Service Integration And Cloud Expansion Will Unlock Future Value In Indonesia's Telecom Sector

Key Takeaways

• Integration of fixed and mobile services can improve revenue and EBITDA margins through cost synergies and cross-selling opportunities.
  
• Expanding data centers and cloud platforms through strategic partnerships can drive long-term revenue growth and unlock future value.
  
• Soft consumer spending, competition, and rising costs challenge PT Telekomunikasi Indonesia's revenue and margins, with digital growth lagging behind legacy revenue declines.

Catalysts

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

• Telkom Indonesia's integration of fixed and mobile services (FMC) is expected to yield significant cost synergies and improve revenue, as integration progresses and cross-selling opportunities are better captured, potentially enhancing EBITDA margins in the long term.
  
• The strategic focus on data center and cloud platform expansion, including exploring strategic partnerships for expertise and positioning, is anticipated to unlock future value and drive long-term revenue growth.
  
• The transition to a managed service entity for Telkom’s infrastructure is projected to improve CapEx efficiency and enable commercial monetization of fiber assets, positively impacting future earnings.
  
• Telkom Indonesia's emphasis on cost optimization through group procurement initiatives and breaking down business process redundancies aims to enhance net margins by reducing operating expenses in the future.
  
• The macroeconomic environment improvements, such as increased consumer spending power and potential price increases in legacy and data services, could drive revenue growth and margin improvement as economic conditions stabilize.

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 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.0% today to 16.3% in 3 years time.
• Analysts expect earnings to reach IDR 28132.9 billion (and earnings per share of IDR 286.77) by about December 2027, up from IDR 22603.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting IDR 32931.0 billion in earnings, and the most bearish expecting IDR 23642.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2027 earnings, up from 11.3x today. This future PE is lower than the current PE for the US Telecom industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.93%, as per the Simply Wall St company report.

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

Risks

• The tightening in consumer spending and soft purchasing power environment may impact revenue growth, particularly as the company encounters deflationary pressures impacting the general mass market and middle-income segments. (Revenue)
  
• The competitive landscape and price pressure in the mobile environment could limit pricing power and necessitate strategic pricing adjustments, which may affect revenue and margins. (Net Margins and Revenue)
  
• The increased costs in general and administrative expenses, as well as heightened personnel expenditures due to early retirement programs, could hinder improvements in EBITDA margins despite revenue growth attempts. (EBITDA Margins)
  
• Continued declines in legacy service revenues at a faster pace than digital business growth could pressure overall earnings, especially if digital revenues do not compensate sufficiently. (Earnings)
  
• Integration costs and the lack of immediate synergies from the Fixed-Mobile Convergence strategy might delay expected margin improvements and could strain financial resources if cost savings are not realized as anticipated. (EBITDA and Net Margins)

Valuation

• The analysts have a consensus price target of IDR 3698.41 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 IDR 4800.0, and the most bearish reporting a price target of just IDR 2500.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be IDR 172902.6 billion, earnings will come to IDR 28132.9 billion, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 11.9%.
• Given the current share price of IDR 2570.0, the analyst's price target of IDR 3698.41 is 30.5% 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.