercial initiatives to contain costs ahead of high season in 2Q24. This is reflected in Telkom group’s results where its 1Q24 EBITDA margin recovered by +310bps qoq, to 51.9%, owing to improvements in OPEX. TLKM 1Q24 EBITDA is broadly inline with ours/cons FY24 est. (23.6%/23.8%, more margin gains are plausible). We expect ISAT to realize more synergies and thus achieve incremental 1Q24 margin. We expect EXCL OPEX to be stable and be in position to deliver flattish margin in 1Q24.

Limited surprises below EBITDA line aiming to preserve profitability.

We expect the Telcos to preserve profitability amid fixed BB rollouts and new spectrum auction. This is reflected in TLKM 1Q24 core net profit which came in inline ~25.0%/23.7% of ours/cons est. We expect IOH to further benefit from tower relocations and network leverages, hence putting them in position to achieve ~25% of net profit estimates. We expect EXCL to implement stringent cost control and expect better 1Q24 net profit compared to 16% achieved in FY22-23 fiscal years.

Maintain OW as valuation de-rating is unwarranted; TLKM is new top pick.

We maintain our OW rating on the sector as we see TLKM was able to defend its market share in a constructive manner and delivered inline earnings in 1Q24. Moreover we expect inline ISAT/EXCL net profits with est, leveraging their strengths effectively. Our top pick is now TLKM (Buy, TP Rp4,400) as we believe sharp de-rating to current 3.9x EV/ EBITDA (lower than -2 s.d. vs. its 8 and 5-year mean) is unjustified and TLKM faces less handicap from legacy.

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