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Saturday, June 18, 2011

Depressed growth - PT. Telekomunikasi Indonesia Tbk

by Indopremier Securities

We sounded pessimistic on TLKM when we downgraded TLKM to a HOLD recommendation (stock note 17/01/11). Publication of its FY10 results and 1Q11 financials were according to our expectation and that of consensus. Currently trading at a favorable earnings multiple, as a results of recent under performing the general market, inferior growth prospects should prevent investor to jump to the counter. With an estimated continues declining EBITDA, with WACC of 10% and LTG of 1%, we arrive at DCF value of Rp8,021/share for TLKM, implying a 10% upside from today’s closing price. Maintain our HOLD recommendation.

FY10 Results

Compared with its other two main competitors, ISAT and EXCL, TLKM delivered thinner FY10 results with operational items showed a low single digit growths. We are somehow puzzled by TLKM’s stagnant growth, but suggest that pricing strategy is the main issue.

1Q11 Results

1Q11 still marked TLKM as the slowest one to post earnings achievement among the three operators, and with slightly declining profitability. TLKM did post strong operational results, however, significantly lower Revenue Per Minute (RPM) failed to boost revenue and thus profitability.

Prospects and recommendation

TLKM need a breakthrough marketing scheme to revive growth, in our view. We currently see that current operating environment poses challenge for TLKM to post financial growths. We estimate revenue to grow by 0% and 4% for this and next year, respectively, while estimate that EBITDA will slowly deteriorating into the year 2020. We may change our position when growth resume. We advise investors not to be lured by current low valuation. HOLD 

Projection & Valuation
2009
2010
2011E
2012E
Revenues (Rp bn)
67,678
68,629
68,965
71,836
Operating Profit (Rp bn)
22,788
22,491
23,559
24,684
Net Profit (Rp bn)
11,399
11,537
12,153
12,765
EPS (Rp)
565
572
603
633
EPS growth (%)
7%
1%
5%
5%
BVPS (Rp)
1,917
2,203
2,383
2,714
PER (x)
12.82
12.67
12.03
11.45
PBV (x)
3.78
3.29
3.04
2.67
Source :  Company, IPS Estimates

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