Indonesia April 14, 2017 - brokingrfs.cimb.com · telco - integrated│indonesia│april 14, 2017...

Telco - Integrated│Indonesia│April 14, 2017

Shariah Compliant

Company Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Telekomunikasi Indonesia Another sterling year for earnings in FY17F

We expect mobile revenue to grow 9.4% in FY17F, outpacing peers for the third ■year in a row.

We expect FY17F fixed revenue to rise 10.3% due to demand for corporate ICT ■services and IndiHome, and EBITDA/core EPS to grow by a robust 11.5%/15.1%.

Capex is likely to stay high in FY17F, in our view. ■ We expect EBITDA to grow 6-7% qoq and 9-10% yoy in 1Q17F. ■ Maintain Add. Our DCF-based target price is lowered by 4% to Rp4,600. ■

Mobile revenue growth to outpace peers again this year We see mobile revenue (from 65%-owned Telkomsel) growing by a healthy 9.4% in FY17F, outpacing its peers for the third year in a row. Continued voice revenue growth (+5.4%) will add to the rapid rise in its Internet revenue (+24.3%), in our view. We do not see any major competitive threat to its ex-Java business in FY17-18F, more so given the unchanged regulatory landscape. EBITDA margin should stay high at 57.5% in FY17F, with higher operational and maintenance costs offset by a moderation in marketing cost.

Fixed business should continue to do well We forecast fixed revenue rising 10.3% this year (FY15/16: +12.7%/+12.1%), forming 25.6% of total revenue. This should be driven by demand for corporate ICT (e.g. managed services) and IndiHome Fixed Broadband services. Supported by Netizen, its new dual-play product, we project IndiHome to see: i) healthy net adds of 700k (Telkom guidance: 1.3m-1.5m), bringing total subs to 2.32m (+43.1% yoy) by end-FY17F and ii) flat ARPU due to price pressure from new players and the lower price of Netizen.

Expecting another year of robust earnings in FY17F We adjust our FY17F/18F core EPS by +2.7%/-3.6% (EBITDA: -0.4%/-1.9%), mainly for lower EBITDA margin and depreciation. We still see Telkom’s EBITDA/core EPS growing at a robust 11.5%/15.1% this year (3-year CAGR: 9.2%/12.6%). This is driven by 9.6% sales growth, coupled with 0.9% pts yoy rise in EBITDA margin to 52.0% due to lower marketing and staff costs as a % of sales. We maintain our 60% dividend payout assumptions for FY17F-19F, which translate into decent yields of 3.4%-4.1%.

Capex to stay high in FY17F before easing in FY18-19F FY17F/18F capex is raised by 20%/12%. We see capex staying high at Rp28.5tr (22.3% of sales) in FY17F due to: i) accelerated 4G network rollout, ii) construction of the SEA-US/IGG submarine cables and iii) Telkom-4 satellite investment. FY18F/19F capex should then ease gradually to Rp26.3tr/Rp25.1tr (19.1%/17.1% of sales). We see FCF rising from Rp20.4tr (yield: 5.1%) in FY16 to Rp25.5tr-37.6tr (yield: 6.2-9.1%) in FY17F-19F. This will further add to Telkom’s Rp97bn net cash (ex-finance leases) at end-FY16.

1Q17 results preview We see flat qoq revenue growth due to seasonality but up 9-10% yoy. Actual sales could be higher if Telkomsel can retain subs from 4Q16’s record high net adds of 10.2m and drive credit reloads. EBITDA could rise 6-7% qoq on a 3% pts margin rebound to c.53%, after seasonally-high costs in 4Q16. Yoy, EBITDA may grow 9-10% on steady margins.

Maintain Add; DCF-based target price lowered 4% to Rp4,600 We maintain our Add rating with a 4% lower DCF-based TP (WACC: 10.2%) of Rp4,600 due to higher capex assumption and earnings revision. Telkom’s FY17F/18F EV/OpFCF of 16.5x/13.3x is at a 9%/5% discount to the ASEAN telco average, which is attractive given its superior 3-year EBITDA CAGR of 9.2% (mean: +2.5%). A key rerating catalyst could be the delivery of strong earnings growth, while downside risks could be keener competition and higher-than-expected costs. Telkom remains our top ASEAN telco pick.

