High O&M costs in 4Q09
• FY09 net profit was 6% below our and consensus estimates
• 4Q09 EBITDA margin fell 6ppt to 50% mainly due to 37% q-o-q jump in O&M expenses
• Our forecasts, Rp10,700 TP and BUY call are under review pending a conference call.
Weak 4Q09 group earnings. TLKM reported 4Q09 NI of Rp2.0tr (-38% q-o-q; +20% y-o-y). Excluding Rp198b forex gain and lumpy Rp1tr expenses relating to early retirement (ERP), 4Q09 core NI was Rp2.6tr (-15% q-o-q; -21% y-o-y). This was on the back of Rp12.2tr revenue (+6% q-o-q; +8% y-o-y). However, EBITDA margin fell 6ppt q-o-q to 50% due to 37% higher operations and maintenance (O&M) expenses (no details), or as a percentage of revenue, it jumped 5.8ppt to 26%. Meanwhile, personnel costs fell 11% q-o-q as the group reaped the benefit of earlier retrenchment exercises.
Telkomsel earnings fell 8% y-o-y. Telkomsel, its 65% cellular subsidiary, grew subscriber base by 2% q-o-q to 81.6m. This led to flat 2% q-o-q revenue growth. But EBITDA margin fell 3ppt to 60% due to a 15% q-o-q jump in O&M expenses, and rising 2.3ppt to 20.7% of revenue. Consequently, Telkomsel’s net profit fell 8% to Rp3.3tr. FY09 blended ARPU fell 18% y-o-y to Rp48k, lower than its 25% subscriber growth.
Forecasts are under review. Our forecasts assume 8% revenue growth for FY10F and FY11F, and 54% EBITDA margin. Each 1ppt cut in margin could lower net profit by 4%. Our price target and recommendation are also under review.
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