TLKM has released its consolidated 9M24 results, with headline consolidated profit of IDR17.7tn (-9.4% y-y), which was slightly behind the pace of our FY24F profit estimate of IDR24.6tn (~72% of ours). In part, the slight miss was due to a one-off early retirement program (ERP) expense of IDR1.2tn in 2Q24. Excluding this, TLKM’s consolidated profit in 9M24 would have been IDR18.9tn (-3% y-y). At the operating level, the company delivered results that were in line with our projections. Admittedly, competition outside of Java as well as the ongoing shift from legacy services (voice and SMS) toward data continued to drag core cellular revenue for Telkomsel (TSEL – an unlisted subsidiary of TLKM) in 9M24, driving flat cellular-only revenue of IDR65.2tn for TSEL in 9M24. We expect similar competition dynamics in the medium term (at least over the next 2-3 years). Meanwhile, we think TSEL may continue to see sluggish cellular revenue trends (and a consequent gradual decline in its cellular revenue market share). Still, despite competition risks at cellular, we expect TLKM to deliver stable consolidated profit over the next few years. And at current levels, we consider TLKM’s dividend yields attractive.

Results summary
● 3Q24 consolidated revenue reached IDR36.9tn (-2.5% q-q/ -2.2% y-y), bringing 9M24 revenue to IDR112.2tn (flat y-y) – approximately 74% of our FY24F estimate. Meanwhile, TSEL reported 3Q24 revenue of IDR28.0tn (-4% y-y), largely due to the consolidation of indihome services. Excluding indihome services, 3Q24 cellular-only revenue was IDR21.4tn. This brings TSEL’s 9M24 revenue to IDR85.2tn (+16% y-y) – largely on track to meet our FY24F estimate.

● 3Q24 consolidated EBITDA came in at IDR18.8tn (+1.7% q-q / -9.3% y-y), bringing 9M24 consolidated EBITDA to IDR56.6tn (-4.1% y-y) – accounting for 74% of our FY24F estimate. For TSEL, 3Q24 EBITDA was at IDR12.3tn (-7.6% q-q / -11.6% y-y). This brought TSEL’s 9M24 EBITDA to IDR39.1tn (+1.2% y-y, partly also due to indihome consolidation starting in 2Q23), accounting for 71% of our FY24F estimate.

● 3Q24 consolidated profit was at IDR5.9tn (+3.6% q-q / -12.3% y-y), bringing 9M24 profit to IDR17.7tn (-9.4% y-y) – accounting for 72% of our FY24F profit estimate. For TSEL, 3Q24 profit was at IDR5.2tn (-9.6% q-q / -8.6% y-y), bringing 9M24 profit to IDR16.2tn (flat y-y).

Valuation and risks

Our DCF-based TP of IDR4,800 assumes a risk-free rate of 6.5%, an equity risk premium of 7.8% and a terminal growth rate of 2.5%. At our TP, the stock would trade at 6.5x 2024F EV/EBITDA (compared with 5.1x at the current price). Risks are adverse macroeconomics, lower data traffic growth, irrational competition, lower ARPUs, declining cellular revenue market share from outside Java and difficulties in securing new sites for network expansion.

Fig. 1: TLKM consolidated results (IDRbn)

Fig. 2: TSEL quarterly P&L

Fig. 3: TSEL Operational data

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)