Telekomunikasi Indonesia Tbk

(TLKM)
Maintaining Rhythm

Company Update 1Q17 | May 19, 2017

Perseverance in Excellent Performance

The success of TLKM in respectively recording 1Q17 revenue, EBITDA, and
net profit of IDR31 trillion (+12.6% y-y); IDR16.8 trillion (+14.7%y-y); and
Buy
IDR6.7 trillion (+45.8% y-y) was a perseverance of the 2016 excellent Dec 2017 TP (IDR) 5,000
performance. Consensus Price (IDR) 4,783
TP to Consensus Price +4.5%
TLKM recorded excellent performance in data business, the growth vs. Last Price +15.2%
stimulant, by booking the revenue of IDR11.5 trillion (+25.4% y-y) and
contributing 41.6% from revenue increasing by 34.7% from the prior
Shares data
quarter. Amid the dim SMS trend, TLKM still booked the growth of 5.7% y-y
in the telephone revenue backed by the system of cluster-based pricing Last Price (IDR) 4,340
and sales in packages. Price date as of May 16, 2017
52 wk range (Hi/Lo) 4,550 / 3,564
Prominent Market Leader Free float 48.8%
Although TLKM sets premium price, TLKM is supreme leader of Outstanding sh.(mn) 100,800
telecommunications market by entwining excellent quality and network Market Cap (IDR bn) 437,472
coverage. The positive trend of smartphone penetration and data business
Market Cap (USD mn) 32,883
monetization from operators enable TLKM to maintain its prominence as
Avg. Trd Vol - 3M (mn) 85.19
the leader in telecommunications market.
Avg. Trd Val - 3M (bn) 352.19
Indihome, the new growth source of fixed line business also recorded the Foreign Ownership 31.5%
positive performance by accomplishing the 1Q17 average revenue per user
(ARPU) of IDR357 thousands (+4.7% Q-Q). Although the increase in new Infrastructure
user constitutes as challenge for TLKM, the monetization of existing users is Telecommunication
the booster for TLKM growth. Bloomberg TLKM.IJ
Target Price of IDR5,000 Reuters TLKM.JK
We use an estimate forward at a P/E of 20.1x (+2SD from the 3-year
average) to obtain target price in December 2017. This target price implies
2017E P/E of 22.0x. Now, TLKM is traded at a 2017E P/E of 19.1x.
Arnold Sampeliling
+62 21 797 6202, ext:170
Telekomunikasi Indonesia, Tbk | Summary (IDR bn) arnold@nhsec.co.id
2015/12A 2016/12A 2017/12E 2018/12E
Revenue 102,470 116,333 128,964 143,160
Revenue growth 14.2% 13.5% 10.9% 11.0%
Share Price Performance
EBITDA 50,952 57,727 66,519 74,019
Net profit 15,489 19,352 22,958 25,259
EPS (IDR) 154 192 228 251
EPS growth 7.0% 24.9% 18.6% 10.0%
BVPS (IDR) 927 1,047 1,167 1,305
EBITDA margin 49.7% 49.6% 51.6% 51.7%
NPM 15.1% 16.6% 17.8% 17.6%
ROE 17.3% 19.5% 20.6% 20.3%
ROA 10.1% 11.2% 12.1% 12.2%
ROIC 20.3% 22.6% 23.3% 24.4%
P/E 20.2x 20.7x 19.1x 17.3x
P/BV 3.4x 3.8x 3.7x 3.3x
EV/EBITDA 6.6x 7.4x 7.0x 6.2x YTD 1M 3M 12M
DPS (IDR) 87 92 134 137 Abs. Ret. 9.0% 8.2% 12.1% 16.7%
Dividend yield 2.8% 2.3% 3.1% 3.1% Rel. Ret. 2.4% 7.0% 7.1% -2.7%
Source: Company Data, Bloomberg, NHKS Research
Please consider the rating criteria & important disclaimer

