November 18, 2010

P.T. Telekomunikasi Indonesia Tbk.- ADR (TLK-NYSE)

SUMMARY
Current Recommendation NEUTRAL
Outperform
Our long-term recommendation for Telekomunikasi is
Prior Recommendation
Neutral, which means the stock will perform mostly in
Date of Last Change 11/23/2009
line with the broader market. The company has declared
encouraging first nine months of 2010 financial results.
Current Price (11/17/10) $36.94 Despite this, we expect future sales to remain lumpy as
Target Price $39.00 both wireless and wireline telephone operations become
highly competitive in Indonesia. Operating expenses are
also likely to increase due to network upgrades and
promotional activities. We also remain concerned about
global economic conditions that may dampen growth in
South-East Asian countries. Nevertheless, despite facing
competition, Telekomunikasi is exhibiting solid growth in
cellular services and data & Internet revenue that may
reduce its top-line volatility. The proposed acquisition of
Bakrie Telecom will enable the company to consolidate
market position for both mobile and fixed-line telecom
SUMMARY DATA services in Indonesia.

52-Week High $43.80 Risk Level * Low,

52-Week Low $30.33 Type of Stock Large-Growth
One-Year Return (%) 0.10 Industry Diversified Com
Beta 1.15 Zacks Industry Rank * 59 out of 291
Average Daily Volume (ADR) 480,298
ZACKS CONSENSUS ESTIMATES
ADR Outstanding (mil) 504
Market Capitalization ($mil) $18,618 Revenue Estimates
Short Interest Ratio (days) 3.13 (In millions of $)
Institutional Ownership (%) 9 Q1 Q2 Q3 Q4 Year
Insider Ownership (%) 1 (Mar) (Jun) (Sep) (Dec) (Dec)
2008 1,625 A 1,635 A 1,560 A 1,504 A 6,505 A
Annual Cash Dividend $1.08 2009 1,263 A 1,504 A 1,645 A 2,442 A 6,854 A
Dividend Yield (%) 2.92 2010 1,789 A 1,989 A 2,062 A 7,660 E

5-Yr. Historical Growth Rates

2011 8,183 E
Sales (%) N/A
Earnings Per ADR Estimates
Earnings Per ADR (%) N/A (EPS is operating earnings before non-recurring items, but including employee
Dividend (%) 15.1 stock options expenses)
Q1 Q2 Q3 Q4 Year
P/E using TTM EPADR 14.1 (Mar) (Jun) (Sep) (Dec) (Dec)
2008 $0.70 A $0.67 A $0.58 A $0.32 A $2.24 A
P/E using 2010 Estimate 14.8
2009 $0.43 A $0.68 A $0.67 A $0.62 A $2.40 E
P/E using 2011 Estimate 12.7 2010 $0.61 A $0.60 A $0.79 A $2.50 E
2011 $2.91 E
Zacks Rank *: Short Term
1 3 months outlook 3 - Hold
Projected EPS Growth - Next 5 Years % N/A
* Definition / Disclosure on last page

© 2009 Zacks Investment Research, All Rights reserved. www.Zacks.com 111 North Canal Street, Chicago IL 60606
OVERVIEW

P.T. Telekomunikasi Indonesia Tbk. (TLK), popularly known as TELKOM, is the leading provider of
telecommunications services in Indonesia. Fixed-line telephone services (mainly local and domestic long-
distance) are offered through seven regional divisions operating across Indonesia. Cellular services are
offered through Telekomunikasi s 65%-owned subsidiary, Telkomsel (Singapore Telecommunications
Ltd. owns the remaining 35%). Telekomunikasi also provides data and Internet, interconnection, network,
and other telecommunication services. The company went public in 1995, but the Indonesian government
still owns 51% of it. At the end of the third quarter of 2010, the company had approximately 8.3 million
fixed wireline subscribers and 93.1 million wireless subscribers. Within the wireless segment, 91 million
was prepaid customers and the rest 2.1 million was postpaid customers. The fixed wireless business,
which is marketed under the brand name TELKOMFlexi , is being offered in selected cities as a low-cost
alternative to converged wireless/fixed-line service. At the end of September 30, 2010, TELKOMFlexi has
16.8 million subscribers. TELKOMFlexi provides customers the ability to use wireless handsets with
limited mobility (within a local area code). In July 2004, the company launched a broadband Internet
access service known as SPEEDY .

