Refer to Important disclosures in the last page of this report
Premier Insight
PT Telkom Indonesia (TLKM IJ; Hold)
Navigating transition and recovery
Less disruption to data pricing improvement.
Employees’ retirement may ease margin decline.
Only minor impact from Rupiah weakness in short term.
Maintain HOLD TP Rp3,700, at +1STD 7-yr mean.
Less pricing disruption. Telkomsel (Tsel) indicated it recently experienced healthier competition vs. 1H18, thanks to less pricing disruption from observed starter pack market so far. Although certain area might be more competitive than average, Tsel plans to keep premium (20-30%; sometimes max. 40% in competitive areas) vs. competitors. Tsel may increase data pricing again between Oct-Nov (depend on competition, incl. small players). We expect TLKM’s 2H18 revenue to grow +9%YoY, as non-Telkomsel continue its strong revenue growth (implying 2H18F +26%YoY), while Tsel’s revenue slightly recover to +4%YoY in 2H18F.
Employees’ retirement may ease margin decline. Company said c.7K personnel (mostly non-Tsel; c.2K personnel/year in 2018F-20F), accounted c. 30% of FY17 TLKM’s total personnel, will enter normal retirement during 2018F-25F. We expect personnel expense to revenue ratio to gradually decline to 9% in 2023F from 11% in 2018F. We still estimate TLKM’s EBITDA margin to decline to 43% in 2020 from 45% in 2018, but stabilize temporarily during 2021F-23F.
Manageable forex risk in short term. We estimate 2018F/19F capex paid (settled) in USD portion of total capex at 17% for TLKM’s group and 10% for Tsel, based on discussion with company. Tsel might also be able to negotiate Rupiah weakness impact to its USD-paid capex if forex rate reached certain threshold, according to company. In terms of debt, TLKM’s USD exposure is relatively small at c.3%, similar to ISAT (c. 2%), but below EXCL (c.31%) as of 2Q18.
Reduce TP by 5% to Rp3,700 – Maintain HOLD. We use DCF to arrive to our TP with 10% WACC. We decreased TP by 5% mainly because we cut 18F/19F EBITDA by 4/7% (slower margin recovery). TLKM trades at 8.5x 19F EV/EBITDA (adj. with ownership in Tsel). Current 19F EV/EBITDA is at 7% premium to avg. regional excl. Indonesia, but 19F P/E is similar (Figure 10). Our TP translates to 8.9x 19F EV/EBITDA, at +1STD of 7-yr mean. We put a Hold to TLKM as we view: 1) Although competition is healthier vs. 1H18, 2018F-19F data pricing might yet enough to expand blended EBITDA margin in 2019F; 2) Magnitude of data pricing increase in outer Java might be limited for now as est. smartphone penetration there is still at c.50%. Upside risk: Data pricing, cost saving effort, Indihome.
Year To 31 Dec 2016A 2017A 2018F 2019F 2020F
Revenue (RpBn) 116,333 128,256 135,161 144,124 157,198
EBITDA (RpBn) 59,498 64,609 60,101 62,239 67,103
Source: TLKM, IndoPremier Share Price Closing as of : 14-September-2018
JCI Index
Index Closing 1 day 1 year YTD
JCI 5,931 1.2% 1.0% -6.7%
Commodities Last price Ret 1 day Ret 1 year
PremierInsight
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Refer to Important disclosures in the last page of this report
PT Waskita Beton
(WSBP IJ; Buy)
Lower order book due to project delays
Increased production capacity by 15% by the end of 2018.
We lower our earnings forecast by 10/14% in FY18F/19F.
Improved cash flow from several project payment of Rp6.5tn.
Maintain Buy with lower TP of Rp440 (target P/E of 9.8x).
Production capacity hike to 3.75tn ton (+15% yoy) by end 2018. As of 8M18, WSBP has production capacity at 3.5mn ton/year (+7.7% yoy) from the expansion at its existing plants in Gasing and Bojonegoro of 100k and 150k ton, respectively. WSBP targets to increase production capacity to 3.75mn ton/year by the end of 2018. The additional capacity might come from either existing plant or a new plant, based on project needs and locations.
