PT TELKOM (TLKM): Share buy-back as trading support – Watch EGM May 19th! - Credit Suisse

We continue to reiterate Consolidation in Industry continue to benefit the Top-3 Incumbents and therefore we reiterate Overweight Indonesia Cellular. Given this Share buy-back plan, I personally recommend Trading Buy TLKM (@Rp7,550- 11.9x 2011F PER with 29% upside to DCF Rp9,750)! However, I continue to see TLKM ADR/Stock as a Short Candidate for Long-Short Strategy.

· Colin McCallum (Daily attached): PT Telkom has issued a circular to shareholders in advance of the 19 May 2011 AGM. The circular sets out the proposal for a fourth share buyback scheme. The scheme proposes the purchase of 416.7 mn shares (representing 2.07% of the current shares in issue) in the open market.

· We view the purchase of shares in PT Telkom, which we value at Rp9,750/share using DCF, as a very good use of the company’s strong balance sheet (and far preferable to overseas investment). Furthermore, the buyback is set to have a positive impact on the company’s EPS and ROE. On a pro-forma basis for FY10 (i.e. as if the buyback had occurred on 1 January 2010), it would have raised FY10 EPS by 1.0%, ROA by 0.3% and ROE by 1.8%.

· Confirmation of the capital management plans represents the delivery of the first catalyst we have been expecting for PT Telkom, and supports our OUTPERFORM rating on the name. We now await the evidence of an improved revenue performance from cellular subsidiary Telkomsel (not listed) as promotional tariffs are lifted.