Telkom Indonesia (TLKM IJ)

Strong and Visible Catalysts to boost FY25 Growth

• We see stabilized spending and government policies, along with easing sector bottlenecks to aid momentum in TSEL’s revenue growth in FY25.
• Telkom aims to reduce its capex/sales ratio to 17-19% as it completes its 5 Bold Moves (incl. single billing in FMC slated for YE-2024) to boost FCF.
• We trimmed FY24/25F EPS est. by 3.1/1.4% but rolled forward valuation, keeping our TP at Rp4,250; maintain Buy on visible growth catalysts.

TSEL recovery with FY25 ~4% revenue growth vs. 2019-23 CAGR -0.5%

TSEL’s recent narrative reflects weakness in the retail market, which we believe led to reduced promotion of TSEL Lite in 3Q24. However, TSEL indicates that consumer spending has recently stabilized, signaling a potential purchasing power recovery in 4Q-1Q25. We expect the new government’s initiatives (incl. reduced CPO levy, free food programs and medical check-ups) to act as catalysts for this recovery. TSEL plans to capitalize on these by raising prices once the market clears from recent starter-pack bottlenecks. Hence, we expect TSEL revenue to grow by ~4% in FY25.

Single billing’s potential disruptive force to improve TSEL’s competitiveness

TSEL’s single billing initiative will consolidate its ICT offerings, allowing users to better control and align their usage with their payments across various internet access modes. As the dominant player, with 50%/60-70% of mobile and fixed broadband subscriptions, TSEL is positioned to be a first-mover, creating a disruptive market impact. The single billing implementation is now targeted by YE-2024, and we expect this to materially enhance TSEL’s ARPU/ ARPA competitiveness, starting from FY25.

Telkom enters the capex optimization phase with the 5 bold moves completion

Telkom is on track to complete its 5 Bold Moves strategy by FY25, positioning itself for the next phase of monetization. The group aims to reduce its capex/sales ratio to 17-19% by 2028 from 22-23%, aligning its spending with regional peers. This strategic shift will allow Telkom to target capex spending more effectively. We expect OPEX savings, improved FCF/ROE and potential dividend increases to begin materializing in FY25-26.

Maintain BUY rating on potential earnings growth improvement in FY25

We adjust FY24F revenue growth to <2% from 2.7% yoy and lowered EBITDA margin to 50.6% from 51.7%, as ERP efficiencies will be reflected in FY25. We roll forward our DCF, which results in our unchanged TP of Rp4,250 (implying 5.7x 2025 EV/EBITDA). Currently, TLKM trades at 4.3x EBITDA (near -2SD), offering potential rerating as we expect better revenue growth and EBITDA margin in FY25, driven by pro-growth economic policies and ERP-driven savings. Thus, we maintain our BUY rating on TLKM. Key downside risks include the pace of initiatives execution.

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