NH Korindo Sekuritas Indonesia

Company Report
May 19 2017
Revenue Breakdown | Q1 2017
Source: Company
Cluster-based pricing strategy and
packages were capable of maintaining
the decrease in legacy business.
TLKM EBITDA, Net Income , Margin | Q1 2014 - Q1 2017
Source: Company, NHKS research
PT NH Korindo Sekuritas Indonesia — Company Research | www.nhsec.co.id
Perseverance in Excellent Performance
TLKM succeeded to book the 1Q17 revenue of IDR31 trillion (+12.6% y-y)
boosted by the data business booking the 1Q17 revenue of IDR12.9 trillion
(+25.4 y-y). The paradigm shift in the telecommunications industry
increased the contribution of the business data to the 1Q16 total
revenue of 37.4% into the 1Q17 total revenue of 41.6%.
The increasing contribution of the business data to the total revenue was
in a juxtaposition to the decreasing contribution of the legacy business to
the total revenue from 53.8% to 47.9%.
TLKM Revenue Trend | Q1 2014 - Q1 2017
Source: Company
The sluggish legacy revenue was underpinned by the faltering SMS
revenue (IDR3.3 trillion; -14.7% y-y). The business data cannibalization
through OTT (over the top) service was the key catalyst for the tumbling
legacy business particularly SMS. In reverse, the telephone revenue still
booked the growth of 5.57% y-y into IDR11.5 trillion. The cluster-based
pricing strategy and packages persistently secure the revenue stemming
from the telephone business.
TLKM succeeded to maintain the positive trend of EBITDA and EBITDA
margin by booking the 1Q17 EBITDA of IDR16.8 trillion (+14.7% y-y) and
the 1Q17 margin EBITDA of 54% . Meanwhile, the lagging operational cost
of 10.3% caused by the lagging growth of 8.5% y-y in maintenance cost is
the booster for margin EBITDA. Besides, the estimated lower DER of 28%
still provided great room for fulfilling financing needs.
Leverage | Q1 2014 - Q1 2017
Source: Company, NHKS research
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Company Report
May 19 2017
ARPU Blended | Q1 2015 - Q1 2017
Source: Company
Although TLKM offers premium price,
its excellent quality and network
coverage allow TLKM to retain its
prominence.
Data Yield | Q1 2015 - Q1 2017
Source: Company, NHKS research
PT NH Korindo Sekuritas Indonesia — Company Research | www.nhsec.co.id
Prominent Market Leader
The slight decrease of IDR43,000 in the 1Q17 blended ARPU was caused by
the sluggish SMS revenue (-15.1% y-y) underlined by intense competition
and cannibalization from the application service of Instant Messaging. The
estimated 1Q17 data yield also lagged into IDR20/MB followed by the
significant hike in data traffic into 365,959 TB (+115% y-y).
User Base | Q1 2015 - Q1 2017
Source: Company, NHKS research
Although TLKM offers a premium price compared to its competitors, it is
still capable of producing a significant growth in data traffic and users
number. The coverage and network quality are TLKM’s excellency against
its competitors competing to secure market share particularly outside
Java. Besides, TLKM also has distribution excellency strengthened by
Tiphone, the subsidiary of Telkomsel.
In 1Q17, TLKM increased 7,060 new BTS. Now, TLKM has the total BTS
3G/4G of 86,283 (vs ISAT 32,441; EXCL 46,935). Compared to its
competitors still focusing on service improvement in Java, TLKM has
planned to extend network outside Java particularly in East of Indonesia.
Data Traffic | Q1 2015 - Q1 2017
Source: Company
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Company Report
May 19 2017

The aggressive increase in BTS is not yet capable of accommodating the

increase in data traffic, TLKM’s data traffic per BTS continuously increases
and the recorded 1Q17 BTS was 2,754 GB/BTS. The increase in BTS
inevitably constitutes as a challenge for TLKM to expand its excellency
over its competitors.

Indihome recorded the 1Q17 increase
of only 154,000 in new users.
Indihome as the booster for the fixed line revenue was capable of booking
the 1Q17 ARPU of IDR356,000 increasing from 4Q16 ARPU of IDR341,000.
The total user was 1.78 million (+154,000 q-q). Although the slight
increase in 1Q users compared to the 2017 target of new user of 1.3—1.5
million, TLKM growth will be boosted by the implementation of
monetization plan from the existing users.

3G/4G Capable Device| Q1 2015 - Q1 2017 Coverage | Q1 2015 - Q1 2017

Source: Company Source: Company, NHKS research

It is expected that the data business monetization through rationalized

price aligning with the government persuasion will encourage healthier
telecommunications industry. The rationalized price is possible by
considering the penetration of operator smartphone user continuously
Positive trend of smartphone
soaring. Until 1Q2017, TLKM had 49.5% of smartphone users (83,793
penetration is expected to have
thousands 3G/4G devices).
operators perform rationalization and
encourage healthier industry.
The trend of growth in the data business offers the potential of the growth
room. TLKM’s excellent network quality and commitment to strengthening
4G service enable it to reach the 2017 growth of 11% in revenue. The
catalyst for the growth in revenue are the positive trend of smartphone
penetration and the government commitment to performing investment
in telecommunications infrastructure.

