We think Telkom (TLKM IJ, Buy) may increasingly see limited downside risks. Granted 2Q25 results (yet to be released) may show soft results from Telkomsel (TSEL, unlisted), its cellular subsidiary. However, we see early signs of recoveries in 3Q25F (and possibly going into 1H26F).

Our recent industry survey shows upward price adjustments for some data packages by TSEL. We expect its major competitors (ISAT IJ and EXCL IJ) to follow suit, although the magnitude of price hikes will differ depending on respective brands’ subscriber profiles. We have been pushing for greater market repair (i.e., price increases at these major cellular operators) given the fact that data traffic growth has slowed. As data usage becomes increasingly sticky (either for business activities and/or entertainment), those users in the higher-ARPU segments (i.e., those with average ARPU above IDR50,000/~USD3.0) will likely absorb any price hikes.

We also argue that better profitability profiles at telcos are necessary for these companies to continue investing in higher-technology network infrastructures. Today, 5G network infrastructure in Indonesia still requires significant capex requirements, we think.

On the back of the above, we see limited downside risks for TLKM. Fig. 1 shows our expectations for TSEL’s earnings improvement in 3Q25F from a projected soft 2Q25F.

Valuation and risks

We derive our TP of IDR3,650 based on DCF methodology, in which we assume a risk-free rate of 6.5%, an equity risk premium of 7.8% and a terminal growth rate of 1.5%. At our TP, the stock would trade at 5.2x 2025F EV/EBITDA (compared with 3.9x 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. 2: TSEL – quarterly trends, IDRbn

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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Erwin Wijaya (erwin.wijaya@verdhana.id)