One-billing Integration And Fiber Optics Will Boost Digital Connectivity

Key Takeaways

• Strategic initiatives like group procurement and fixed-mobile convergence boost net margins, earnings, and long-term revenue growth.
  
• Expansion in digital connectivity and infrastructure, including data centers, enhances revenue potential and earnings with higher profit margins.
  
• A volatile market and declining legacy revenue threaten margins, while reliance on economic recovery and high expenses complicate projected revenue growth.

Catalysts

Provides information and communications technology, and telecommunications network services worldwide.

• Telkom Indonesia's successful completion of a one-billing integration enhances fixed-mobile convergence capabilities, laying the foundation for long-term wholesale revenue growth by accelerating FMC adoption and improving customer engagement. This is likely to impact both revenue and net margins positively.
  
• Continued strategic initiatives such as group procurement processes to lower CapEx and improve content cost efficiency should significantly increase net margins and earnings due to the lowering of operational expenses.
  
• Expansion in the B2B segment, focusing on digital connectivity supported by platform expansion, particularly data centers and cloud services, points to potential sustainable revenue growth and improved earnings as these sectors offer higher margins.
  
• Acquisition of fiber optics by Mitratel, which strengthens its position as a digital infrastructure company, suggests potential growth in tenancy and usage, ultimately increasing revenue streams.
  
• The company plans to keep CapEx to revenue at 17-19% in the medium to long term, which, combined with cost efficiency measures, may provide greater free cash flow for dividends, potentially impacting stock attractiveness and driving up earnings per share.

Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.5% today to 16.0% in 3 years time.
• Analysts expect earnings to reach IDR 26307.2 billion (and earnings per share of IDR 256.99) by about August 2028, up from IDR 22863.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting IDR28985.0 billion in earnings, and the most bearish expecting IDR22950.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, up from 14.0x today. This future PE is lower than the current PE for the US Telecom industry at 21.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.33%, as per the Simply Wall St company report.

Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Future Earnings Per Share Growth

Risks

• The company is operating in a highly competitive and volatile macroeconomic environment, which may impact revenue growth if competitors undercut prices or if economic conditions worsen.
  
• The decline in legacy revenues and pressure on data yield could affect net margins if the company is unable to offset these declines with new digital revenue streams or cost efficiencies.
  
• Despite growth initiatives, the fixed broadband penetration remains low, which may limit potential earnings growth if not effectively addressed.
  
• The company's significant dependence on macroeconomic recovery and market repair initiatives poses risks to achieving projected revenues if economic conditions or industry dynamics do not improve as expected.
  
• High operating expenses and pressures related to maintaining customer engagement and retention could negatively impact net margins, particularly if the company doesn't achieve expected revenue growth.

Valuation

• The analysts have a consensus price target of IDR3340.0 for Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR3720.0, and the most bearish reporting a price target of just IDR2900.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR164380.9 billion, earnings will come to IDR26307.2 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 12.3%.
• Given the current share price of IDR3220.0, the analyst price target of IDR3340.0 is 3.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.