Trimegah Yearbook 2006 INDONESIA

BUY
Telkom Price Rp5,900
TLKM Continues To Go Mobile Sector Telecommunication
Reuters / Bloomberg : TLKM.JK/ TLKM IJ

House View & Valuation

#1 player in both the GSM and Fixed Wireless markets to continue to enjoy strong growth. Telkomsel
subscribers to top 24.7m and 31.8m by FY05 and FY06, representing market shares of 57.0% and 57.8% for the
corresponding periods. Flexi is also expected to post strong sub growth, with 3.3m and 4.6m subscribers for
FY05 and FY06.

19.8% revenue growth and net profit up 30.6% for FY06 make valuations attractive. Shares trade at a 2006 P/E
and EV/EBITDA of 10.6x and 3.8x, cheaper than its regional peers. In addition, we see 27.2% upside potential in
the share price to our target price of Rp7,500. We rate TLKM a BUY.

Forecast & Rating Recent Developments & Outlook

Year end Dec 2003 2004 2005E 2006F 2007F
TLKM, through its subsidiary Telkomsel, has continued its
aggressive expansion into the GSM market, posting 72.0% y-
Net Profit (Rpbn) 6,087 6,129 8,563 11,184 13,378 o-y subscriber growth to 23.5m for 9M05. We estimate
subscribers to reach 24.7m by FY05 and 31.8m by FY06.
EPS (Rp) 302 304 425 555 664
Key to its success is the heavy advertisement of its fighting
EPS Growth (%) (24.3) 0.7 39.7 30.6 19.6 brand Kartu As, a low cost GSM card targeted at the mass
CFPS (Rp) 639 807 837 1,154 1,086 market. Kartu As posted 367.0% growth to 7.2m subscribers
DPS (Rp) 151 145 212 277 332 for 9M05. We project lower growth in 2006, to reflect new
BVPS (Rp) 859 1,005 1,285 1,627 2,013 cellular regulations on registration for all prepaid subscribers,
which we think will soften the growth rate to a still strong
P/E (x) 19.5 19.4 13.9 10.6 8.9
28.8% from 51.7% in 2005.
P/CF (x) 9.2 7.3 7.0 5.1 5.4
P/BV (x) 6.9 5.9 4.6 3.6 2.9
Telkomsel's dominance in the GSM market is shown by its
EV / EBITDA (x) 7.7 6.4 4.8 3.8 3.2 market share, which we estimate at 57.8% by FY06, up from
Div Yield (%) 2.6 2.5 3.6 4.7 5.6 our estimate of 57.0% for FY05. As a result of increasing
subscriber growth, we expect revenue quality to decrease,
as evidenced by a decline in the ARPU to Rp76,015 for FY05
and Rp67,072 by FY06. While we forecast revenues excluding
Profile SMS only to grow by 10.9% from Rp13.8tr to Rp15.3tr in
PT Telekomunikasi Indonesia Tbk. (TLKM), a majority state - owned FY06.
company, is Indonesia's principal telecommunications service
provider. It provides local and domestic long distance,
Telkom Flexi, a CDMA fixed wireless service, has grown
international long distance, cellular, data communications, internet considerably, and we project subscribers to reach 3.3m and
and leased line services. Currently TLKM has 7.3m fixed wire 4.6m by FY05 and FY06, as this service is rapidly replacing
lines in service, 1.3m fixed wireless (CDMA) and 16.3m cellular conventional fixed wire line, which requires more capex.
subscribers. The company is listed on the JSX, SSX and NYSE. TLKM reported capex per line for Flexi of only about US$70,
The Republic of Indonesia currently owns 51.2%, with the compared to US$600 for fixed wire line. We estimate the total
remaining 48.8% in the hands of the public. fixed line division to post revenue growth of 19.6% to Rp15.0tr
or equivalent to 29.5% of total revenues.

Price Chart
With solid growth at its two other key divisions, interconnection
and data & internet, FY05 and FY06 total revenues should
(Rp) (m) increase by 25.1% and 19.8% to Rp42.5tr and Rp50.9tr,
7,000 120 respectively. We project this to feed down to FY05 net profit
growth of 39.7% to Rp8.6tr, with the FY06 bottom line
6,000
100
improving 30.6% to Rp11.2tr.
5,000
80

4,000

Another recent key development is the announcement of the
60 planned 3G tender in early 1Q06, when the Government plans
3,000
to use the 2100Mhz frequency instead of the 1900Mhz, which
40
2,000 is currently used by the TLKM and ISAT fixed wireless
networks. By using the 2100Mhz frequency, TLKM may not
20
1,000
be required to move frequencies, hence potentially saving
0 -
Rp1.0tr in expenses for the move. TLKM is still conducting
29-Dec-04 08-Mar-05 16-May-05 19-Jul-05 22-Sep-05 01-Dec-05 trial runs of its 3G service, and may be ready to roll out a
VOLUME (RHS) PRICE (LHS)
limited offering by 2006.

