Telekomunikasi Indonesia (TLKM, O, PT Rp 9,750): 2Q11 Results – Telkomsel Strong QoQ Performance; Cellular Revenue Growth Not Dead in Indonesia - Credit Suisse

We had highlighted that the end of aggressive price competition in the telco space since the beginning of the year would be positive for all players in the industry. With revenue recovery on its way, the cheap valuation of the telco sector should not be seen as a value trap any longer, in our view. We like TLKM on its share buyback plan (Rp5.0 tn allocation, ~3% repurchases, target minimum price of Rp7,200/share), which should provide some support to the stock price in the market.

· TLKM cellular subsidiary Telkomsel reported 5.6% QoQ revenue growth, 10% QoQ EBITDA growth and 12% QoQ normalized net profit growth in 2Q11 respectively.
· In addition to seasonality, TLKM good 2Q11 results were supported by the withdrawal of a damaging voice promotion program (October 2010-January 2011), which resulted in +4% QoQ RPM growth to Rp157/minute.
· Telkomsel 1H11 revenue, EBITDA and normalized net profit account for 48%, 46% and 43% of CS 2011 targets: In-line.
· As a whole, TLKM 1H11 revenue, EBITDA and normalized net profit has achieved 48%, 48% and 46% of CS 2011 target – in-line – which is encouraging given Telkomsel positive earnings momentum going into 2H11.
· Analyst Colin McCallum selected TLKM as his top regional telco picks on July 27, 2011. He sees two catalysts for TLKM stock price performance: 1) share buy back; and 2) revenue recovery.