Revised down our earnings forecast due to guidance downward revision. Due to several project tender delay and WSKT’s decision to postponed the attainment of several toll road project, WSBP decided to reduce its FY18F new contract guidance to Rp8.3tn (from Rp11.5tn). As of 8M18, WSBP has achieved new contract of Rp4tn, forming 49% of company’s FY18F new guidance of Rp8.3tn. WSBP’s low new contract achievement was resulted from several toll road project delays such as Krian-Legundi-Bunder-Manyar, Cibitung-Cillincing, Pasuruan-Probolinggo and Cimanggis-Cibitung part 2. Given lower FY18F new contract guidance, we reduce our earnings forecast for FY18F/19F by 10/15% as we implement lower new contract assumption to Rp8tn and Rp8.5tn for FY18F and FY19F (from Rp11tn and Rp11.5tn)..
Received payment of Rp6.5tn for major turnkey projects. As of 8M18, WSBP has received terminal payment of Rp6.5tn from several major project such as Becakayu, Pemalang-Batang, Batang Semarang toll roads. In the remaining 2H18, WSBP is scheduled to receive another payment of Rp1tn from Becakayu section 1A. In addition, company also expecting additional payment of ±Rp3tn from two projects, namely, Legundi-Bunder, and Cimanggis-Cibitung Toll Ways (CCTW) I & II. WSBP is currently negotiating the payment term for those projects in order to change it to working progress payment instead of the initial agreement of turnkey payment. Note: WSBP has previously succeeded to change the payment term for Becakayu project section 1B and C in 1H18 worth Rp1.8tn from turnkey to working progress.
Maintain Buy with lower TP of Rp440 (from 620). Despite slower than expected new
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Refer to Important disclosures in the last page of this report
News & Analysis
Corporates
INTP: Indocement Tunggal Prakarsa (INTP IJ;Rpxxxx; Sell) sales volume grew by a mere 1% yoy in August 2018 to 1.6mn ton while the company’s total sales volume since January-August 2018 grew 7% yoy to 11.5mn ton. The management mention the poor performance in August 2018 was caused by holidays and Asian games opening ceremony which lead to cement delivery disruptions. Nevertheless, the company already increased their ASP in the beginning of 2H18 to counter the increment cost from higher coal price and to improve their profitability.
Comment: With the increase of ASP in 2H18, we suspect that we will see profitability improvement in 3Q18 compared to 2Q18. Currently INTP trades at PE 2018 88.7x.
SMGR: Semen Indonesia (SMGR IJ; Rpxxx; Hold) during January-August 2018 booked sales volume of some 20.6mn ton, up 4% yoy compared to last year figure of 19.8mn ton. Interestingly, the company’s export sales volume exclude Thang Long Cement Company Vietnam (TLCC) was up 42.7% yoy while export sales volume of TLCC jumped significantly by 95.4% yoy. The company stated that with pushing further the export marketing effort, they could maintain their utilization rate remain high. Currently their utilization rate already reach 85% and they targets it will reach 90% in FY18.
Comment: With the help of export sales that significantly higher compared to last year, we expect SMGR could meet their sales volume target of some 5%-6% in FY18.
TBIG: Tower Bersama (TBIG IJ; Rp xxx) stil maintain targets of 1K towers and 2.5K new tenants. The 2018F targeted new tenants will be achieve with organic growth (gross add), said by company previously. TBIG already allocated capex of Rp2tn. (Kontan).
WSKT: Waskita Karya (WSKT IJ; Rp; Buy) reported new contract of Rp9.2tn in 8M18 (-79% yoy), forming only 16.7% of company’s new FY18F guidance of Rp55tn (from Rp70tn). In other news, WSKT will issue continuous bonds III stage III worth Rp2tn. (Bisnis, Investor)
Comment: The low new contract achievement as of 8M18 and issuance of new debt will negatively impact WSKT’s earnings, mostly in FY20F and FY21F. We will review our forecast on WSKT based on further development.
Markets & Sector
Plantation sector: Government of Indonesia’s B-20 program is expected to reach 100% by end of September 2018. According to Director General of Oil and Natural Gas of Ministry of Energy and Mineral Resources (ESDM) Djoko Siswanto currently bio-diesel blending has reached 80% of the B-20 target. Djoko added that by end of month all of Pertamina’s fuel terminals will obtain FAME (free acid methyl ether) supply from bio-diesel producers. (Investor Daily)
PremierInsight
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Head Office
PT INDO PREMIER SEKURITAS
Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167
INVESTMENT RATINGS
BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period
ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analyst;s personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
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