ID Telco Compendium 160424

DOWNGRADE
Sector Note Telecommunications │ Indonesia │ April 16, 2024
Indonesia
Telco - Integrated
Neutral (previously Overweight)
Intensifying competition in mobile
Highlighted Companies
■ We believe Telkomsel Lite’s launch signifies a more aggressive stance from
Indosat
TSEL in defending market share.
HOLD, TP Rp11,900, Rp11,250 close
We assume Indosat (ISAT) will continue to
■ Despite still affordable data pricing in Indonesia, we think that brand loyalty
adjust prices, allowing mobile ARPU to remains an issue in lower-end subs in major cities.
break the Rp40k mark in 2024F. We ■ We lower ARPU forecasts and downgrade sector to Neutral. However, we still
expect ISAT’s core net profit to grow by expect healthy 11% EPS CAGR in FY23-26F.
43%/19% yoy in 2024F/25F, supported by
ongoing ARPU and EBITDA margin
recovery.
Toning down ARPU expectations post Telkomsel Lite launch
We think the introduction of Telkomsel Lite would alter the telco industry’s ARPU growth
Telekomunikasi Indonesia trajectory in Indonesia. During its analyst call on 28 Mar, TSEL said it expects stable ARPU
HOLD, TP Rp3,600, Rp3,430 close
in 2024F while planning to use a granular pricing strategy. This differs from our previous
We expect more flattish ARPU growth in expectation of continued nation-wide price increase with benign competition. We lower our
2024-26F following TSEL’s Lite launch.
industry ARPU FY23-26F CAGR to 3.9% (from 5.5% CAGR) and sector FY24-25F core
We view TLKM’s net profit as less
sensitive to ARPU changes and the net profit estimates by 8-13% but we have yet to factor in full blown price competition. Yet,
upcoming spectrum auction. We think we think Bloomberg consensus remains too high at 5.5% ARPU CAGR in FY23-26F.
investors have already taken into account
higher opex and stable ARPU growth in What is Telkomsel Lite?
2024F. TSEL launched Telkomsel Lite in late-Feb 2024 to regain its market share, targeting the
XL Axiata youth and mass market segments. TSEL is only offering the new product in selected areas
HOLD, TP Rp2,450, Rp2,300 close (mostly in Java) and prices are set slightly above peers’. Based on our data pricing analysis
We believe XL Axiata (EXCL) is the most in Jakarta area, we believe TSEL Lite offers the best data yield for its starter packs under
sensitive to changes in ARPU and number Rp50k. During its 4Q23 analyst call, TSEL highlighted that TSEL Lite received a positive
of subs due to its leverage position. Yet, response from customers. However, our channel checks suggest that customers and retail
we think EXCL’s cost management focus outlets still want to see long-term commitment to TSEL Lite’s pricing/bonus quota,
and healthy data traffic growth should especially given TSEL Lite has the same recharge price as the normal TSEL packages.
allow 2024-26F EBITDA margin to widen.
Mobile data is still affordable but lacks loyalty in lower-end subs
Summary Valuation Metrics We estimate mobile data in Indonesia is still affordable with ARPU/GDP per capita at 0.67%
P/E (x) Dec-24F Dec-25F Dec-26F in 2023 (2022: 0.68%), according to data from TLKM, EXCL, ISAT, and CEIC. Meanwhile,
Indosat 17.85 15.06 12.96 data traffic/user stood at 13GB/month in 2023, which we believe offers good growth
Telekomunikasi Indonesia 12.90 12.60 12.65 potential. We think these factors allowed telco operators to lift prices in 2023. However, a
XL Axiata 19.28 14.99 10.44
slowdown in mass-market purchasing power and minimal network quality difference in the
P/BV (x) Dec-24F Dec-25F Dec-26F Java area have led to lower brand loyalty in lower-end subscribers, in our view.
Indosat 2.70 2.44 2.21
Telekomunikasi Indonesia 2.36 2.22 2.10 Downgrade sector to Neutral
XL Axiata 1.11 1.07 1.01
We downgrade the sector from Overweight to Neutral as we anticipate slower ARPU
Dividend Yield Dec-24F Dec-25F Dec-26F growth due to intensifying price competition. However, we expect the sector to still give a
Indosat 2.48% 2.80% 3.32% healthy 11% EPS CAGR in FY23-26F due to manageable costs. In our view, the Indo telco
Telekomunikasi Indonesia 5.24% 5.36% 5.34%
XL Axiata 3.11% 4.00% 5.75%
sector is fairly valued at 4.9x of 12M fwd EV/EBITDA (-0.6 s.d. of 5-year mean), which is
similar to the previous two periods of market share driven price wars (in 2010-11 and 2020-
Insert 21). We also downgrade all companies under our coverage from Add to Hold, mostly due
to lower ARPU growth assumptions. Our sector top pick is TLKM as we believe its net profit
will be less impacted by lower ARPU. Downside risks: price reductions by ISAT and EXCL,
adverse macroeconomic condition and higher-than-expected capex for new spectrum
Analyst(s)
auctions. Upside risks: further consolidation in Indo telco operators and TSEL strictly
limiting TSEL Lite’s offerings.
Figure 1: Indonesia’s telco sector comparison (data as at 15 Apr 2024)
Target Market Last 2024F