SOURCE: COMPANY DATA, CIMB FORECASTS

▎ Indonesia

ADD (no change) Consensus ratings*: Buy 28 Hold 5 Sell 0

Current price: Rp4,090

Target price: Rp4,600

Previous target: Rp4,800

Up/downside: 12.5%

CIMB / Consensus: -1.2%

Reuters: TLKM.JK

Bloomberg: TLKM IJ

Market cap: US$31,101m

Rp412,272,000m

Average daily turnover: US$21.44m

Rp286,056m

Current shares o/s: 100,800m

Free float: 39.5% *Source: Bloomberg

Key changes in this note

FY17F/18F EBITDA cut by 0.4%/1.9%.

FY17F Core EPS increased by 2.7%

FY18F Core EPS decreased by 3.6%.

FY17F/18F Capex raised by 20%/12%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 3.5 3.5 20.5

Relative (%) -0.3 -3 4.8

Major shareholders % held Govt of Indonesia 52.5

JPMCB 9.3

Bank of New York 7.4

Analyst(s)

FOONG Choong Chen, CFA

T (60) 3 2261 9081 E [email protected]

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Revenue (Rpb) 102,470 116,333 127,539 137,966 147,251

Operating EBITDA (Rpb) 51,517 59,498 66,316 71,817 77,561

Operating EBITDA Margin 50.3% 51.1% 52.0% 52.1% 52.7%

Net Profit (Rpb) 15,489 19,352 23,279 24,842 28,015

Core EPS (Rp) 164.4 194.7 224.1 246.4 277.9

Core EPS Growth 5.7% 18.5% 15.1% 10.0% 12.8%

FD Core P/E (x) 24.88 21.00 18.25 16.60 14.72

DPS (Rp) 94.6 117.7 138.6 147.9 166.8

Dividend Yield 2.31% 2.88% 3.39% 3.62% 4.08%

EV/EBITDA (x) 8.11 7.13 6.46 5.95 5.39

P/FCFE (x) 14.50 22.89 17.37 13.98 11.58

Net Gearing (1.0%) (0.1%) (3.0%) (7.6%) (14.2%)

ROE 22.5% 24.1% 24.9% 24.5% 24.7%

% Change In Core EPS Estimates 2.68% (3.61%)

CIMB/consensus EPS (x) 1.02 0.97 0.97

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Telco - Integrated│Indonesia│Telekomunikasi Indonesia│April 14, 2017

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Another sterling year for earnings in FY17F

Mobile revenue growth to outpace peers again this year

Strong Internet growth with voice growth kicker

We see mobile revenue (from 65%-owned Telkomsel) growing by a healthy 9.4% in FY17F, outpacing Indosat/XL (+8.4%/+1.5%) for the third year in a row. After recording 10.1% p.a. growth over the past two years, we see Telkomsel’s voice revenue registering a slower but still healthy 5.4% growth. This is driven by still-rising voice revenue in ex-Java as Telkomsel promotes voice packages (TalkMania, Jagoan Serbu) and better optimises tariffs via cluster-based pricing. This will add to the rapid rise in its Internet revenue (+24.3%), in our view.

Figure 1: Mobile revenue growth comparisons, FY12-19F


Figure 2: Telkomsel’s mobile revenue by service segments, FY12-19F


Major competitive threat in ex-Java unlikely in the near term

We do not see major competitive threats to its ex-Java business in FY17-18F, more so given the standstill in the regulatory landscape (for more details, please read “Regulatory standstill except for spectrum auction”). From speaking with

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tower operators, we gather that XL and Indosat are planning to expand their ex-Java networks this year via co-location on existing towers. While this should be faster to execute (vs. a new build-to-suit tower), the pace of their network expansion will still be limited by required investments in the transmission network to connect these sites.

High mobile margin to be sustained

We forecast its EBITDA margin staying high at 57.5% in FY17F (FY16: 57.4%), which is more optimistic than management’s guidance for a 1-2% pts erosion. We expect higher operational and maintenance costs due to network expansion and additional spectrum licence fees (assuming Telkomsel secures its fourth block of 2100MHz spectrum at the upcoming auction in Jun-Jul). However, this should be offset by a moderation in marketing cost, after a steep spike in 4Q16. In general, we believe Telkomsel’s margins are largely sustainable as long as revenue growth remains healthy.

Figure 3: Telkomsel’s EBITDA trend, FY12-19F


Figure 4: Cost as % of revenue trend, FY14-19F


Fixed business should continue to do well

Corporate ICT and IndiHome to drive revenue growth

After growing by a healthy 12.7%/12.1% in FY15/16, we forecast that fixed revenues will rise 10.3% this year and form 25.6% of Telkom’s total revenue for the year. This should be driven by demand for:

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a) Corporate ICT services (managed services, broadband, etc.). According to Telkom’s FY16 annual report, revenue from the corporate/government sector (after inter-segment elimination) grew by a robust 14.7% last year (FY15: +12.3%), including the decline in Fixed Line Voice services. Given that the Indonesian government and corporate sector are undergoing a digitalisation drive, we believe the revenue growth outlook remains bright over the medium-term, especially in the SME segment.

