Mar 21, 2016 08:22:07
Telekomunikasi Indonesia ($TLKM),
4Q15/FY15 Results Call Takeaways

Telkom remains a BUY with TP raised to IDR4,000 (from IDR3,600, 18% upside, 11% WACC, 1.5% TG) after rolling forward our valuations. Key takeaways from the FY15 results call were lumpy one-offs booked in 4Q15, longer-term tax savings from assets revaluations, FY15 dividend payout look set to be maintained at 60% and guidance of double-digit revenue growth. The firm is our Top Pick for Indo telco exposure and our preferred ASEAN-4 telco pick. This is on account of its balance sheet strength, superior ROEs and attractive dividend yields.

¨ IndiHome constrained by lack of installation teams. The growth of Telkom Indonesia’s (Telkom) triple play bundled fibre service has been hampered by the lack of installers (1.1m subscribers (subs) of 10m premises passed for fibre at end-Dec 2015). This suggests that demand for its new bundled offering is likely to be capped in the medium term until the company mobilises new installers. Telkom is targeting 10,000 installers by year-end from 4,800 currently. We draw parallels with Telekom Malaysia’s (TM) (T MK, NEUTRAL, TP: MYR6.40) fibre broadband rollout, which encountered similar bottlenecks in the past. Telkom is vying for 3m fibre-to-the-home (FTTH) subs by end-2016 (30% take-up). The ARPU uplift from IndiHome is 2-3x that of regular fixed line ARPU.

¨ Dividend. Telkom expects FY15 payout to be sustained at FY14’s 60% level or higher, consistent with its broader payout policy of 50-70%. Assuming a constant payout, its dividend yield translates into 3%, ie still the highest among domestic peers. We expect future dividend payouts to be supported by the steady growth in Telkom’s FCF, with FCF yields projected at 6-7% for FY16-17.

¨ One-offs and forecast. The additional one-offs booked during 4Q15 comprised additional staff incentives at Telkomsel totalling IDR190bn and universal service obligation (USO) cost adjustments of IDR283bn. Telkom expects: i) revenue growth to be in line or higher than the market, ii) a slight decline in EBITDA margins, and iii) capex/sales of 22-25% for FY16. 60% of the overall capex is allocated for Telkomsel, with the remainder for the fixed broadband expansion. Our FY16-17 core earnings forecasts are trimmed by 5%/7% respectively after a few house-keeping adjustments, and we introduce FY18 numbers. Key downside risks to earnings are stronger-than-expected competition and higher-than-expected capex.

¨ Still our top Indo telco pick. Our DCF-based TP is raised to IDR4,000 (implying 6.5x FY17F EV/EBITDA) after rolling forward our valuations and adjusting for the latest net debt position. Telkom trades at inexpensive 5.7x FY17F EV/EBITDA. This is at a discount to its regional peers’ 9-10x, with valuations backed by its strong balance sheet and superior ROE/dividend yields. The stock remains one of our preferred ASEAN-4 telco exposures.

Source: RHB Securities