Foreseeing Big Transformation
Improved Performance and Maintaining Dominance in Network Supply
• In 9M21, TLKM booked a revenue of IDR106.04 tn (+6.1% YoY), EBITDA of IDR57.93 tn (+8.1% YoY) and net income of IDR18.87 tn (+13.1% YoY) with the EBITDA margin of 54.6%.
• By 9M21, TLKM data traffic has grown 50.4% YoY to 9,812 PB through the ‘Unlimited Max’ plan, which takes up to 77.5% of Telkomsel’s total revenue. Moreover, it is expected that TLKM’s data traffic grows 53.6% YoY to 14,832 PB in FY21E and 40.2% YoY to 20,801 PB in FY22E. Moreover, in 9M21, TLKM recorded revenue of IDR1.10 tn or +19.7% YoY through data center.
• Furthermore, in 9M21, TLKM through MTEL has 28,079 towers or 52.0% increase from FY20 with 1.5x tenancy ratio. In addition, TLKM recorded a total BTS on air to 245,710 units in 9M21 or +7.6% YoY with 132,293 units being 4G BTS or 53.84% of total BTS on air. Moreover, with Indonesia’s accelerating digital transformation, TLKM plans to upgrade their 3G BTS to 4G to improve Indonesia’s digital economy in FY22.
• We believe that FY22E revenue to reach IDR151.13 tn (+6.09% YoY) and EBITDA at IDR79.80 tn (+7.44% YoY) with EBITDA margin of 53%, mainly driven by the expansion of BTS distribution exJava, data center business opportunity and investment on digital platform.
Seizing Opportunity of the Rise of Data Center
• With the increasing demand of data, particularly robust data center and cloud infrastructure in FY21, TLKM plans to consolidate several data centers and digital business companies in FY22F up to FY25F into one entity through TelkomSigma. With this consolidation, TLKM hopes that it maximizes the data center value by integrating data centers into TLKM network and becomes the market leader of the data center sector.
• Furthermore, TLKM will collaborate with PT Sigma Tata Sadaya (STS) in order to maximize the value of the data center business. TelkomGroup’s data center business consolidation will be carried out in stages over the next 2-3 years. Looking at the IPO of other data center business, DCII valuation recorded an increase of 8,276.2% since IPO, while at the global market, Global X Data Center REITs (VPN) recorded an increase of 29.0% since IPO.
• Moreover, TLKM had built Hyperscale Data Center (HDC) and is planned to be operated in 2Q22E. HDC is certified as tier 3 and 4 data center and reported to have total capacity of 75MW, surpassing DCI’s total capacity of 37MW. With HDC, Telkom is also expected to accommodate more 5G networks all over Indonesia and to have edge blockchain technology.
Dive into the Digital World
• TLKM forms PT Telekomunikasi Ekosistem Digital (TED) and Leap Telkom Digital which the former covers emerging portfolio of Telkomsel’s vertical business in digital sector, particularly edu-tech, health-tech and gaming, and the latter acts as the umbrella brand of TLKM’s digital products and services. Leap will feature several TLKM digital products, including PaDi UMKM, BigBox, MySooltan, Agree, Logee and Pijar during its presentation in Feb-2022.
• With the accelerating digitization of Indonesia, TLKM had invested on GoTo in Nov-2020 and May2021 to assist in the digitization of micro, small and medium enterprises (MSMEs). Its initiatives are: 1) able to collaborate Telkomsel users within GoTo ecosystem; 2) conveniently make GoTo’s MSMEs to be Telkomsel reseller partners; 3) easy access for Telkomsel’s outlets and retailers via GoShop; 4) number masking features to improve customer experience in GoTo. From this investment, TLKM recorded a capital gain of IDR350 bn in 9M21.
Valuation and Recommendation: BUY at Target Price IDR4,600
We transfer our coverage on telco sector, especially TLKM from Victoria Venny to Andrew Sebastian Susilo. We recommend BUY with target price of IDR4,600 due to the positive movement in 9M21, data center IPO and digital ecosystem expansion. The risks are: 1) potential return of overlap spectrum; 2) increased competition due to M&A of competitors.
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