Bloomberg Previous
Recom. Price cap price
Ticker Recom.
Bob SETIADI PER EV/EBITDA Div yield FCF yield Core EPS EBITDA growth
(LC) (US$m) (LC) (x) (x) (%) (%) growth (%, yoy) (%, yoy)
T (62) 21 3006 1724
E bob.setiadi@cgsi.com TLKM IJ ADD HOLD 3,600 21,423 3,430 12.8 4.8 5.3 9.4 5.5 5.6
Rut Yesika SIMAK EXCL IJ ADD HOLD 2,450 1,904 2,300 19.3 4.5 3.1 9.8 22.7 4.1
T (62) 21 515 1330 ISAT IJ ADD HOLD 11,900 5,719 11,250 17.9 5.2 2.5 5.1 42.7 10.1
E rut.simak@cgsi.com SOURCES: CGSI RESEARCH ESTIMATES, BLOOMBERG, COMPANY REPORTS
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 Powered by the
DISTRIBUTED BY CGS INTERNATIONAL SECURITIES USA, INC AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Telecommunications │ Indonesia
Telco - Integrated │ April 16, 2024
Figure 2: Telco sector comparisons

Last Target Market
Company Bloomberg Origin Recom. price Price cap P/E (x) P/BV (x) ROE (x) EV/EBITDA (x) EBITDA MARGIN EBITDA GROWTH DIVIDEND YIELD (%)
Ticker (LC) (LC) (US$m) FY24F FY25F FY24F FY25F FY24F FY25F FY24F FY25F FY24F FY25F FY24F FY25F FY24F FY25F
Indonesian telco providers

Telekomunikasi Indonesia TLKM IJ Indonesia HOLD 3,430 3,600 21,423 12.8 12.6 2.4 2.3 19.2 18.8 4.8 4.5 52.3 52.5 5.6 2.7 5.3 5.4
XL Axiata EXCL IJ Indonesia HOLD 2,300 2,450 1,904 19.3 15.0 1.1 1.1 5.8 7.2 4.5 4.2 49.7 51.1 4.1 6.5 3.1 4.0
Indosat Ooredoo Hutchison ISAT IJ Indonesia HOLD 11,250 11,900 5,719 17.9 15.1 2.7 2.4 15.8 17.1 5.2 5.0 48.9 49.3 10.1 4.7 2.5 2.8
Smartfren Telecom FREN IJ Indonesia NR 50 NA 1,057 NA NA NA NA NA NA NA NA NA NA NA NA NA NA
Weighted Average - Big 3 Indo telco 14.2 13.2 2.4 2.3 17.6 17.7 4.8 4.6 51.5 51.8 6.4 3.3 4.6 4.8
Malaysian telco companies

Axiata AXIATA MK Malaysia ADD 3 3.1 4,823 33.6 23.9 1.0 1.0 3.0 4.3 5.1 4.8 45.1 45.6 1.1 1.0 3.7 3.7
Maxis Berhad MAXIS MK Malaysia ADD 4 4.0 5,672 20.1 19.0 4.8 4.7 22.2 23.4 8.9 8.3 39.6 39.6 1.1 1.0 4.4 4.4
Telekom Malaysia T MK Malaysia ADD 6 7.3 4,851 14.0 14.5 2.4 2.2 16.8 15.2 5.1 4.8 39.1 39.2 1.0 1.0 4.0 4.0
CelcomDigi CDB MK Malaysia ADD 4 5.2 10,018 24.3 21.1 2.8 2.7 11.5 13.1 9.8 9.3 47.5 48.4 1.0 1.0 3.0 3.0
Weighted Average 23.2 19.9 2.8 2.7 13.3 14.1 7.8 7.3 43.7 44.2 1.0 1.0 3.6 3.6
Singaporean telco providers

SingTel ST SP Singapore ADD 2 2.9 28,464 14.1 13.0 1.4 1.4 9.6 10.2 13.1 11.2 25.3 27.7 20.3 20.3 5.6 5.6
Starhub STH SP Singapore HOLD 1 1.2 1,500 13.5 11.8 3.4 3.2 30.4 31.4 6.3 6.0 19.5 20.0 10.9 10.9 4.2 4.2
Thai telco companies

AIS ADVANC TB Thailand NR 204 NA 16,556 19.8 17.7 6.5 6.2 33.3 35.0 7.5 7.1 49.8 50.2 3.8 3.8 4.2 4.2
Thaicom THCOM TB Thailand NR 14 NA 419 49.5 245.6 1.4 1.4 2.9 (0.0) 13.4 14.1 48.3 47.5 NA NA 0.9 0.9
Intouch INTUCH TB Thailand NR 68 NA 5,972 17.8 16.0 5.3 5.1 31.0 32.8 NA NA NA NA 4.6 4.6
True Corp PCL TRUE TB Thailand NR 8 NA 7,542 307.7 43.5 3.2 3.1 1.1 8.0 7.7 7.1 44.3 46.6 NA NA NA NA
Average 91.0 26.9 5.4 5.2 24.5 27.4 6.2 5.8 38.7 39.5 2.0 2.0 3.2 3.2
Indonesian tower companies

