Credit Suisse: PT TELKOM (TLKM): Upgrade Telkomsel EPS - roll DCF Rp9,400– Upgrade to Buy

TLKM has underperformed JCI by 80% over 12 months and now Colin sees TLKM valuation is attractive in Indonesia market (JCI Target 3,300pts implies 13% upside). At Rp7,650- TLKM is trading on undemanding 11.8x 2010F PER (+12.4% EPS Growth), 5.6% 2010F Dividend Yield, and implying 23% upside to DCF Rp9,400 (implies 14.5x 2010F PER). In this past TLKM usually traded in line with market multiple, and JCI at 2,927pts implies CS Indonesia Universe 15.0x 2010F PER (+18.5% EPS Growth). Some of the TLKM underperformance is also due to short-selling which could be covered anytime in the near future. I reiterate Value Buy TLKM.

· Colin McCallum (Daily): We raised our DCF-based target price by 2.2% from Rp9,200 to Rp9,400. With 22.9% upside, we upgrade our rating to OUTPERFORM (from Neutral). While the upward revisions to our forecasts are relatively modest, at 1.4%, 0.9% and 1.5%, respectively, for FY10 consolidated revenue, EBITDA and net profit, the upward direction contrasts with recent downward moves in consensus forecasts.

· We continue to view the competitive environment in Indonesia as relatively benign. With net addition momentum picking up we now, expect Telkomsel to deliver 11.0% revenue growth YoY into FY10, ahead of guidance and our previous forecast of 9.3%. While the fixed line business remains under structural pressure, Telkom management’s awareness of this has increased and costs and capex associated with the ex-growth Flexi business are finally being slashed, capex is at least now being directed into value-creating areas (broadband).