Indonesia Telecoms - Constitutional Court’s decision on prepaid data rollover

Constitutional Court’s decision on prepaid data rollover

We believe the recent decision by the Mahkamah Konstitusi (Constitutional Court) to reject the judicial review challenging the expiry of prepaid internet quotas removes a near-term regulatory overhang for Indonesia’s cellular operators. The Court cited insufficient legal grounds to invalidate the existing framework, effectively upholding Kementerian Komunikasi dan Informatika (Ministry of Communication) Regulation No. 5/2021, which permits time-limited prepaid data packages. In our view, this outcome reinforces the legal basis of the current expiry model and reduces the immediate risk of a mandated shift toward non-expiring or automatic rollover quotas.

We believe the ruling is directionally positive for sector earnings visibility. As highlighted previously, expiry-based packaging remains central to operators’ revenue recognition mechanics, yield management, and repurchase-cycle discipline. A forced structural change toward unlimited rollovers would have risked dampening top-up frequency and softening ARPU recovery momentum, particularly at a time when early signs of market repair are emerging. The Court’s decision preserves commercial flexibility, allowing operators to experiment with rollover features selectively rather than under regulatory compulsion, in our view.

That said, we reiterate our positive call on the sector as we expect the momentum of ARPU increase will continue in upcoming quarters.

Valuation and risks

Telkom (TLKM IJ, Buy) – We derive our TP of IDR4,500 based on DCF methodology, in which we assume a risk-free rate of 6.0%, an equity risk premium of 5.1% and a terminal growth rate of 1.5%. At our TP, the stock would trade at 6.8x 2026F EV/EBITDA (compared to 6.2x 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 getting new sites for network expansion.

Indosat (ISAT IJ, Buy) – We derive our DCF-based TP of IDR3,300 using the following key parameters: a risk-free rate of 6.2%, an equity risk premium of 7.4%, beta of 1.2x and a terminal growth rate of 2.5%. At our TP, the stock would trade at 5.1x FY26F EV/EBITDA (vs 4.2x at the current price). Key risks include adverse macroeconomic trends that could impact purchasing power, lower price increases or subscriber base, high opex due to slower post-merger network integration, and/or irrational competition leading to price cuts.

XLSmart (EXCL IJ, Neutral) – Our DCF-based TP of IDR3,300 assumes a risk-free rate of 6.2%, equity risk premium of 7.4%, and terminal growth rate of 2.5%. This results in a WACC of 9.0%. At our TP, the stock would trade at 2026F EV/EBITDA of 5.5x (compared to 4.5x at the current price). Upside/downside risks include better/adverse macro conditions, higher/lower customer spending, more/less service price hikes leading to higher/lower data prices, and/or lower/higher opex.

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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