Sarana Menara Nusantara TOWR IJ Indonesia ADD 855 1,500 2,750 11.9 11.2 2.3 2.0 20.2 19.1 8.3 7.9 84.4 84.4 6.6 6.6 2.8 2.8
Dayamitra Telekomunikasi MTEL IJ Indonesia ADD 630 800 3,319 23.0 20.6 1.5 1.5 6.4 7.0 8.9 8.2 81.1 81.7 10.7 10.7 3.4 3.4
Tower Bersama Infrastructure TBIG IJ Indonesia HOLD 1,870 2,200 2,671 26.3 24.1 3.6 3.4 13.4 14.0 11.6 11.0 85.8 85.9 (0.1) (0.1) 3.2 3.2
Asian tower companies

Indus Towers Ltd INDUSTOW IN India NR 335 NA 10,797 18.0 16.9 3.3 3.1 22.4 21.5 6.9 6.4 46.6 46.4 (34.6) (34.6) NA NA
HFCL Ltd HMFC IN India NR 95 NA 1,631 NA NA NA NA NA NA NA NA NA NA (4.8) (4.8) 0.2 0.2
HKBN Ltd 1310 HK Hong Kong NR 3 NA 506 16.2 8.5 1.6 1.7 11.1 20.8 5.4 5.0 20.4 20.9 (13.5) (13.5) 14.3 14.3
China Tower Corp Ltd 788 HK China NR 20,235 NA 45,397 12.5 10.7 0.7 0.7 5.6 6.5 2.9 2.7 66.9 66.1 (59.0) (59.0) 4.1 4.1
Weighted Average 13.2 11.5 1.2 1.1 8.6 9.3 3.6 3.3 60.9 60.2 (52.6) (52.6) 3.3 3.3
Other region tower companies

American Tower Corp AMT US United States NR 178.1 NA 83,175 24.6 24.6 18.4 19.0 70.2 68.3 17.5 17.2 63.4 65.2 (6.0) (6.0) 3.7 3.7
Crown Castle Inc CCI US United States NR 95.7 NA 41,562 33.1 49.5 7.4 8.8 21.6 24.5 15.6 16.1 63.1 62.6 2.5 2.5 6.5 6.5
SBA Communications Corp SBAC US United States NR 199.9 NA 21,589 37.8 31.5 NA NA (11.3) (14.3) 17.5 16.9 70.9 71.0 7.2 7.2 1.8 1.8
Infrastructure Wireless Italiane INW IM Italy NR 10 NA 10,136 23.4 20.8 2.2 2.3 9.3 11.1 14.5 13.4 91.6 91.9 12.1 12.1 3.5 3.5
Vantage Towers AG VTWR GR Germany NR 37 NA 20,146 NA NA NA NA NA NA NA NA - - 8.7 8.7 0.1 0.1
Cellnex Telecom S.A. CLNX SM Spain NR 30 NA 22,768 NA 6,060.0 1.6 1.5 (1.4) (0.0) 13.2 12.6 75.8 74.7 14.7 14.7 0.2 0.2
DATA AS OF 15 APR 2024
SOURCES: CGSI RESEARCH ESTIMATES, BLOOMBERG, COMPANY REPORTS
Note: Estimates for Not rated companies are based on Bloomberg consensus estimates
2
Intensifying competition
Toning down ARPU expectations post TSEL Lite
launch
Making sense of TSEL’s latest strategy
We believe the introduction of Telkomsel Lite would alter the trajectory of ARPU
growth in Indonesia. TLKM and TSEL conducted two analyst calls (on 26 Mar
2024 and 28 Mar 2024); during the calls, the companies said they expect ARPU
to be stable in 2024 and plan to use a granular pricing strategy. We think TSEL’s
latest strategy is a toned-down version of its previous strategy which comprised
nationwide price adjustments.
Figure 3: Key takeaways from FY23 analyst meeting

Key takeaways TLKM ISAT EXCL
2024F Management Guidance
- Revenue growth Mid-single digits More than mid-single digits High single digits
- EBITDA margin 50-52% c.50% c.50%
- Capex 22-24% of revenue c.Rp12tr c.Rp8tr
Market strategy Launched Telkomsel Lite to Monetising network expansion in Continued healthy price competition;
defend market share; 10-20% rural areas; higher ARPU forecast for focus on ARPU for growth
price gap with peers. FY24-25F
Cost Management Normal 4% adjustment in Higher marketing costs in FY23 but Decreased sales and marketing
personnel and spectrum aims to maintain under 3% of total expenses by 6% yoy; increased
costs; stringent cost control sales in FY24F operating expenses due to
infrastructure costs
Strategic Initiatives Data centre and fibre optic Focused on rural customers, home LinkNet customer acquisition deal
business spin-off plans broadband, enterprise business, and expected in 1H24
adjacent revenues (e.g., AI Cloud)
SOURCES: CGSI RESEARCH
Note that all telco players use a dynamic pricing strategy, which involves different
prices based on traffic volume, network capacity and customer segment. However,
we believe Indonesian telco operators are still relying on telco distributors and
dealers given: 1) penetration of subscribers which use telco operators’ apps is still
40-50%; 2) 48-49% of Indonesian population still lives in villages; and 3) only 20-
24% of Indonesian population is considered bankable, according to data from
World Bank (2023). Meanwhile, our channel checks suggest retail outlets still drive
up to 90% of new customer acquisitions.
Figure 4: Four-quarter rolling average industry ARPU (grey: stable & rising price trend;
pink: price wars)
65
60
55
50
(Rp k)
45
40
35
30
25
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
2Q14
1Q15
4Q15
3Q16
2Q17
1Q18
4Q18
3Q19
2Q20
1Q21
4Q21
4Q22
3Q23
SOURCES: CGSI RESEARCH, COMPANY REPORTS
3
Figure 5: History of price wars between Indo telco operators since 2007
Period Headline Details
Most severe price