Figure 5: Revenue by customer segment, FY13-16


b) IndiHome Fixed Broadband services. Although Telkom does not separately disclose its Fixed Broadband revenue, we estimate that it came in at c.Rp6.8tr in FY16, up 29.0% yoy. We forecast this revenue to grow by a healthy 16.9% yoy in FY17F. Boosted by the launch of Netizen, its new dual-play product, at end-2016, we project healthy net adds of 700k (Telkom’s guidance: 1.3m-1.5m), bringing total subs to 2.32m (+43.1% yoy) by end-FY17F. We have factored in flat ARPU of Rp329k due to price pressure from new players and the lower price of Netizen (c.Rp260k for entry-level 10Mbps plan, after a 30% discount).

Figure 6: IndiHome subs vs. ARPU trend, FY15-19F


Figure 7: Netizen packages


17,041 18,763 21,072 24,177

6,669 6,682 7,319

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Monthly fee (Rp'000) 368 618 888 1,168 1,368 1,618

Fixed voice (min)

iflix (months) 3+3 3+6 3+6 3+6 3+6 3+6

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IndiHome Netizen Package

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Movin' app basic


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Expect another year of robust earnings in FY17F

FY17-18F core EPS revision

We adjust our FY17F/18F core EPS by +2.7%/-3.6% (EBITDA: -0.4%/-1.9%). Post-FY16 results, we have factored in i) a lower EBITDA margin on higher general and administrative and interconnection costs and ii) depreciation. Our forecasts for revenue and other cost items are largely unchanged.

Figure 8: New vs. Old forecasts


Healthy revenue growth and margin improvements in FY17F

Post-revision, we still see Telkom’s EBITDA/core EPS growing by a robust 11.5%/15.1% this year (3-year CAGR: 9.2%/12.6%). This is driven by a 9.6% sales growth, coupled with a 0.9% pts yoy rise in EBITDA margin to 52.0%. We

FYE 31 Dec (Rp bn)

FY16 FY17F FY18F FY17F FY18F

Total revenue 116,333 127,539 137,966 126,849 137,168

- Mobile 86,724 94,884 101,875 95,096 102,256

change yoy (%) 14.0 9.4 7.4 9.7 7.5

- Fixed 29,609 32,656 36,091 31,753 34,912

change yoy (%) 12.1 10.3 10.5 7.2 9.9

Opex (56,835) (61,223) (66,149) (60,293) (63,992)

EBITDA 59,498 66,316 71,817 66,556 73,176

change yoy (%) 15.5 11.5 8.3 11.9 9.9

margin (%) 51.1 52.0 52.1 52.5 53.3

Depreciation (18,532) (20,394) (21,759) (22,630) (23,169)

Net interest expense (2,813) (1,690) (1,433) (790) (235)

Others 36 88 88 (17) (17)

Pretax profit 38,189 44,320 48,713 43,119 49,755

Taxation (9,017) (10,203) (12,178) (10,780) (12,439)

Minorities (9,820) (10,838) (11,693) (10,908) (11,882)

Net Profit 19,352 23,279 24,842 21,431 25,434

change yoy (%) 24.9 20.3 6.7 10.7 18.7

Core Net Profit 19,208 22,402 24,842 21,431 25,434

change yoy (%) 19.3 16.6 10.9 11.6 18.7

Net debt/EBITDA (x) (0.0) (0.1) (0.1) (0.2) (0.3)

Key assumptions

Mobile subs ('000) 173,880 186,580 198,280 174,141 182,941

- postpaid 4,180 4,880 5,580 5,309 6,209

- prepaid 169,700 181,700 192,700 168,832 176,732

Total ARPU (Rp'000/mth) 45 43 43 46 47

change yoy (%) 4.7 (4.6) 0.7 1.8 2.0

Data subs ('000) 84,700 94,618 104,517 91,389 99,666

change yoy (%) 14.5 11.7 10.5 7.9 9.1

Data traffic (TB) 958,733 1,733,264 2,598,494 1,446,146 2,061,931

change yoy (%) 94.8 80.8 49.9 50.8 42.6

Wireline subs ('000) 10,663 10,983 11,257 11,438 11,896

change yoy (%) 3.8 3.0 2.5 7.3 4.0

Wireline ARPU (Rp'000/mth) 60 56 52 55 51

change yoy (%) (8) (7) (6) (9) (6)

