5G : RUNNING FASTER
Positive trend will continue in FY18E
Information and communications sector contributed the highest growth for Indonesia's economic growth in FY17 with a growth of 9.81% YoY underpinned by mobile cellular growth which currently stands at more than 371 million subscribers, exceeding the national population of 259 million. We projected that the Telco sector has the potential to continue to improve from 10.10% YoY in FY18E, along with the Indonesia's GDP growth at the level 5.30% on FY18E. We believe that the positive trend in FY17 will continue throughout the year, mainly due to by : 1) The telecommunication industry has the potential to save Rp2-2.5 trillion from the SIM card regulation so as to create a more efficient and healthy industry; 2) The optimism of telecom operators in developing core business is seen from the larger predicted capex budget in FY18E.
Focus on 5G generation readiness while data monetization has not been maximized
We consider 5G technology is predicted to be implemented in some developed countries in the FY19F-FY20F which has well-developed infrastructure and readiness in data network changes. But we see Indonesia is not ready yet in the terms of transportation system and network to build higher bandwidth across the country. On the other hand, we see the yield of operator are still continuing a downward trend which eventually makes the delay of the operator’s plan to monetize its data upon the infrastructure rising cost. The yield of operator data decreased to Rp9.500-17.500 in 4Q17 (vs Rp13.500-32.000 in 4Q16) per GB.
OVERWEIGHT Recommendation with Top Picks: EXCL and TLKM
By looking at some positive catalysts and existing risks, we remain OVERWEIGHT in the telecommunications sector in Indonesia. Our main choice is EXCL (BUY; TP: Rp3,800) as a cost leader in data services and showing positive progress. We see that EXCL offers an interesting value, currently trades at close to -1STD (average 5-year EV/EBITDA). Our new target price implies FY18E EV/EBITDA of 4,74x, still at a discount relative to TLKM's 5.57x. We also give a nod toTLKM (BUY; TP: Rp4,750), which is capable to maintain in the leading position in the industry and ISAT (BUY; TP: Rp7,000) with the customer growth and expects better performance in FY18E.