Triggered by the regulator’s interconnection rate cuts and XL’s change to a high-volume, low-price
2007-2008 war in sector’s
model
history
The next price war took place at end-2010 till mid-2011, triggered by Telkomsel’s launch of its
End 2010 - Telkomsel instils
aggressive Rp20/min Kartu As, a nationwide promotion to instil “market discipline”, after smaller
mid 2011 “market discipline”
operators nibbled away at its revenue market share (RMS) in the preceding 12 months.
Short price war The mandatory prepaid SIM card registration exercise triggered the next price war which started
3Q17-1Q18 triggered by SIM roughly in 3Q17, as mobile operators positioned themselves (with various offers) to be subs’
registration preferred network ahead of mandatory registration effective from Oct 2017.
The most recent price war began in mid-2020, when Telkomsel launched its attractive Unlimited
Telkomsel defends
Max plan in 65 tier-2 cities, which matched its smaller peers on the lower-end plans and undercut
Mid 2020 - turf as Covid hits
them on the bigger quota offers. This aggression from TSEL followed its RMS loss in 1H20, as a
Mar 2021 consumer
result of smaller peers launching better value and lower-denomination offers to cater to weaker
purchasing power
consumer purchasing power (hit by the Covid-19 lockdowns)
SOURCES: CGSI RESEARCH
On a full-year basis, TSEL still had the highest ARPU of Rp47.5k in 2023 (2022:
Rp44.2k), followed by EXCL’s Rp41.8k (2022: Rp38.8k) and ISAT’s Rp35.7k
(2022: Rp33.9k). However, TSEL’s ARPU declined in the past two quarters to
Rp46.5k in 4Q23 (3Q23: Rp48.6k) while ISAT saw the most aggressive growth to
Rp38.5k in 4Q23 (3Q23: Rp35.4k). This means that the ARPU gap between TSEL
and its peers declined to 8-21% in 4Q23 (vs. 3Q23: 16-37% and 4Q22: 20-42%).
Note that TSEL during its analyst calls mentioned that it is aiming to maintain a
10-20% ARPU gap with its competitors.
Figure 6: Average yearly ARPU
50.0 47.5
44.9 45.8
44.5 44.3
45.0 42.8 43.5
42.1 41.8
40.5
38.8
40.0
35.8 36.5
35.5 35.7
34.8 34.5
33.8 34.4 33.9
35.0
31.5 31.9
(Rp k)
30.0 27.9
26.0
25.2
25.0
20.6
18.8
20.0
15.0
2015 2016 2017 2018 2019 2020 2021 2022 2023
Telkomsel Indosat XL Axiata
4
Figure 7: Quarterly ARPU, 1Q19-4Q23 Figure 8: Quarterly ARPU gap, 1Q19-4Q23
50.0 80%
70%
45.0
60%
(Rp k/month)
50%
40.0
40%
35.0
30%
20%
30.0
10%
25.0 0%
TSEL EXCL ISAT Industry TSEL-EXCL TSEL-ISAT
SOURCES: CGSI RESEARCH, COMPANY REPORTS SOURCES: CGSI RESEARCH, COMPANY REPORTS
We notice that TSEL showed a qoq decline in monthly data usage per user in
4Q23 to 12.2 GB (-1% qoq), vs. EXCL’s +1.8% qoq and ISAT’s +3.6% qoq. We
believe this could be explained by a substantial increase in TSEL’s number of
subs where the company added 2.5m subs throughout 2023, compared to a 3.4m
drop in ISAT’s subs during the same period.
Figure 9: Changes in quarterly number of subs Figure 10: Quarterly data usage per user
35,000 16,000
30,000
15,000
25,000
14,000
20,000
(# subscribers)
13,000
15,000
(MB/user)
10,000 12,000
5,000
11,000
-
10,000
(5,000)
(10,000) 9,000
(15,000) 8,000
1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23
TSEL ISAT EXCL TSEL ISAT EXCL
At this stage, we do not think the launch of Telkomsel Lite would lead to full blown
price competition as all telco players are still committed to pursuing profitability.
However, we believe price competition among Indo telco players is intensifying
which would cause lower growth in mobile ARPU in 2024.
After adjusting for individual companies’ ARPU, we now expect industry ARPU to
grow from Rp41.9k in 2023 to Rp43.8k in 2024F (+4.5% yoy) and Rp45.3k in
2025F (+3.4% yoy). This means that we are lowering industry ARPU forecasts by
2.8-3.2% in 2024-25F.
5
Compared with Bloomberg consensus forecasts, our industry ARPU forecasts in

