CLSA Telkom, sign of stabilization, Indo strategy

Telkom (TLKM IJ), sign of stabilization, from Wilianto, maintain BUY, TP Rp9,000

Wilianto looked at Telkom Indonesia’s 1Q09 results. With the risk of sounding like a broken record, we want to highlight once again that there are signs of earnings stabilization as at TLKM.

Well OK, revenues are not looking great, -2.2% YoY, which reflects weak macro situation. But at least for the first time in many years we see some cost control at TLKM. If we look at operating profit in 1Q09 Rp5.28tn vs. Rp4.7tn in 3Q08 (4Q is strong due to seasonality factor), it looks like things are improving at TLKM. Same thing if you look at it from EBITDA standpoint (Rp8.5tn in 1Q09 vs. Rp7.77tn in 3Q08).

ARPU is still falling 14% QoQ. Don’t expect overnight improvement but competition should be easing and Indo telecom industry is expected to consolidate as smaller operators can no longer sustain their low price high vol business model, due to lack of cheap money.

TLKM has been a big laggard of late and may be seen as a safe heaven for those who seek refuge from market correction.

Key points from the report:
Telkom 1Q09 result shows sign of earnings stabilization as Ebitda and Ebit bounced off the low in 3Q09.
Revenues growth remains absent, reflecting weaker purchasing power and lower tariff.
Costs seem to be under control – finally
Net add is strong
Valuation is not demanding against peers. TLKM is trading at 12.7x 09 CL PE vs. 13.8x for major operators.