Telkom Indonesia (TLKM IJ)

Capex Discipline Eases FCF Concerns

• FY26 capex guidance is kept at 17-19% of rev., signaling a more cautious approach to 5G monetization, but easing FCF concerns.
• IndiHome pivots to quality via subscriber cleansing; we forecast 9mn subs in FY26F, with ARPU better protected in high-value subs.
• We maintain Buy rating and raise our 3M tactical to OW, but with a lower DCF-based TP of Rp3,500.

TLKM maintained FY26 capex guidance at 17-19% of revenue

TLKM reiterated its FY26F capex guidance (incl. intangibles) at 17-19% of revenue. In our estimates, this implies Rp28.5tr, only Rp1tr higher than FY25 and largely accounted for by the Rp1.2tr spectrum upfront cost. By entity, ~59% of capex is attributable to Telkomsel, while B2B Infra capex steps down as it prioritizes monetizing unused fiber over aggressive rollout. Although this appears moderate given the post-auction 5G opportunity, management frames the strategy as a phased, selective-coverage approach that protects FCF and margins. In our view, it also likely reflects more caution on the still unproven 5G monetization. We assume capex to remain at 19% of rev. in FY27-28.

Strong mobile results; IndiHome pivots to high-value subscribers

2Q26 mobile ARPU reached Rp46k (+2% qoq), with a flat data payload reflecting the yield-led strategy, as data yield improved to Rp3.6k/GB (+2.1% qoq). Management guides for a more challenging 3Q26, absent of festive season or a one-off boost like the 2Q26 World Cup. In fixed broadband, IndiHome is undergoing a strategic pivot from volume to quality-driven growth as it cleansed ~800k of non-contributing subs, bringing total subs to 9.5mn but lifting ARPU to Rp211k in 2Q26. We forecast subscribers to drift further to ~9mn in FY26F as phased cleansing continue, with a return to subscriber growth expected in FY27.

Maintain Buy with lower TP amid risk on 5G competition

We fine-tuned our FY26-28F earnings estimates by -1.1-1.3% and maintain Buy rating but with a lower TP of Rp3,500, derived from DCF alone after removing the valuation premium to reflect longer-term 5G under-investment risk. We also raise our 3M tactical call to OW, as the maintained capex guidance alleviates prior concerns over FCF pressure, while current 4.5x FY26F EV/EBITDA (-1.1 SD) appears attractive. TLKM has completed 12 streamlining initiatives, with 3-4 more divestments due by year-end, mostly on loss-making entities. Beyond streamlining, two further margin levers stand out: 1) International business, via a mix shift toward higher-margin subsea cable; 2) B2B Infra, via external monetization of fiber capacity. Key risk: mobile revenue share erosion.

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