Broadband subs ('000) 4,329 4,749 5,139 5,003 5,423

change yoy (%) 8.7 9.7 8.2 15.6 8.4

-Speedy subs 2,705.0 2,425.0 2,165.0 2,203.0 1,923.0

-IndiHome subs 1,624 2,324 2,974 2,800 3,500

IndiHome ARPU (Rp'000/mth) 329 329 329 306 312

change yoy (%) 11.9 0.0 0.0 (7.0) 2.1

Capex (26,787) (28,468) (26,292) (23,798) (23,449)

as % of revenue 23.0 22.3 19.1 18.8 17.1

New Old


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expect marketing costs to moderate after the sharp increase in 4Q16 and be largely steady yoy for FY17F. We see staff costs rising modestly by 0.8% due to savings from Telkom’s early retirement programme (ERP) last year and increase in the natural staff attrition rate from 1,100 to 1,400 employees this year, which will rise further to 1,800-1,900 in FY18F-19F. In addition, the launch of Telkom 3S satellite in Feb 2017 added 42 transponders to its existing capacity of 60 transponders and would help to reduce Telkom’s dependence on external satellite operators. For dividends, we keep a flat 60% payout ratio in FY17F-19F, which translates into decent yields of 3.4%-4.1%.

Figure 9: Telkom’s revenue trend, FY14-19F


Figure 10: Telkom’s EBITDA trend, FY12-19F


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Figure 11: DPS vs. payout ratio, FY12-19F


Capex to stay high in FY17F then ease in FY18-19F

4G rollout, submarine cables and satellite investments

We have raised our FY17F/18F capex assumptions by 20%/12%. We see capex staying high at Rp28.5tr (22.3% of sales) in FY17F due to:

i) Accelerated 4G network rollout. We expect Telkomsel to ramp up its 4G BTS additions as 4G sim/smartphone penetration rises and to catch-up/overtake XL, which had taken a slight lead in 2016.

ii) construction of the SEA-US and Indonesia Global Gateway (IGG) submarine cables, which are expected to be completed in 4Q17 and 2Q18 respectively; and

iii) Telkom-4 satellite investment, which is scheduled for service launch in mid-2018.

Thereafter, we expect FY18F/19F capex to ease gradually to Rp26.3tr/Rp25.1tr (19.1%/17.1% of sales), with a steep reduction unlikely due to continued 4G network rollouts and fixed network modernisation (to be completed by 2020). On our capex assumptions, we see FCF rising from Rp20.4tr (yield: 5.1%) in FY16 to Rp25.5tr-37.6tr (yields: 6.2-9.1%) in FY17F-19F. This will further add to Telkom’s Rp97bn net cash (ex-finance leases) at end-FY16.

Figure 12: Capex trend, FY12-19F


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Figure 13: FCF trend, FY12-19F


1Q17 results preview

Revenue could be flat qoq but up 9-10% yoy

We see a flat qoq revenue growth due to seasonality but up 9-10% yoy. Actual sales could be higher if Telkomsel succeeds in retaining the subs from 4Q16’s record high net adds of 10.2m and drive credit reloads. EBITDA could rise 6-7% qoq on a 3% pts margin rebound to c.53%, after seasonally high costs in 4Q16. Yoy, EBITDA may grow 9-10% on steady margins.

Figure 14: 1Q17 results preview


Maintain Add; DCF-based target price lowered 4% to Rp4,600

Valuation still reasonable given superior earnings growth

We maintain our Add rating with a 4% lower DCF-based target price (WACC: 10.2%) of Rp4,600 due to our higher capex assumptions and post-earnings revision. Telkom’s FY17F/18F EV/OpFCF of 16.5x/13.3x is at a 9%/5% discount to the ASEAN telco average, which is attractive given its superior 3-year EBITDA CAGR of 9.2% (mean: +2.5%). A key rerating catalyst is the delivery of strong earnings growth, while downside risks are keener competition and higher-than-expected costs. Telkom remains our top ASEAN telco pick.

