DBS Telkom: Hold; Rp9,250; TP Rp8,500; TLKM IJ

Strategic partnership with Jasa Marga in fiber optic business

PT Jasa Marga Tbk (JSMR), state-owned toll road operator company, formally appointed TLKM as its partner in building a new subsidiary in fiber optic business. JSMR and TLKM are in talks about details of strategic partnership, where JSMR has allocated a portion of its budgeted capital expenditure amounting to Rp25tr. JSMR stated that TLKM is chosen for its reputation as a leading telecommunication company in Indonesia .

DBS Telkom: Hold; Rp9,250; TP Rp8,500; TLKM IJ

Consolidate business to further focus on TIME

As a part of its commitment to focus on TIME business, TLKM will divest its 40% stake in Patrakom and 25% in Citra Sari Makmur (CSM) to consolidate corporate resources in satellite business. TLKM plans to develop satellite business specifically in very small aperture terminal (VSAT) through only one subsidiary, Metrasat. Thus, management chose to consolidate its businesses with affiliated companies where TLKM maintains full ownership to enable fast decision-making. CSM management stated that change of ownership as TLKM divest its stake would not affect the company’s business as well as data communication development plan.

DBS Telkom: Hold; Rp9,200; TP Rp8,500; TLKM IJ

To transfer Flexi operation to Bakrie Telecom (BTEL)

TLKM confirmed yesterday that the company will transfer its Flexi division’s asset to Bakrie Telecom (BTEL). As per current condition, TLKM Flexi own 5,668 BTS with coverage on 330 cities in Indonesia with 15.9m subscribers and 1.3 Internet subscriber bases. Under the new arrangement, Flexi will get BTEL rights issue shares as a compensation of assets as well as human resources transfer to BTEL management. For this corporate action, TLKM has appointed UBS Securities to appraise its asset value.

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.

DBS Telkom: Hold; Rp8,600; TP Rp8,500; TLKM IJ

Standoff between SingTel-Telkom on tower sale

According to Bisnis Indonesia , TLKM and SingTel have not reached agreement yet on takeover plan of 9,000 telecommunication towers. SingTel currently holds 35% stake in Telkomsel, with other 65% held by TLKM. Based on Indonesia Government regulation, telecommunication towers must be managed by domestic companies and foreign ownership is prohibited. TLKM is ready to takeover and restructure 9,000 towers, which will be operated under its subsidiary, Mitratel. For this purpose, TLKM has to allocate budget around Rp800m – Rp2bn per unit of tower or in total amounting to Rp2.5-3.78tr as takeover compensation to SingTel. However, the negotiation has not culminated into an agreement between the two companies.