The robust balance sheet enables TLKM to be the most prepared company
to benefit from the positive trend in telecommunications industry. In
addition, TLKM’s dividend payout ratio settling at the average of 60%-
70% is noteworthy to consider.

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Company Report
May 19 2017

Multiple Valuation
Forward P/E band | Last 3 years Dynamic Forward P/E band | Last 3 years

Source: NHKS research Source: NHKS research

Rating and target price

Date Rating Target Price Last Price Consensus vs Last Price vs Consensus
7/28/2016 Hold 4,720 (Dec 2016) 4,340 4,277 +8.8% +10.4%
12/9/2016 Buy 4,660 (Dec 2017) 3,850 4,730 +21.0% -1.5%
3/16/2017 Buy 4,750 (Dec 2017) 4,050 4,646 +17.3% +2.2%
5/16/2017 Buy 5,000 (Dec 2017) 4,340 4,783 +15.2% +4.5%
Source: Bloomberg, NHKS research

Analyst Coverage Rating Closing and Target Price

Source: Bloomberg Source: NHKS research

NH Korindo Sekuritas Indonesia (NHKS) stock ratings

1. Period: End of year target price
2. Rating system based on a stock’s absolute return from the date of publication
 Buy : Greater than +15%
 Hold : -15% to +15%
 Sell : Less than -15%

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Company Report
May 19 2017

Summary of Financials
TLKM Summary
Last Price (IDR) May 16, 2017 4,340 PROFITABILITY & STABILITY
Target Price (IDR) Dec 2017 5,000 2015/12A 2016/12A 2017/12E 2018/12E
Analyst: Arnold Sampeliling Rating: Buy ROE 17.3% 19.5% 20.6% 20.3%
ROA 10.1% 11.2% 12.1% 12.2%
ROIC 20.3% 22.6% 23.3% 24.4%
INCOME STATEMENT EBITDA/Equi ty 59.3% 61.8% 63.0% 62.9%
In IDR bn 2015/12A 2016/12A 2017/12E 2018/12E EBITDA/As s ets 33.1% 33.4% 35.0% 35.6%
Revenue 102,470 116,333 128,964 143,160 Ca s h Di vi dend (IDR bn) 8,783 9,293 13,546 13,775
Growth (% y/y) 14.2% 13.5% 10.9% 11.0% Di vi dend Yi el d (%) 2.8% 2.3% 3.1% 3.1%
Opera ti ng Expens es (70,052) (77,138) (83,471) (92,154) Pa yout Ra ti o (%) 60.7% 60.0% 70.0% 60.0%
EBIT 32,418 39,195 45,493 51,006 DER 37% 30% 34% 31%
EBIT Margin 31.6% 33.7% 35.3% 35.6% Net Gea ri ng 46% 39% 43% 40%
Depreci a ti on 18,534 18,532 21,025 23,013 LT Debt to Equi ty 36% 29% 33% 30%
EBITDA 50,952 57,727 66,519 74,019 Ca pi ta l i za ti on Ra ti o 27% 23% 25% 23%
EBITDA Margin 49.7% 49.6% 51.6% 51.7% Equi ty Ra ti o 56% 59% 59% 61%
Interes t - net (1,076) (1,006) (1,037) (1,068) Debt Ra ti o 21% 18% 20% 19%
EBT 31,342 38,189 44,456 49,938 Fi na nci a l Levera ge 172% 174% 170% 167%
Income Ta x (8,025) (9,017) (10,973) (12,428) Current Ra ti o 135% 120% 146% 161%
Mi nori ty Interes t (7,828) (9,820) (10,525) (12,251) Qui ck Ra ti o 134% 118% 144% 159%
Net Profit 15,489 19,352 22,958 25,259 Ca s h Ra ti o 79% 75% 90% 110%
Growth (% y/y) 7.0% 24.9% 18.6% 10.0% Pa r Va l ue (IDR) 50 50 50 50
Net Profit Margin 15.1% 16.6% 17.8% 17.6% Tota l Sha res (mn) 100,800 100,800 100,800 100,800
Sha re Pri ce (IDR) 3,105 3,980 4,340 4,340
Ma rket Ca p (IDR tn) 313.0 401.2 437.5 437.5