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chg chg FY17F full year FY17F full year

Revenue 30,213 27,542 9.7 30,145 0.2 127,539 23.7 129,229 23.4

- Mobile 22,400 20,196 10.9 23,076 (2.9) 94,884 23.6

- Fixed 7,813 7,346 6.4 7,069 10.5 32,656 23.9

EBITDA 16,112 14,655 9.9 15,120 6.6 66,316 24.3 66,380 24.3

EBITDA margin (%) 53.3 53.2 0.1 50.2 3.2 52.0 51.4

Core net profit 5,539 5,026 10.2 3,749 47.8 22,408 24.7 22,661 24.4


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Figure 15: Telkom’s revised DCF-based target price is Rp4,600 (WACC: 10.2%, terminal growth: 3.0%)

SOURCE: CIMB RESEARCH, COMPANY

Figure 16: DCF-based valuation for Telkomsel (WACC: 10.2%, terminal growth: 3.0%)


Figure 17: Sensitivity of target price to changes in WACC and terminal growth rate


Figure 18: EV/OpFCF trading band


Year-end 31 Dec (Rp bn) 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

Telkom (ex-Telkomsel)

EBIT (1-T) 3,846 4,625 6,137 7,762 8,722 9,729 10,681 11,286 11,990 12,820

Depreciation & Amortisation 6,664 7,464 8,125 8,517 8,782 8,930 9,010 9,077 9,139 9,195

Capex (14,468) (13,292) (12,115) (10,939) (9,763) (8,587) (8,410) (8,410) (8,410) (8,410)

Annual FCFF (3,958) (1,203) 2,146 5,341 7,741 10,072 11,281 11,953 12,719 13,605

Terminal value 195,577

Present value of cash flow (3,593) (991) 1,605 3,626 4,771 5,634 5,728 5,510 5,322 79,449

Total NPV 107,061

Net cash/(debt) at end-2016 (17,870)

Value of Equity (ex-Telkomsel) 89,191

Equity value of Telkomsel (65% stake) 363,421

Total equity value of Telkom 452,612

No of shares (ex-Treasury shares) 99.1

Value of Equity per share (Rp) 4,600 Note: rounded to the nearest Rp100

Year-end 31 Dec (Rp bn) 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

EBIT (1-T) 30,596 32,919 34,978 37,858 40,869 43,597 46,579 49,450 52,271 54,288

Depreciation (ex-finance lease) 12,829 13,394 13,715 13,477 13,294 13,153 13,045 12,962 12,898 12,848

Capex (14,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000)

Annual FCFF 29,425 33,312 35,692 38,335 41,163 43,750 46,624 49,412 52,169 54,136

Terminal value 778,230

Present value of cash flow 26,710 27,448 26,696 26,027 25,368 24,475 23,676 22,776 21,828 316,139

Total NPV 541,142

Net cash/(debt) at end-2016 17,967

Value of Equity 559,109

WACC/Terminal Growth 2.0% 2.5% 3.0% 3.5% 4.0%

8.0% 5,991 6,364 6,812 7,359 8,044

9.0% 5,031 5,280 5,571 5,915 6,327

10.2% 4,215 4,380 4,600 4,783 5,034

11.0% 3,763 3,889 4,030 4,191 4,374

12.0% 3,324 3,417 3,521 3,637 3,768

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Figure 19: ASEAN telco valuation comparison

Note: Operating FCF is calculated as EBITDA minus average 3-year forward capex


Company Bloomberg Recom. Price TargetPrice Mkt Cap

Ticker (local curr) (local curr) (US$ m) 2017F 2018F 2017F 2018F 2017F 2018F EPS EBITDA 2017F 2018F

Axiata AXIATA MK HOLD 5.13 4.50 10,432 45.3 33.6 7.0 6.2 26.8 17.6 8.7 8.8 1.1 2.5

Maxis MAXIS MK REDUCE 6.42 5.90 10,927 24.7 25.3 12.8 12.7 17.0 16.5 (0.4) 0.2 3.1 3.1

DiGi DIGI MK HOLD 5.10 5.20 8,986 24.1 23.7 13.8 13.4 18.8 18.0 2.6 3.6 4.1 4.2

TM T MK HOLD 6.39 6.10 5,442 27.3 25.2 7.8 7.4 23.3 16.7 1.9 1.2 3.3 3.6

MY telcos avg (ex-outliers) 30.3 26.9 10.4 9.9 21.5 17.2 3.2 3.5 2.9 3.4

SingTel ST SP ADD 3.77 4.10 44,104 16.0 15.1 8.9 8.5 19.2 17.3 2.5 0.4 4.7 5.0

Starhub STH SP REDUCE 2.89 2.60 3,579 17.9 17.9 9.1 8.9 16.0 14.2 (10.2) (3.9) 5.5 5.5