REASONS TO BUY

The Indonesian CDMA market is witnessing massive consolidation. Telekomunikasi has decided
to acquire smaller telecom service providers in Indonesia like P.T. Bakrie Telecom to expand its
CDMA network. The deal size is likely to reach up to$1 billion and is expected to be closed by end
2010 subject to regulatory approval. Telekomunikasi will merge its existing CDMA wing
TelekomFlexi with Bakrie Telecom. The proposed merger will create a near monopoly in the
Indonesian CDMA market. TelekomFlexi has 16.8 million subscribers and Bakrie Telecom has 11
million subscribers. Together these two entities constitute nearly 90% of total CDMA subscriber
base in Indonesia.

Telkomsel is likely to launch the country s first 4G WiMAX network. As of now, the company
provides both 2G and 3G wireless infrastructure that includes GSM and WCDMA/HSPA
technologies. Telkomsel won a 5MHz 3G spectrum license from the Indonesian government for 5
years. Through WiMAX, Telekomunikasi will offer an alternative to cable and digital subscriber
lines technology. Management announced that the company is ready to comply with the required
minimum of 40% local content in the products to be used for setting up the necessary
infrastructure.

Telekomunikasi has decided to spread out its radio access network infrastructure throughout
Indonesia. The new transformation initiative will converge IP and optical networks to enable
Telekomunikasi to effectively tackle growing data traffic, simplify network structure, and reduce
costs. Management has taken a decision to upgrade its existing HSPA network to HSPA+ that will
enable the company to offer broadband access speed up to 21 Mbps to its subscribers.
Telekomunikasi has selected Alcatel-Lucent to supply infrastructure gears for its latest backbone
network transformation project. Alcatel-Lucent is an existing network infrastructure vendor of
Telekomunikasi proving IP/MPLS and optical network solutions.

Telekomunikasi has decided to reduce capital expenditures in 2010. During 2009, TLK spends
approximately $2.2 billion however, in the current year; management pegged the capital
expenditure level at around $2 billion. Telekomsel will get around $1.3 billion compared to $1.4
billion in 2009. This will help the company to accumulate cash.

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REASONS TO SELL

Deregulation of telecom segment by the Indonesian Government has enabled several competitors
to provide similar services at lower costs to subscribers. That country s wireless service providers
slashed prices in 2008 in order to capture market share. As a result, ARPU (average revenue per
user) reduced across the industry. Major competitors of Telekomunikasi are P.T. Indosat Tbk
(24% market share), and P.T. Excelcomindo Pratama (17%).

Indonesia's wireless users often switch service providers to take advantage of low promotional
rates and available credit. About 10% of Telkomsel's reported prepaid subscriptions still remain
inactive. Moreover, in November 2009, Excelcom and Axis Telecom have signed an agreement
for Indonesia s first roaming network. The deal will allow Axis customers to use Excelcom's
network. Telekomunikasi may loose its market share if Axis further expands its operations in the
country.

Geographically Indonesia is a very difficult place to build wireless network. The country is
consisting of nearly 17,000 little islands and mountains. It is highly expensive to build out wireless
network because of frequent earthquakes and active volcanoes.

RECENT NEWS

First Nine Months of Fiscal 2010 Financial Results November 4, 2010

Telekomunikasi Posts Strong Results
Net income, in the first nine months of 2010 was nearly $1,001 million or $2.00 per ADS (American
Depository Shares) compared to a net income of $875 million or $1.78 per ADS in the year-ago period.
This was mainly due to higher revenue. Total revenue for the first nine months of 2010 was a little over
$5,840 million, up 3.9% year-over-year. This was mainly due to higher Cellular telephony revenue
together with a fabulous increase in Data, Internet & Information technology services revenue.

Total operating expenses in the first nine months of 2010 was $3,913.5 million, up more than 8.4% year
over year. Operating income, in the same period was $1,912.5 million, down 4.2% year over year.
Operating margin in the reported period was 33% compared to 35.8% in the prior-year period.

Telekomunikasi generated $2,295.7 million cash from operations during the first nine months of 2010,
down 8% year over year. Free cash flow (cash flow from operation less capital expenditure), during the
reported period was $1074.7 million, up 33.1% year over year.