Analyst: Arhya Satyagraha

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 Trimegah Yearbook 2006

Income Statement (Rpbn) Balance Sheet (Rpbn)

Year end 31 Dec 2003 2004 2005E 2006F 2007F Year end 31 Dec 2003 2004 2005E 2006F 2007F

Revenue 27,116 33,948 42,455 50,881 58,428 Cash & Deposits 5,098 4,876 5,270 9,804 10,636
% Growth 30.3 25.2 25.1 19.8 14.8 Other Curr. Assets 4,132 4,328 5,400 6,498 7,456
Operating Expenses 15,140 20,021 24,971 29,572 33,547 Net Fixed Assets 34,775 39,572 45,240 50,585 53,688
% Growth 29.7 32.2 24.7 18.4 13.4 Other Assets 6,277 7,493 5,075 4,157 3,239
Operating Profit 11,976 13,927 17,483 21,309 24,881 Total Assets 50,283 56,269 60,985 71,044 75,019
EBITDA 16,755 20,366 26,324 31,444 36,240 ST Debts 3,481 3,402 3,000 7,220 2,534
% Growth 32.9 21.5 29.3 19.4 15.3 Other Curr. Liabilities 7,719 8,275 9,932 11,875 13,582
Net Int. Inc./(Exp.) (1,017) (952) (1,325) (1,137) (1,008) LT Debts 11,834 13,214 10,646 7,156 6,039
Gain/(Loss) Forex 126 (1,221) (465) 15 - Other LT Liabilities 6,228 6,178 5,849 5,664 5,560
Other Inc./(Exp.) 367 334 - - - Minority Interest 3,708 4,938 5,655 6,323 6,711
Pre-tax Profit 11,452 12,089 15,693 20,187 23,873
Total Liabilities 32,970 36,008 35,082 38,239 34,427
Tax 3,861 4,003 4,708 6,056 7,162
Shareholders Equity 17,313 20,261 25,903 32,806 40,592
Extra. Items - - - - -
Net (Debt)/Cash (10,221) (11,760) (8,016) (2,036) 2,277
Net Profit 6,087 6,129 8,563 11,184 13,378
Total Cap. Empl. 32,629 36,878 39,170 44,625 48,931
% Growth (24.3) 0.7 39.7 30.6 19.6
Working Capital (3,583) (3,884) (3,958) (4,803) (5,552)

Cash Flow (Rpbn) Key Ratio Analysis

Year end 31 Dec 2003 2004 2005E 2006F 2007F Year end 31 Dec 2003 2004 2005E 2006F 2007F

Net Profit 6,087 6,129 8,563 11,184 13,378 Profitability

Depr./Amort. 4,780 6,439 8,841 10,134 11,359 Opr. Margin (%) 44.2 41.0 41.2 41.9 42.6
Others 1,231 3,396 (599) 1,104 (3,587) EBITDA Margin (%) 61.8 60.0 62.0 61.8 62.0
Chg in Working Cap. 781 301 74 845 750 Net Margin (%) 22.4 18.1 20.2 22.0 22.9
CF from Ops. 12,879 16,265 16,879 23,267 21,899 ROAE (%) 38.1 32.6 37.1 38.1 36.5
Capex (9,007) (8,569) (11,722) (12,995) (11,995) ROAA (%) 12.9 11.5 14.6 16.9 18.3
Others 1,701 (1,029) (96) (24) - Stability
CF from Investing (7,306) (9,598) (11,818) (13,019) (11,995) Current Ratio (x) 0.8 0.8 0.8 0.9 1.1
Net Change in Debt (2,054) (3,073) (1,746) (1,433) (3,480) Net Debt/Equity (x) 0.6 0.6 0.3 0.1 nc
Others (4,123) (3,832) (2,921) (4,282) (5,592) Int. Coverage (x) 12.1 16.0 16.8 22.8 29.6
CF from Financing (6,177) (6,905) (4,667) (5,714) (9,072) Efficiency
Net Cash Flow (605) (238) 394 4,534 832 Debtors turnover (days) 40 34 35 35 35
Cash at BoY 5,699 5,094 4,856 5,250 9,784 Creditors turnover (days) 49 44 45 45 45
Cash at EoY 5,094 4,856 5,250 9,784 10,616 Inventory turnover (days) 2 2 2 2 2
Free Cash Flow (7,003) (6,537) 1,807 4,945 9,838

Key Assumptions

Interim Results (Rpbn) Year end 31 Dec 2005E 2006F 2007F

3Q04 4Q04 1Q05 2Q05 3Q05 Fixed Wireline Subs. (m) 7.5 7.7 7.9
Fixed Wireless Subs. (m) 3.3 4.6 5.7
Sales 8,961 8,853 9,347 10,038 10,769
Telkomsel Subs. (m) 24.7 31.8 39.5
Operating Profit 3,987 3,232 3,695 4,286 4,814
GSM Market Share (%) 57.0 57.8 58.0
EBITDA 5,700 5,411 5,483 6,147 6,794
ARPU Blended ('000) 76,015 67,072 60,110
Net profit 2,346 1,274 1,703 2,000 2,078
Opr. Margin (%) 44.5 36.5 39.5 42.7 44.7
EBITDA Margin (%) 63.6 61.1 58.7 61.2 63.1
Net Margin (%) 26.2 14.4 18.2 19.9 19.3 Capital History & Stock Data

Date Event
Price and Valuation History Aug-96 IPO of 9.3bn shares @ Rp2.050 per share
Jun-99 4 : 50 Bonus Shares
2001 2002 2003 2004 2005
Sep-04 2 : 1 Stock Split
Price (Rp) Stock Data
- High 1,700 2,350 3,375 5,200 6,150 Issued Shares (m) 20,160.0
- Low 913 1,200 1,613 3,300 4,175 Par Value (Rp) 250
P/BV (x) Mkt Cap (Rpbn) 118,944.0
- High 4.1 4.5 4.7 5.7 5.0 12 - Months High / Low (Rp) 6,150/4,175
- Low 2.6 2.6 2.6 3.8 3.5 12 - Months average daily t/o (m) 20.3

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