M1 M1 SP REDUCE 2.13 1.80 1,419 14.3 16.0 7.9 8.4 14.6 14.3 (10.9) (3.5) 5.6 5.0

SG telcos avg (ex-outliers) 16.1 16.3 8.6 8.6 16.6 15.3 (6.2) (2.3) 5.3 5.2

TLKM TLKM IJ ADD 4,090 4,600 31,101 18.4 16.6 8.8 8.0 16.5 13.3 13.2 9.2 3.4 3.7

XL EXCL IJ HOLD 3,030 3,000 2,443 72.2 24.7 5.4 4.6 35.4 17.9 (311.8) 8.8 0.0 1.2

Indosat ISAT IJ ADD 7,150 8,100 2,931 18.2 13.4 4.0 3.6 9.1 7.6 46.7 7.1 2.7 3.7

Link Net LINK IJ ADD 5,375 5,700 1,234 17.1 14.4 7.9 6.7 15.3 11.7 17.0 12.2 2.1 2.4

Indo telcos avg (ex-outliers) 17.9 14.8 6.5 5.7 19.0 12.6 15.1 9.3 2.1 2.8

AIS ADVANC TB ADD 176.00 186.00 15,247 19.4 16.5 9.3 8.5 20.7 15.0 5.2 10.4 3.8 4.5

DTAC DTAC TB HOLD 43.25 42.40 2,984 127.1 38.0 4.5 5.4 19.0 14.7 (2.4) (0.7) 0.4 1.3

True TRUE TB REDUCE 6.65 5.25 6,466 (125.1) (38.8) 6.8 8.1 (191.6) (272.5) 37.3 (23.0) 0.0 0.0

Jasmine JAS TB HOLD 8.95 7.90 1,633 17.6 12.2 11.4 8.7 22.9 12.2 39.7 23.2 5.6 6.1

JASIF JASIF TB ADD 11.50 13.20 1,843 11.8 11.7 11.3 11.2 11.5 11.4 2.4 2.4 8.3 8.4

Thaicom THCOM TB ADD 18.30 28.10 584 13.0 11.7 3.3 2.5 3.5 2.7 0.5 3.7 4.6 4.6

Intouch INTUCH TB ADD 54.50 59.00 5,092 21.5 18.4 19.8 17.0 19.8 17.0 (14.8) (14.8) 4.7 5.3

Thai telcos avg (ex-outliers) 16.7 14.1 9.5 8.8 16.2 12.1 9.7 0.2 3.9 4.3

Asean Telcos avg (ex-outliers) 27.7 19.7 8.9 8.3 18.2 14.0 5.8 2.5 3.5 3.9

Core P/E (x) EV/EBITDA (x) EV/OpFCF (x) 3-year CAGR (%)^ Dvd Yield (%)


11

BY THE NUMBERS

SOURCE: CIMB RESEARCH, COMPANY DATA

22.00%

23.00%

24.00%

25.00%

26.00%

27.00%

3.20

3.70

4.20

4.70

5.20

5.70

Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (rhs)

0.9%3.4%5.9%8.4%10.9%13.4%15.9%18.4%20.9%23.4%25.9%

11.012.013.014.015.016.017.018.019.020.021.0

Jan-13A Jan-14A Jan-15A Jan-16A Jan-17F Jan-18F

12-mth Fwd FD Core P/E vs FD Core EPS Growth

12-mth Fwd Rolling FD Core P/E (x) (lhs)

FD Core EPS Growth (rhs)

Profit & Loss

(Rpb) Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Total Net Revenues 102,470 116,333 127,539 137,966 147,251

Gross Profit 102,470 116,333 127,539 137,966 147,251

Operating EBITDA 51,517 59,498 66,316 71,817 77,561

Depreciation And Amortisation (18,534) (18,532) (20,394) (21,759) (22,741)

Operating EBIT 32,983 40,966 45,922 50,058 54,820

Financial Income/(Expense) (1,491) (2,813) (1,690) (1,433) (940)

Pretax Income/(Loss) from Assoc. (2) 88 88 88 88

Non-Operating Income/(Expense) (46) (52) 0 0 0

Profit Before Tax (pre-EI) 32,367 39,257 45,495 50,005 55,389

Exceptional Items (102) 0 0 0 0

Pre-tax Profit 31,342 38,189 44,320 48,713 53,968

Taxation (8,025) (9,017) (10,203) (12,178) (13,492)

Exceptional Income - post-tax

Profit After Tax 23,317 29,172 34,117 36,535 40,476

Minority Interests (7,828) (9,820) (10,838) (11,693) (12,461)

Preferred Dividends

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Net Profit 15,489 19,352 23,279 24,842 28,015

Recurring Net Profit 16,100 19,208 22,402 24,842 28,015

Fully Diluted Recurring Net Profit 16,100 19,208 22,402 24,842 28,015

Cash Flow


EBITDA 51,517 59,498 66,316 71,817 77,561

Cash Flow from Invt. & Assoc.