2024-26F are 2-8% lower than consensus. In 2023-26F, we assume that industry
ARPU would see a 3.9% CAGR while consensus is expecting a 5.5% CAGR.
Figure 11: ARPU forecast by company
55
49.4
50 47.5 48.1
47.1
46.0
47.8
44.0 44.0 44.2
45 43.9 45.6
41.0
39.0 43.7
40 42.1
(Rp k)
36.0 36.0 40.4
35.0
35
35.6
34.4 33.9
30 31.9
25 27.9
20
2019 2020 2021 2022 2023 2024F 2025F 2026F
TSEL ISAT EXCL
SOURCES: CGSI RESEARCH ESTIMATES
Figure 12: Industry ARPU forecast – new vs. old Figure 13: Industry ARPU forecast – ours vs. Bloomberg
consensus
50.0 49.2 52.0

50.7
47.5 46.8 50.0
45.1 47.0
45.0 47.7
48.0
(Rp k / month)
45.3 47.0
(Rp k)
41.9 43.8
42.5 46.0 45.3
44.8
43.8
40.0 39.0 44.0
38.1
37.3
37.5 36.3 42.0
35.0 40.0
2019 2020 2021 2022 2023 2024F 2025F 2026F 2024F 2025F 2026F
New Old Our forecast Consensus forecast
SOURCES: CGSI RESEARCH ESTIMATES, COMPANY REPORTS SOURCES: CGSI RESEARCH ESTIMATES, BLOOMBERG
What is Telkomsel Lite?

TSEL launched Telkomsel Lite in late-Feb 2024 to gain back its market share.
Telkomsel Lite is only offered in selected areas (mostly in Java) while prices are
set slightly above that of its peers’. TSEL Lite provides up to 50% higher bonus
quota for its starter pack (compare to TSEL Regular), although there is currently
no difference in recharge price. Based on our channel checks, TSEL Lite’s bonus
quota is different from national and local quotas, with larger emphasis on local
quota. However, TSEL Lite’s bonus quota could be used in a wider area (i.e. the
whole Java island), compared to ISAT’s local quota which is more micro (i.e.
cannot be used if the users move to a different city).
The company said TSEL Lite has received positive customer response.
Meanwhile, based on our channel checks, TSEL Lite is able to improve new
customer acquisition, especially in areas which are not dominated by TSEL.
However, there is limited impact on total revenues.
6
Based on the latest pricing data on Jakarta area from each telco players’ website,
we observe that TSEL Lite gives the best offering in terms of total data package
(i.e. Rp/GB) for its starter pack under Rp50k. However, for starter packs over
Rp50k, XL still has the best offering in terms of data package price (Rp/GB).
Meanwhile, for recharge packages, we have yet to see a price difference between
TSEL Lite and normal TSEL package. For Jakarta area, there is minimal
difference in data offering between TSEL and EXCL recharge packages, while
ISAT is generally more expensive. ISAT only gives more competitive offerings for
recharge packs of above Rp100k.
During its 4Q23 analyst calls, TSEL stated that TSEL Lite would be positioned to
target the youth segment and the mass market. We believe this market segment
is relatively more price sensitive, hence TSEL Lite needs to offer attractive starter
packs. However, our channel checks suggest that customers and retail outlets are
still unsure whether TSEL Lite would continue to offer attractive starter pack
pricing after 2-3 months. Thus, we believe that TSEL would need to show better
long-term commitment to TSEL Lite starter pack pricing before it can disrupt the
current market share composition.
Figure 14: Starter pack pricing – Jakarta area (green – cheapest, red – most expensive)
(for 30 days) Starter package (Rp/GB)
TLKM ISAT EXCL FREN
Data package (Rp)
Tsel-Lite Tsel-Regular by.U IM3 3 XL Axis Smartfren
20,000 - 29,999 2,800 - 4,167 6,000 2,857 8,333 4,308 - 6,250 5,000
30,000 - 39,999 2,333 4,000 2,917 - 3,333 6,417
40,000 - 49,999 2,500 - 4,000 3,917 - 4,000 988 - 2,000
50,000 - 59,999 2,083 3,333 655 4,583 4,583
60,000 - 69,999 1,354 - 3,333
70,000 - 79,999 1,875 3,000 3,167 522 2,567
80,000 - 89,999 2,424
90,000 - 99,999 1,500 1,800 421 2,066
100,000 - 109,999 2,000
110,000 - 119,999 297 2,444
120,000 - 129,999 1,786 2,524 2,520
130,000 - 139,999 2,292
150,000 - 159,999 2,086 1,000
SOURCES: CGSI RESEARCH, COMPANY WEBSITE
Figure 15: Recharge pack pricing – Jakarta area (green – cheapest, red – most expensive)
(for 30 days) Recharge package (Rp/GB)
TLKM ISAT EXCL FREN
Data package (Rp)
Tsel-Lite/Regular by.U IM3 3 XL Axis Smartfren
20,000 - 29,999 8,333 2,857 7,667 6,571 0 0
30,000 - 39,999 2,727 3,333 - 5,833 7,000 5,000 3,500
40,000 - 49,999 3,818 2,857 0 0 3,067 2,556
50,000 - 59,999 2,000 2,500 - 4,625 4,833 4,462 2,604 - 2,778 2,121
60,000 - 69,999 2,720 - 3,667 0 0 4,500 3,245 1,523 0
70,000 - 79,999 1,500 2,593 - 3,109 1,194 2,567
80,000 - 89,999 2,371 - 2,514 1,905 - 4,040 0 2,667 2,091 - 2,353 0 0
90,000 - 99,999 3,833 806
100,000 - 109,999 1,250 1,615 0 2,381 1,870 - 2,326 0 1,000
110,000 - 119,999 2,255 - 2,375 3,286 2,300 2,444
120,000 - 129,999 2,520 2,400 2,308 0
130,000 - 139,999 1,971 2,161 2,292
140,000 - 149,999 0 2,000 2,333 - 2,350 0
150,000 - 159,999 2,086 1,000
SOURCES: CGSI RESEARCH, COMPANY WEBSITE
During its 4Q23 analyst call, TSEL said it prefers to maintain a mobile data
revenue market share of above 51%. The company no longer provides quarterly
7
data; however, based on our estimates, TSEL’s mobile revenue market share fell
to 51% in 4Q23 (1Q23-3Q23: 54-55%) due to a big increase in ISAT’s mobile
revenues. We believe this was a key factor behind the launch of TSEL Lite.
We also noticed that the total number of mobile subscribers in Indonesia has
surpassed its population. Based on our conversations with industry players, this
is causing high customer churn rates and intense competition in starter packages.
However, this was offset by higher data consumption/user which grew at 17.5%
CAGR in 2020-23, according to data from TLKM, ISAT, and EXCL. That said,
TSEL had lower data consumption/subs growth of 6% yoy in 2023, compared to
11% yoy growth for ISAT and 19% yoy growth for EXCL.
Figure 16: Quarterly mobile data revenue market share
70%
63% 62% 62% 62%
60% 57% 56% 56% 56% 55% 54% 54%
51%
50%
40%
30%
30% 26% 25% 26% 26% 26% 27%
25%
18% 18% 18% 19%

