MacQ Bakrie Telecom– re-iterates Underperform

Bakrie Telecom– re-iterates Underperform

He believes that the 6% rise in Bakrie Telecom's share price yesterday is due to the comment mande by TLKM's president director, Rinaldi Firmansyah, saying that TLKM is considering buying a company to complement its fixed wireless CDMA Flexi business. He said that TLKM is "open to any proposal to consolidate with Flexi".

Ken does not see TLKM's Flexi business playing a major part in industry consolidation for several reasons:
(1) Does not make economic sense to acquire a smaller rival. Flexi has wider coverage and more customers with higher ARPUs compared to its rivals. Also, it would be cheaper to acquire additional frequency from the government than to buy out a smaller telco to obtain more frequency.
(2) Flexi remains a division within TLKM, and has yet to be carved out as a separate subsidiary. It would thus be difficult for any synergies to be realised if TLKM were to acquire another company.
(3) TLKM's state-owned corporate mentality makes it very cautious in making acquisitions. Though management has reviewed numerous investment opportunities (eg, other Indonesian telcos, TV stations, telco tower companies, Iran Telecom), its last major acquisition was an 80% stake in PT Sigma Cipta Caraka (an IT services company) for US$35m in February 2008.
(4) Cannot be viewed as bailing out Indonesian business groups. After Flexi (6% market share), the two largest CDMA operators are Bakrie Telecom (4% market share) and Mobile-8 (3%).