Change In Working Capital 2,311 4,194 0 0 0

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense

Other Operating Cashflow 987 (2,414) 0 0 0

Net Interest (Paid)/Received (1,237) (1,719) (1,109) (852) (359)

Tax Paid (9,299) (11,304) (10,203) (12,178) (13,492)

Cashflow From Operations 44,279 48,255 55,005 58,787 63,709

Capex (26,499) (26,787) (28,468) (26,292) (25,115)

Disposals Of FAs/subsidiaries 733 765 0 0 0

Acq. Of Subsidiaries/investments (1,553) (1,235) (1,000) (1,000) (1,000)

Other Investing Cashflow (102) (300) 0 0 0

Cash Flow From Investing (27,421) (27,557) (29,468) (27,292) (26,115)

Debt Raised/(repaid) 10,772 (3,076) (2,000) (2,000) (2,000)

Proceeds From Issue Of Shares 0 0 0 0 0

Shares Repurchased

Dividends Paid (8,783) (11,213) (11,866) (13,968) (14,905)

Preferred Dividends

Other Financing Cashflow (8,396) (3,616) (9,181) (10,054) (10,824)

Cash Flow From Financing (6,407) (17,905) (23,047) (26,022) (27,729)

Total Cash Generated 10,451 2,793 2,489 5,474 9,865

Free Cashflow To Equity 27,630 17,622 23,536 29,495 35,594

Free Cashflow To Firm 18,095 22,417 26,645 32,347 37,953


12

BY THE NUMBERS… cont’d

SOURCE: CIMB RESEARCH, COMPANY DATA

Balance Sheet


Total Cash And Equivalents 30,935 31,238 32,720 37,187 46,045

Total Debtors 7,872 7,900 9,391 9,314 10,650

Inventories 528 584 614 680 683

Total Other Current Assets 8,577 7,979 8,252 8,553 8,884

Total Current Assets 47,912 47,701 50,978 55,734 66,262

Fixed Assets 103,700 114,498 124,331 130,740 135,121

Total Investments 1,807 1,847 1,847 1,847 1,847

Intangible Assets 3,056 3,089 2,914 2,622 2,200

Total Other Non-Current Assets 9,698 12,476 13,724 15,096 16,606

Total Non-current Assets 118,261 131,910 142,816 150,305 155,774

Short-term Debt 602 911 911 911 911

Current Portion of Long-Term Debt 3,201 3,863 3,863 3,863 3,863

Total Creditors 14,284 13,690 13,743 14,030 14,051

Other Current Liabilities 17,326 21,298 21,298 21,298 21,298

Total Current Liabilities 35,413 39,762 39,815 40,102 40,123

Total Long-term Debt 26,229 26,367 24,367 22,367 20,367

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 11,103 7,938 10,697 11,843 14,772

Total Non-current Liabilities 37,332 34,305 35,064 34,210 35,139

Total Provisions 0 0 0 0 0

Total Liabilities 72,745 74,067 74,880 74,312 75,262

Shareholders' Equity 75,136 84,384 95,798 106,672 119,781

Minority Interests 18,292 21,160 23,116 25,056 26,993

Total Equity 93,428 105,544 118,914 131,727 146,774

Key Ratios

Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Revenue Growth 14.2% 13.5% 9.6% 8.2% 6.7%

Operating EBITDA Growth 12.8% 15.5% 11.5% 8.3% 8.0%

Operating EBITDA Margin 50.3% 51.1% 52.0% 52.1% 52.7%

Net Cash Per Share (Rp) 9.2 1.0 35.5 99.7 207.4

BVPS (Rp) 765 852 950 1,058 1,188

Gross Interest Cover 13.67 14.96 17.13 19.79 23.04

Effective Tax Rate 25.6% 23.6% 23.0% 25.0% 25.0%

Net Dividend Payout Ratio 56.3% 56.9% 57.1% 57.0% 57.1%

Accounts Receivables Days 27.16 24.81 24.74 24.74 24.74

Inventory Days N/A N/A N/A N/A N/A

Accounts Payables Days N/A N/A N/A N/A N/A

ROIC (%) 26.9% 31.0% 31.7% 31.0% 32.0%

ROCE (%) 31.0% 33.6% 34.2% 34.6% 35.3%

Return On Average Assets 16.5% 18.7% 19.6% 19.5% 19.9%

Key Drivers

Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Group Mobile Subscribers (m) 152.64 173.88 186.58 198.28 208.98

Group Fixed Voice Subscribers (m) N/A N/A N/A N/A N/A

Grp fixed brdband subscribers (m) N/A N/A N/A N/A N/A

Group Pay TV Subs (m) N/A N/A N/A N/A N/A

Group Mobile ARPU (US$/mth) 43.0 45.0 42.9 43.2 43.3

Grp fixed voice ARPU (US$/mth) N/A N/A N/A N/A N/A

Grp fixed brdband ARPU (US$/mth) N/A N/A N/A N/A N/A

Group Pay TV ARPU (US$/mth) N/A N/A N/A N/A N/A


13

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14

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15

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CIMB Research Pte Ltd ("CIMBR"), its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMBR, its affiliates and its related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek


16

to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.