At the end of the first nine months of 2010, Telekomunikasi had $1,073 million of cash & marketable
securities on its balance sheet, up 25.3% year over year. Total debt was $1,814.1 million at the end of
the same period, up 8.2% year over year. At the end of the first nine months of 2010, debt-to-
capitalization ratio was 0.27 compared to 0.29 at the end of the year-ago period.

Segment wise Revenue

Fixed Lines revenue in the first nine months of 2010 was $1,104.1 million, down 8.8% year over year.
Cellular revenue was $2,471.3 million, up 2.6% year over year. Interconnection revenue was $257.2
million, down 4.4% year over year. Data, Internet, & Information Technology Services revenue was
$1,775.8 million, up 15% year over year. Network revenue was $101.2 million, up 1% year over year.
Other Telecommunication Services revenue was $130.5 million, up 49.5% year over year.

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VALUATION

Telekomunikasi is currently trading at 14.8x P/E to our fiscal 2010 earning estimate. This is mostly at par
to both the S&P 500 average and the industry average. With respect to our fiscal 2011 earning estimate,
the stock is trading at 12.7x P/E, again a slight discount to the S&P 500 average but a slight premium
over the industry average. We believe the main reason for this valuation discount is the increasing
competition in the Indonesian telecom market that resulted in lower ARPU.

Indonesia is an example of one of the most extreme cases of price war in recent times. At the same time,
this is also our view that Telekomunikasi, as the incumbent, has the necessary scale and infrastructure to
grow its business and defend its pricing strategy. In particular, business opportunities in the cellular and
interconnection segments continue to facilitate revenue and financial growth over the near-term. We thus
maintain our Neutral rating with a target price of $39 based on a 15.6x P/E to our fiscal 2010 earning
estimate.

Key Indicators

P/E P/E
5-Yr 5-Yr
P/E P/E Est. 5-Yr P/CF P/E High Low
F1 F2 EPS Gr% (TTM) (TTM) (TTM) (TTM)
TELEKOMUNIK-ADR (TLK) 14.8 12.7 15.4 14.1 20.8 6.0

Industry Average 14.7 12.1 12.0 6.5 16.6 76.0 8.6

S&P 500 14.7 12.9 10.7 13.5 20.7 27.7 13.8

HELLENIC ADR (HLTOY) 14.1 8.0 4.1 1.8 3.3 10.9 3.5
TELMEX ADR-CL L (TMX) 10.1 10.8 1.6 2.6 9.8 175.8 8.3
CHUNGHWA TELECM (CHT) 15.8 15.3 9.5 14.8 20.5 11.3
TELEKOM AUSTRIA (TKAGY) 14.5 13.3 49.2 2.4 15.7 122.3 12.0
TTM is trailing 12 months; F1 is 2010 and F2 is, CF is operating cash flow

P/B
Last P/B P/B ROE D/E Div Yield EV/EBITDA
Qtr. 5-Yr High 5-Yr Low (TTM) Last Qtr. Last Qtr. (TTM)
TELEKOMUNIK-ADR
(TLK) 3.8 8.4 2.8 29.2 0.2 2.7 7.3

Industry Average 2.6 2.6 2.6 1.6 -1.4 1.8 5.7

S&P 500 3.5 10.0 2.9 23.9 1.9

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Earnings Surprise and Estimate Revision History

StockResearchWiki.com The Online Stock Research Community

Discover what other investors are saying about Telekomunik-Adr (TLK) at StockResearchWiki.com:

http://www.stockresearchwiki.com/tiki-index.php?page=TLK/Ticker

DISCLOSURES & DEFINITIONS

The analysts contributing to this report do not hold any shares of TLK. The EPS and revenue forecasts are the Zacks Consensus
estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal
views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly,
related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this
report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to
accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet
the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an
offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a
position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the

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securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to
twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve
months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The
current distribution of Zacks Ratings is as follows on the 1012 companies covered: Outperform - 15.2%, Neutral - 78.5%, Underperform 5.8%.
Data is as of midnight on the business day immediately prior to this publication.

Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in
earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model
assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks
Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a
company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of
investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In
determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each
th
stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 group has the highest
values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the
second, third, and fourth groups of stocks, respectively.

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