Digital And IoT Trends Will Transform Indonesia Connectivity

Key Takeaways

• Fast adoption of bundled digital services and operational efficiencies are driving margin expansion, higher customer retention, and robust free cash flow for aggressive dividends and reinvestment.
  
• Diversification into digital platforms and leveraging national digitalization initiatives position Telkom Indonesia for sustained revenue growth and leadership in emerging B2B sectors.
  
• Eroding traditional revenues, growing competitive and regulatory pressures, and digital transformation risks threaten Telkom Indonesia's margins, profitability, and long-term earnings stability.

Catalysts

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

• While analyst consensus expects one-billing fixed-mobile convergence (FMC) integration to unlock revenue and margin benefits, the rapid acceleration and high uptake rate-already reaching 57 percent convergence in December 2024-signals Telkom Indonesia could drive a much faster and broader shift to bundled digital services, resulting in outsized ARPU, lower churn, and a step-change in net margins.
  
• Analysts broadly agree on medium-term CapEx efficiency gains, but successful group procurement, technology upgrades, and asset optimization have already structurally lowered CapEx intensity below 17 percent of revenue, enabling Telkom Indonesia to significantly boost free cash flow and potentially sustain extraordinary dividend payouts and aggressive reinvestment-directly impacting both earnings per share and long-term returns.
  
• With Indonesia's fixed broadband penetration and monthly data consumption still well below regional peers, Telkom Indonesia stands to benefit disproportionately as urbanization and the digital economy propel demand, offering a multi-year runway for double-digit revenue growth and ARPU expansion as the nation inevitably closes the connectivity gap.
  
• Aggressive expansion into high-margin digital platforms-including data centers, cloud solutions, satellite services, and fintech-positions the company to capture soaring demand from e-commerce and digital-first enterprises, fundamentally improving the mix of recurring revenues and driving structural upward pressure on both earnings and operating margins.
  
• The emergence of national initiatives for IoT adoption, smart cities, and Industry 4.0-combined with Telkom Indonesia's unmatched fiber and digital infrastructure-sets the stage for it to dominate new B2B verticals, potentially unlocking new multi-billion rupiah revenue streams and further accelerating earnings growth far above analyst expectations.

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

Assumptions

• This narrative explores a more optimistic perspective on Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia's revenue will grow by 4.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 15.7% today to 17.8% in 3 years time.
• The bullish analysts expect earnings to reach IDR 30538.8 billion (and earnings per share of IDR 313.98) by about July 2028, up from IDR 23406.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 12.1x today. This future PE is lower than the current PE for the US Telecom industry at 20.9x.
• 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 12.23%, as per the Simply Wall St company report.

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

Risks

• The persistent decline in legacy revenues from traditional voice, SMS, and fixed-line services is accelerating and constraining top-line revenue growth, as digital and OTT platforms erode historically significant income streams for Telkom Indonesia.
  
• Intensifying competition from both state and private sector peers, as well as low-cost digital entrants and OTT providers, is driving price pressure and ARPU compression, negatively affecting net margins and profitability over time.
  
• Rising industry-wide costs, especially for spectrum and regulatory fees in anticipation of 5G infrastructure demand, as well as ongoing regulatory scrutiny and looming data privacy requirements, are expected to increase capital expenditure and compliance expenses, reducing Telkom Indonesia's return on investment and free cash flow.
  
• Ongoing commoditization of mobile connectivity and infrastructure-sharing mandates are undermining Telkom Indonesia's brand differentiation and network advantage, likely leading to higher churn, reduced customer loyalty, and diminished long-term revenue per user.
  
• There is significant execution risk in the company's digital and cloud transformation strategy, as failure to rapidly innovate and monetize digital assets or integrate new services efficiently may result in structurally lower EBITDA and earnings growth, undermining future financial performance.

Valuation

• The assumed bullish price target for Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia is IDR3720.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 IDR2700.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be IDR171838.1 billion, earnings will come to IDR30538.8 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 12.2%.
• Given the current share price of IDR2850.0, the bullish analyst price target of IDR3720.0 is 23.4% higher.
• 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.