BALANCE SHEET VALUATION INDEX

In IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E
Ca s h 28,117 29,767 37,158 45,228 Pri ce /Ea rni ngs 20.2x 20.7x 19.1x 17.3x
Recei va bl es 7,517 7,363 10,827 8,767 Pri ce /Book Va l ue 3.4x 3.8x 3.7x 3.3x
Inventori es 528 584 556 530 Pri ce/Revenue 3.1x 3.4x 3.4x 3.1x
Total Current Assets 47,912 47,701 60,023 66,143 PE/EPS Growth 2.9x 0.8x 1.0x 1.7x
Net Fi xed As s ets 103,700 114,498 124,662 133,176 EV/EBITDA 6.6x 7.4x 7.0x 6.2x
Other Non Current As s ets 14,561 17,412 15,357 16,164 EV/EBIT 10.4x 11.4x 11.3x 10.0x
Total Assets 166,173 179,611 200,042 215,484 EV (IDR bn) 337,771 424,376 463,651 459,536
Pa ya bl es 13,994 13,518 13,255 13,282 Revenue CAGR (3-Yr) 10% 12% 13% 12%
ST Ba nk Loa n 602 911 1,055 921 EPS CAGR (3-Yr) 6% 11% 17% 18%
Curr Ma turi ti es of LT Debt 3,842 4,521 5,170 5,760 Ba s i c EPS (IDR) 154 192 228 251
Other Current Li a b. 16,975 20,812 21,754 21,215 Di l uted EPS (IDR) 154 192 228 251
LT Debt 30,168 26,367 33,227 34,326 BVPS (IDR) 927 1,047 1,167 1,305
Other Non Current Li a b. 7,164 7,938 7,906 8,399 Revenue PS (IDR) 1,017 1,154 1,279 1,420
Total Liabilities 72,745 74,067 82,368 83,903 DPS (IDR) 87 92 134 137
Shareholders' Equity 93,428 105,544 117,674 131,581

CASH FLOW STATEMENT DCF, RIM & EVA

In IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E
Net Income 15,489 19,352 22,958 25,259 DCF (IDR bn)
Deprec & Amorti za ti on 18,534 18,532 21,025 23,013 NOPAT 24,117 29,940 34,264 38,312
Chg. In Worki ng Ca pi ta l 9,646 9,347 (916) 1,438 +Depr./Amor. 18,534 18,532 21,025 23,013
CFO 43,669 47,231 43,067 49,709 -CAPEX (27,915) (30,160) (32,244) (31,905)
Ca pex (27,915) (30,160) (32,244) (31,905) -Incr. (Decr.) i n Worki ng Ca p. 9,646 9,347 (916) 1,438
CFI (27,421) (27,557) (29,264) (31,843) (Unl evered) FCFF 24,382 27,659 22,130 30,858
Di vi dends Pa i d (8,783) (9,293) (13,546) (13,775) WACC
Net Borrowi ng (PMT) 11,160 (2,813) 7,653 1,555 Cos t of Debt (Ta x Adj.) 8.9% 8.2% 7.7% 7.7%
CFF (6,407) (17,905) (5,953) (9,797) Cos t of Equi ty (COE) 10.7% 9.7% 9.4% 9.4%
Net Changes in Cash 9,841 1,769 7,850 8,070 WACC (%) 10.6% 9.6% 9.3% 9.3%
RIM
Sprea d (FROE-COE) (%) 9.5% 12.8% 15.2% 14.5%
OWNERSHIP Res i dua l Income (IDR) 7,260 11,032 14,178 15,340
By Geography % Shareholders % Equi ty Cha rge 8,229 8,320 8,780 9,919
Indones i a 68.5 Rep. of Indones i a 51.2 EVA
Uni ted Sta tes 20.5 Ba nk of New York 7.8 Inves ted Ca pi ta l (IDR bn) 109,444 128,040 137,343 157,126
Luxembourg 3.6 Va ngua rd Group 1.6 ROIC-WACC (%) 11.4% 13.8% 15.7% 15.1%
Irel a nd 1.2 Bl a ckrock 1.4 EVA (IDR bn) 12,519 17,700 21,511 23,765

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