Telkom - Guiding for improving growth and share buybacks (positive) - Credit Suisse

● Not surprisingly, Telkomsel’s revenue declined QoQ in 4Q10 following the introduction of the aggressive-looking Rp20/min flat rate promotional offer on the Kartu As brand in October.
● On the other hand, opex and capex control was slightly better than we had forecast, and Telkom was able to grow revenue, EBITDA and net profit in FY10 as a whole. Nevertheless, we have cut our FY11 revenue, EBITDA and EPS forecasts by 2.3%, 1.8% and 4.4%, respectively; our DCF-based target price declines by 5.3%, to Rp9,750.
● Despite this, we expect net profit to grow by 10.4% in FY11 after the withdrawal of the Rp20/min offer by Telkomsel and the end of amortisation of KSO arrangements in the fixed line division.
● Furthermore, management stated that a share buyback programme would be proposed at the next AGM, and that the buyback would be “larger in size” than the recent buybacks (of around 1-2% of the free float). This provides a strong rerating catalyst for a major stock market laggard. We rate Telkom OUTPERFORM.