Telkom Indonesia: Highlights from site visit (TLKM, Rp7,150, Neutral, TP: Rp7,600) - Mandiri

􀂄 We made a site visit to Telkom Indonesia’s (TLKM) market in Manado, North Sulawesi and found several points to highlight.
􀂄 North Sulawesi, especially Manado, is an important part for TLKM, in terms of market and network backbone for Eastern part of Indonesia. TLKM through Telkomsel predominate cellular market with 87% market share (2.1mn subscribers, 93% penetration rate). However, in terms of revenue contribution, Mid-East Indonesia only comprises 25% of total.
􀂄 Clearly, Eastern part of Indonesia is very dependent to TLKM’s current earth station satellite and future Palapa Ring, which we see may be the catalyst for growth in Eastern Indonesia’s lack of network infrastructure (currently 50% completions).
􀂄 Meanwhile on data & internet segment, TLKM’s Speedy holds 61.5% market share, ahead of Indosat’s IM2. We view that Manado is very potential market, where it has the 2nd fastest internet growth after Jakarta. It also has the 2nd largest subscription-based tablet PC (e.g. iPad and Samsung Galaxy Tab) users. This is due to the fact that Manado people are in high standard living style (GDP per cap grow 67% in the last 5 years) and highly consumptive.
􀂄 On tower business, TLKM’s towers in Eastern Indonesia, specifically North Sulawesi, have high tenancy ratio of 5-6 tenants in one tower, which impose to high margin as in Java area (60-70% operating margin)
􀂄 Overall, we view that Eastern Indonesia has future potential for data and internet growth; however network infrastructure (e.g. Palapa Ring) is essential to support the growth. We still maintain our Neutral view on TLKM, currently traded at PER11F 11.4x