Telkom Indonesia (TLKM IJ), in the hot seat - CLSA Indo

Telkom Indonesia (TLKM IJ): In the Hot Seat, maintain SELL, with TP Rp6,409 indicating a 14% downside

Dee Senaratne and I had the opportunity to meet up with Pak Jusman Djamal, the new Chairman of Telkom Indonesia (TLKM IJ). Pak Jusman arrived at TLKM about one month ago after previously being the transportation minister.

Being the chairman of TLKM is not an easy task.

approach and seeking feedbacks from investment community.

The new chairman likened the hypercompetitive telco industry to that of the aviation industry with low cost carriers having a similar negative on prices and earnings in that sector.

Overall, Dee believes that the upside risks to capex outweigh potential higher dividends. Reiterates SELL as defensive nature slowly dissipating.

Key points from report:
· New chairman requested to meet us due to our lone SELL call after just 1 month into the job
· Pak Jusman outlines TLKM’s twin missions: (1) contributing to society via telecom services and (2) creating shareholder value. First priority, however, is to create shareholder value.
· The two missions are not mutually exclusive and we think balancing them is difficult.
· Hard to see the attractiveness of TLKM's aggressively fiberising Indo via an FTTH (fibre to the home) roll-out across major cities (412 cities) by 2014.
· Chairman was willing to listen to our suggestion of increasing pay-out ratio to boost yields
· 'Defensive' characteristics are in question, and consensus continues to revise earnings downwards
· Positive note: Cambodia deal is still fluid. TLKM was non-committal to this acquisition.
· Maintain SELL call, with TP 6,409 indicating a 14% downside