Company Update

31 Oktober 2018


Paving the Way for Better Performance


Short-Term Shock Ensures Healthier Competition Environment
Following the end of the SIM card registration period, the telecommunications sector
recorded moderate growth of 7.26% YoY in 1H18, below the average FY12-FY17 figure of
9.56% YoY. This can be understood by considering the decline in revenues of
telecommunication operators TLKM, EXCL and ISAT, who suffered an average drop of -
8.39% YoY in 1H18. We are confident this regulation has the potential to act as a positive
catalyst over the long term which will ultimately suppress the churn rate and result in a
more efficient and stable industry.

FY19F Catalyst: Data Price Rationalization and Focus on Network Quality
We believe the sector will continue its growth by 9.28% YoY in FY19F, mainly due to: 1)
Healthier long-term competition after the SIM card registration is implemented, the
number of SIM cards registered stood at 254.79 million as of April 2018; 2) Operators are
starting to rise data yield that more rational by 4%-11% in FY19F, at a level of IDR7,000-
IDR17,000 per GB; 3) Various bundling promos as an effort to acquire and keep customers;
4) Focus on network quality as a the main driver of business continuity and maintaining its
market share. On the other hand, M&A will be the main concerns in the near future and
could shape Indonesia’s telecom industry in the long run. We believe fundamentally
healthy operators with large economies of scale will be able to survive.

Overweight Recommendation with Top Picks: EXCL and TLKM
By considering positive catalysts and risks, we remain OVERWEIGHT for the
telecommunications sector in Indonesia with top picks EXCL (BUY; TP: IDR3,300) and
TLKM (BUY; TP: IDR 4,150). We are positive on EXCL’s growth outlook as well as
pursuing ex-Java market opportunities. We see the increase in tariffs and bundling
strategies carried out by EXCL as driving better performance in 2H18E. Our EXCL's target
price implies EV/EBITDA at 4.02x/3.80x level in FY18E/FY19E. We also give a nod to TLKM
on the back of its strong brand positioning. Our TLKM’s target price implies EV/EBITDA at
6.31x/5.73x level in FY18E/FY19E.


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