Telkom Indonesia (TLKM IJ)
Resilient 1H24 earnings (inline); diversified growth drivers to mitigate downside risks
- Telkom 1H24 NP (Rp13tr, +4.2%yoy) was broadly in line, as TSEL fended off competition, while enterprise biz supported Telkom growth.
- We expect Indihome, through EZNet, to enhance TSEL’s growth in 2H24, with improving performances from Enterprise & WIB segments.
- We adjusted our forecast with a more conservative approach for TSEL, deriving a lower TP of Rp4,250. Reiterate Buy rating on the stock.
TSEL fends off competition with a more effective pricing strategy
Telkom 2Q24 core NP reached Rp6.7tr (+5.3%yoy), driven by revenue growth (Rp37.9tr, +1.2%yoy) and core EBITDA (Rp19.7tr, +1.4%yoy), attributing these earnings to TSEL’s resilient execution and growth in the enterprise segment. TSEL’s pricing strategy with Lite and ByU packages has helped shape TSEL’s subscribers trend (158mn, +1%qoq, flattish ARPU of Rp45k in 2Q), pointing it to the right direction. The high-value-customers segment (60-70% of the base) will balance the potential pressures in ARPU (our forecast FY24: ~45k).
Fixed Broadband (BB) and enterprise segments to drive the growth
TSEL’s Indihome take-up (9.1mn subs, +449k 1H net adds) is encouraging, and we expect momentum to carry on with EZNet penetrating the lower segments. We anticipate Indihome ARPU dilution to remain manageable (2Q24 Rp240k, -1.1%qoq). In addition, as B2B was the most robust segment, we expect wholesale segment (WIB) to support revenue in 2H24 and FY25.
A more gradual turnaround amid softer consumer sentiment
Telkom 1H24 core NP came in Rp13.0tr (+4.2%yoy) with revenue Rp75.3tr, (+2.5%yoy) and stable core EBITDA of Rp39.8tr (+1.9%yoy, EBITDA margin 51.9%), hence broadly inline. Nonetheless, we cut our FY24 revenue growth est. to ~2.7% yoy assuming a more gradual TSEL turnaround amid the soft consumers income. We expect lower core EBITDA margin in 2H24, inline with mgmt’s revised guidance amid IT transformation efforts (billing, analytics).
Maintain BUY rating on TLKM but with a lower TP
We revise our TP to Rp4,250 based on our DCF adjustments, implying F24-25 5.7x EV/EBITDA. TLKM currently trades at an attractive level of 4.0x. We maintain BUY rating on Telkom due to its diversified revenue growth from enterprise and WIB, with TSEL levers to fend-off competition and establish growth pathway in FMC. Weak consumer sentiment and competition are key downside risks, but we largely incorporated these in our projections.
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