20%
19% 19% 19% 20% 18% 19% 18% 19% 20% 20% 19%
18%
10%
0%
1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23
TSEL ISAT EXCL
Figure 17: Total mobile subscribers compared to total Indonesian Figure 18: TLKM’s data traffic per user growth lower than peers in
population 2023
400 140% 16,000
136%
14,000
380 135%
12,000
129%
360 128% 130%
(m subscribers)
126% 127% 10,000

(MB/user)
340 125% 8,000

121%
371 6,000
320 120%
352 353 352
340 4,000
300 324 115%
2,000
280 110% 0
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Total mobile subscribers % to total population (RHS) TSEL ISAT EXCL
8
Affordable mobile data but lack of loyalty among

lower-end subscribers
We estimate that mobile data in Indonesia is still affordable with ARPU/GDP per
capita of 0.67% in 2023 (2022: 0.68%). Meanwhile, data traffic/user stood at
13GB/month in 2023 which is still below India’s 19GB/month, according to data
from Nokia’s Annual Mobile Broadband Index (MBiT). We think these factors
allowed telco operators to increase prices three times in 2023 (March, August and
November), despite a slowdown in mass-market purchasing power.
Figure 19: Peer comparisons of ARPU and ARPU/GDP per capita Figure 20: Big 3 MNO churn rates (2016-23)
ratio in 2022*
Mobile monthly ARPU/GDP per
80%
Country blended ARPU capita
(US$) (%) 60%
ASEAN
Indonesia 2.7 0.67% 40%
Malaysia 9.6 0.93% 20%

Philippines 2.0 0.67%
Singapore 18.4 0.27% 0%
Thailand 6.1 0.94%

-20%
Others
China 7.1 0.67% -40%
United States 44.5 0.70%
-60%
South Korea 20.7 0.77% 2016 2017 2018 2019 2020 2021 2022 2023
India 1.8 0.85%
Telkomsel Indosat XL Axiata Average
Note: *Data as of 2023 for Indonesia, Thailand, and India SOURCES: CGSI RESEARCH, COMPANY
SOURCES: CGSI RESEARCH, CEIC
However, we think there is minimal network quality difference in Java’s major

cities which has enabled customers to switch to more affordable products. Note
that Java is the most populous island in Indonesia, home to approximately 60%
of the country's total population. Java's contribution to the economy is almost
equivalent to the national GDP, despite only accounting for 6% of the country's
total land size.
According to nPerf, a service that tests Internet connection speeds, Telkomsel

currently boasts the widest cellular data coverage in Indonesia. Meanwhile, we
observe that EXCL and ISAT are not as advanced outside Java, prompting both
companies to focus on acquiring new subscribers in these areas.
Figure 21: TLKM data cellular coverage Figure 22: EXCL data cellular coverage Figure 23: ISAT data cellular coverage
SOURCES: CGS-CIMB RESEARCH, NPERF SOURCES: CGS-CIMB RESEARCH, NPERF SOURCES: CGS-CIMB RESEARCH, NPERF
9
We believe the ARPU gap, particularly between TSEL and ISAT, as well as
between XL and ISAT, will narrow due to intensifying price competition, especially
after the release of TSEL Lite. In FY23, the ARPU gap between TSEL and XL was
narrow at 3% (vs. 2022: 8%). Conversely, while ISAT offered more affordable
recharge packages, it lost 3% of its mobile subscribers year-over-year in FY23,
and TSEL aggressively increased its ARPU in 2023, making the ARPU gap
between TSEL and ISAT the highest since the pandemic.
Figure 24: Quarterly ARPU vs. data consumption per subscriber Figure 25: ARPU gap among Big 3 MNO (2015-2023)
45.0 20.0 120%

