Wilianto has been banging on the table about Telkom being the clear winner in the mobile war. The contrast between Telkomsel and its competitors was stark.
At the EBITDA level, Telkomsel recorded 13.8% YoY growth, as compared to -5% for Indosat (ISAT IJ) and +3.1% for Excelcomindo (EXCL IJ).
More importantly, at the operating level, Telkomsel booked Rp12.7tn operating profit +10.2% YoY.
In contrast, ISAT and EXCL’s operating profits were -22% and -27% YoY respectively. Their capex generates very little or no incremental return.
Telkomsel has demonstrated its strong brand equity by gaining subscribers while others are losing or gaining very little. The reduction in marketing expenses by Telkom’s competitors, if prolonged as an effort to boost profitability, could lead to even a wider gap of brand equity value.
Conclusion: current industry structure with 9 companies holding 13 wireless phone licenses is not sustainable and industry consolidation should happen. Telkomsel’s profitability has bottomed out earlier than its peers and recovery is underway.
Telkomsel should emerge as a clear winner in the consolidation in Indo mobile sector.
TLKM has been a big laggard this year. Industry growth rates are going to be lower going forward, maybe 10% p.a. instead of previously 30% growth. Indo mobile penetration rate has already reached 70% (Wili argues that real penetration rate is closer to 50%, since many carry more than 1 SIM card here). It is sensible to stick with the winner: TLKM.
Valuation-wise, TLKM trades at 13.0x 10CL PE, which is still at near its 5yr historical mean vs. JCI that has traded at 1sd above 5 years mean.
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