DBS Telkom: Hold; Rp9,000; TP Rp8,500; TLKM IJ

Joint satellite financing with ISAT

TLKM signed an agreement with ISAT on joint financing of new satellite with total capital expenditure of US$200m. However, detailed financing scheme has not been decided by these two telecommunication companies. TLKM CEO stated that they are ready to disburse up to US$100m for this project. The new satellite will be launched in the next three year to replace current Palapa C2 satellite. Both TLKM and ISAT will utilize the satellite to revamp their capacity in order to increase the income from broadcasting rights from other television and telecommunication companies. TLKM projects its total capital expenditure for 2011 amounting to Rp17-19tr (US$ 2bn) of which 65% is allocated for cellular business, the remaining 20% and 15% are allocated for Internet and fiber optic purposes. Our HOLD recommendation is based on the expectations of Telkomsel’s cellular revenue share of 60% to decline below 55% at the end of 2012F.