106%
44.0 18.0
43.0 16.0 100%
42.0
(GB per subscriber)

14.0
(Rp k / month)
41.0 80%
12.0
40.0
10.0 56%
39.0 60%
8.0
38.0
6.0 40% 32% 34%
37.0
36.0 4.0 30%
35.0 2.0 20%
34.0 0.0 3%
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
4Q23
0%
2015 2016 2017 2018 2019 2020 2021 2022 2023
ARPU Data usage per data sub TSEL - XL TSEL - ISAT XL - ISAT
Valuation and recommendation

TLKM as top pick
We downgrade our rating for the Telecommunication sector to Neutral (previous:
Overweight) due to lower-than-expected ARPU growth. At this stage, we believe
that investors’ expectations on continued beat in ARPU growth is no longer viable.
However, the sector still provides a healthy 11% EPS CAGR in 2023-26F, based
on our estimates.
Although it has recovered in the past two years, the Indo telco sector is also still
fairly valued at 4.9x 12M fwd EV/EBITDA (-0.6 SD of 5 year mean), which is still
lower than previous two periods of price wars for market share (2010-11 & 2020-
21). We also downgrade all companies under our coverage from Add to Hold,
mostly due to lower ARPU growth assumptions. Our sector top pick is TLKM as
the company’s net profit will be less impacted by lower ARPU and its share price
has already priced in the negative, in our view.
Figure 26: Historical EV/EBITDA during price wars

EV/EBITDA (x)
Period Headline TLKM ISAT EXCL
2007 Most severe price war in sector’s history 6.2 5.3 5.0
2008 Most severe price war in sector’s history 4.8 4.8 4.3
End 2010 - mid 2011 Telkomsel instils “market discipline” 4.5 5.1 6.1
3Q17-1Q18 Short price war triggered by SIM registration 7.7 6.4 5.9
Mid 2020 - Mar 2021 Telkomsel defends turf as Covid hits consumer purchasing power 4.9 3.2 4.2
Current 12M fwd 4.8 5.2 4.5
10
Figure 27: TLKM’s EV/EBITDA band Figure 28: ISAT’s EV/EBITDA band
8.0 6.0
7.5
5.5
7.0
6.5 5.0
6.0 4.5
5.5
4.0
5.0
3.5
4.5
4.0 3.0
3.5
2.5
3.0
Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24 2.0
TLKM Mean +2 STD DEV Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24
+1 STD DEV -2 STD DEV -1 STD DEV ISAT Mean +2 STD DEV
+1 STD DEV -2 STD DEV -1 STD DEV
SOURCES: CGSI RESEARCH, BLOOMBERG SOURCES: CGSI RESEARCH, BLOOMBERG
Figure 29: EXCL’s EV/EBITDA band Figure 30: Sector EV/EBITDA band
6.0
7.0
5.5 6.5
6.0
5.0
5.5
4.5
5.0
4.0 4.5
4.0
3.5
3.5
3.0 3.0
Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24
EXCL Mean +2 STD DEV Sector Mean +2 STD DEV
+1 STD DEV -2 STD DEV -1 STD DEV +1 STD DEV -2 STD DEV -1 STD DEV
SOURCES: CGSI RESEARCH, BLOOMBERG SOURCES: CGSI RESEARCH, BLOOMBERG
Domestic institutional ownership remains in the telco sector
As of Mar 2024, foreign ownership in ISAT remained substantial, with TLKM also
seeing decent foreign ownership levels. However, we think there will be significant
foreign ownership reduction in TLKM by Apr 2024 in anticipation of intensifying
price competition, in our view. In contrast, we think that changes in EXCL’s foreign
ownership have been minimal.
From the perspective of domestic ownership, domestic institutions have continued

to hold their shares in both EXCL and ISAT in Mar 2024 despite TSEL Lite launch.
This persistence has led to an increase in the overweight position, even though
the actual number of shares held has remained relatively unchanged. We believe
that domestic institutions will continue to sustain their investments in the
telecommunications sector due to limited options, especially as the four major
banks are priced at a premium.
11
Figure 31: TLKM’s domestic institutional Figure 32: ISAT’s domestic institutional Figure 33: EXCL’s domestic institutional
ownership ownership ownership
14.0 100% 0.6 200% 1.8 180%