As of April 13, 2017, CIMBR does not have a proprietary position in the recommended securities in this report.

CIMB Research Pte Ltd does not make a market on the securities mentioned in the report.

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Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities.

CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.

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Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report.

If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected.

CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, AOT, AP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BEM, BH, BIG, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EGCO, EPG, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, IFEC, INTUCH, IRPC, ITD, IVL, KAMART, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, MAJOR, MINT, MTLS, PLANB, PSH, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, RS, S, SAMART, SAWAD, SCB, SCC, SCN, SGP, SIRI, SPALI, SPCG, SPRC, STEC, STPI, SUPER, TASCO, TCAP, THAI, THANI, THCOM, TISCO, TKN, TMB, TOP, TPIPL, TRUE, TTA, TTCL, TTW, TU, TVO, UNIQ, VGI, VIBHA, VNG, WHA.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. Unless specified to the contrary, this report has been issued and approved for distribution in the U.K. and the EEA by CIMB UK. Investment research issued by CIMB UK has been prepared in accordance with CIMB Group’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the


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United Kingdom subject to relevant regulation in each jurisdiction, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

CIMB Securities (USA) Inc does not make a market on other securities mentioned in the report.

Neither CIMB Securities (USA) Inc., nor its affiliates have managed or co-managed a public offering of any of the securities mentioned in the past 12 months.

CIMB Securities (USA) Inc., or its affiliates have received compensation for investment banking services from Axiata Group and Telekom Malaysia in the past 12 months.

Neither CIMB Securities (USA) Inc., nor its affiliates expects to receive or intends to seek compensation for investment banking services from any of the company mentioned within the next 3 months.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Spitzer Chart for stock being researched ( 2 year data )

Telekomunikasi Indonesia (TLKM IJ)

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2016, Anti-Corruption 2016.

AAV – Very Good, n/a, ADVANC – Very Good, Certified, AEONTS – Good, n/a, AMATA – Excellent, Declared, ANAN – Very Good, Declared, AOT – Excellent, Declared, AP – Very Good, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Very Good, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – not available, Declared, BCP - Excellent, Certified, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC – Good, n/a, BLA – Very Good, Certified, BPP – not available, n/a, BTS - Excellent, Certified, CBG – Good, n/a, CCET – not available, n/a, CENTEL – Very Good, Certified, CHG – Very Good, n/a, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DTAC – Excellent, Certified, EA – Very Good, Declared, ECL – Good, Certified, EGCO - Excellent, Certified, EPG – Good, n/a, GFPT - Excellent, Declared, GLOBAL – Very

Rating Distribution (%) Investment Banking clients (%)

Add 58.4% 5.4%

Hold 29.6% 1.4%

Reduce 11.6% 0.4%

Distribution of stock ratings and investment banking clients for quarter ended on 31 December 2016

1626 companies under coverage for quarter ended on 31 December 2016

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16

Price Close

2,9

00

3,0

00

2,9

50

3,2

00

3,1

00

3,6

00

4,1

00

4,5

00

4,8

00

Recommendations & Target Price

Add Hold Reduce Not Rated


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Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Declared, ICHI – Very Good, Declared, INTUCH - Excellent, Certified, ITD – Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Declared, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Declared, M – Very Good, Declared, MAJOR - Good, n/a, MAKRO – Good, Declared, MALEE – Very Good, Declared, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Declared, MEGA – Very Good, Declared, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Very Good, Declared, PSH – not available, n/a, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Declared, RATCH – Excellent, Certified, ROBINS – Very Good, Declared, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPALI - Excellent, Declared, SPRC – Very Good, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, Declared, TCAP – Excellent, Certified, THAI – Very Good, Declared, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Very Good, Certified, TICON – Very Good, Declared, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Good, n/a, TMB - Excellent, Certified, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Very Good, Declared, TTW – Very Good, Declared, TU – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and - Companies certified by CAC

CIMB Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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