Telkom Indonesia (TLKM.IJ Rp 2,990; BUY; TP Rp 4,400) Robust traffic growth on the cards for 2Q24; upside from WIB strategic positioning

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Telkom Indonesia (TLKM IJ)

Robust traffic growth on the cards for 2Q24; upside from WIB strategic positioning

We reiterate our view of ARPU stabilization in 2Q24 reflecting CVM efforts and robust traffic growth thanks to TSEL’s latest product strategy.
We see growth upside as TLKM leverages its fiber, DCs, towers and satellites portfolio, while WIB investments drive its strategic position.
We maintain our Buy rating with an unchanged TP of Rp4,400 as we view that the pessimistic growth expectations are priced in.

Healthy market conditions intact; expect stable ARPU & robust 2Q24 traffic.

We reiterate our view that TSEL’s latest product strategy is not in direct competition with its peers, as highlighted in our Jun24 Telco price tracker (pls. see sector report here). This concurs with TSEL’s assertion that little cannibalization is taking place as new plans are offered only to new IMEI phones. Instead, we note that the 1Q24 quarterly traffic rose by 14.4%yoy due to the new Lite launches raising productivity. We expect robust traffic growth to ensue in 2Q24, with stable ARPU possible in FY24 thanks to CVM efforts geared to pricing improvements.

Revenue upside and strategic positioning from the WIB expansion.

Telin is the key driver in TLKM’s WIB portfolio and beneficiary of the increased activity from hyperscalers / Sosmed based platforms. WIB contributed 11.3%/12.7% to Telkom’s FY23/1Q24 revenue while Telin alone contributed ~7.0%/7.7%. The management expects Telin to grow by 8% cagr In FY24-26, based on existing cable capacity (80%+ utilization) and 51%+ for presales of new cables in the 2024-25F pipeline, with a changing revenue mix from legacy to data. Telin’s investments in the new ICE cables capacity (with ~16% participation in US$2.7bn capex) shall cement a leading market share beyond FY26 in APAC-US-Asia-Europe traffic routes. This is aligned with TLKM’s TDE initiatives to manage the flow / storage in its DCs in Indonesia and SEA.

View on Starlink: enabler to establish new markets in remote areas.

Telkom sees Starlink’s D2C as an inferior proposition from the consumer and commercial standpoint, adding value only in the 3T and non-3T remote areas. Starlink added value is unlocked for Telkom with a B2B backhaul agreement that can generate ~Rp500bn revenue upside in FY24E in markets with limited data services. KDDI, UST-Mobile and Rogers operators also partner with Starlink to provide direct to cell LTE services targeting remote areas.

Maintain Buy rating on possible growth upside and discounted valuation.

We reiterate our Buy rating on TLKM with a DCF-based target price of Rp4,400, implying 5.7x EV/EBITDA. TLKM currently trades at 3.6x EV/EBITDA (below -2SD to its 5-year mean) which we think ignores possible value upsidefrom Telin, DCs, Mitratel, and Telkomsat. Key risks to our view include delays in FMC programs.

… Read More 20240628 TLKM