90% 1.6 160%
12.0 0.5 150%
80% 1.4 140%
10.0 70%
0.4 100% 1.2 120%
60%
8.0 1.0 100%
50% 0.3 50%
6.0 0.8 80%
40%
30%
0.2 0% 0.6 60%
4.0
20% 0.4 40%
2.0 0.1 -50%
10% 0.2 20%
0.0 0% 0.0 -100% 0.0 0%
Domestic insti holding (bn of shares) Domestic insti holding (bn of shares) Domestic insti holding (bn of shares)
Domestic insti overweight (underweight) - RHS Domestic insti overweight (underweight) - RHS Domestic insti overweight (underweight) - RHS
SOURCES: CGSI RESEARCH, KSEI SOURCES: CGSI RESEARCH, KSEI SOURCES: CGSI RESEARCH, KSEI
Figure 34: TLKM’s foreign institutional Figure 35: ISAT’s foreign institutional Figure 36: EXCL’s foreign institutional
ownership ownership ownership
0.6 0%
25.0 0% 0.6 0%
0.5
-20% 0.5
20.0 -5%
-20%
0.4
0.4
-40%
15.0 -10%
0.3
0.3 -40%
-60%
10.0 -15% 0.2 0.2
-80% -60%
5.0 -20% 0.1 0.1
0.0 -100% 0.0 -80%

0.0 -25%
Foreign insti holding (bn of shares) Foreign insti holding (bn of shares) Foreign insti holding (bn of shares)
Foreign insti overweight (underweight) - RHS Foreign insti overweight (underweight) - RHS Foreign insti overweight (underweight) - RHS
SOURCES: CGSI RESEARCH, KSEI SOURCES: CGSI RESEARCH, KSEI SOURCES: CGSI RESEARCH, KSEI
Key upside and downside risks

Upside risks
 Further consolidation in Indo telco operators. Consolidation within the
sector may lead to improved operational efficiencies and a more stable market
environment. Consolidation could result in reduced competition, potentially
enhancing pricing strategies and operational synergies, which might
favourably impact profit margins and market share stability. We think
upcoming M&A between EXCL and FREN could lead to a more stable market
for Indo telco operators.
 TSEL strictly limiting TSEL Lite offerings. By carefully controlling the

availability of TSEL Lite, TLKM’s subsidiary, TSEL, may be able to
strategically target specific market segments, such as youth and mass market.
In our view, this approach could help balance market share expansion while
12
maintaining a balance between attracting new users and preserving the value
of the average revenue per user (ARPU) and the profitability.
Downside risks
 ISAT and EXCL lower prices. We think if ISAT and EXCL implement further
price reductions, the sector might experience more intensified competition,
potentially leading to widespread ARPU decreases. This scenario could result
in a challenging environment where companies might prioritise market share
over profitability, impacting the overall financial health of the sector.
 Adverse macroeconomic conditions. Should there be a downturn in the

economic environment, including inflation or currency depreciation, consumer
purchasing power could decline. This change might reduce the demand for
telecommunications services, particularly non-essential value-added services,
and increase operational costs, thereby affecting profit margins and limiting
potential investments in network improvements.
 Higher-than-expected capex for new spectrum auctions. As the Ministry

of Communication and Information prepares for a spectrum auction with
frequencies of 700MHz and 26GHz, targeted for completion in 2Q24F, we
think that telecommunications operators allocating significant funds to secure
spectrum rights could reduce the capital available for crucial network
enhancements or expansion projects. This, in turn, might impact service
quality and the competitive position of operators in the long run, in our view.
13
ESG in a nutshell
In 2022, Refinitiv ranked Telkom Group (TLKM) first out of five listed telco-related companies in Indonesia and fourth out
of 16 ASEAN telco-related companies, with an ESG Combined Score of 57 out of 100, above the midpoint. This was
followed by XL Axiata (EXCL) and Indosat (ISAT). TLKM’s relative outperformance was mainly led by its good social rating
of B+ on the back of major improvements in the social aspect (i.e. doubling employee training hours in 2022). EXCL was
also given a good score for its governance aspect (score A-) due to its i) higher mix of independent directors on its
remuneration committee, ii) higher board meeting attendance rate, iii) better board diversity, iv) not having the government
of Indonesia as a shareholder, and v) being a United Nations Global Compact signatory.
Keep your eye on Implications

TLKM (C) and Indosat (D) scored quite poorly for the We have not applied a discount to our valuation of TLKM
environmental pillar in 2022, as ranked by Refinitiv. This was and Indosat despite their subpar Refinitiv environmental
largely attributed to the lack of: i) disclosure on ratings. Nonetheless, we think potential improvements in
water/energy/renewable energy targets, ii) a product their ESG disclosures and performance in the medium to
line/service that is designed to have a positive effect on the longer term could be an upside risk and help attract more
environment, iii) reporting on take-back procedures or interest from ESG-focused investors. All three telcos have
recycling programmes, and iv) whether their sites/buildings also reported decent initiatives to reduce carbon emissions
were environmentally-friendly. Nonetheless, all three telcos since 2019, such as i) using more efficient cooling systems
did not have any major ESG controversies in 2017-19. in data centres/mobile sites, ii) optimising use of air
conditioning in offices/facilities, and iii) connecting sites to
the grid/solar instead of diesel-powered generators.
ESG highlights Implications

Overall, the Indonesia telco sector performed well from an We believe the telco sector’s ESG performance is relatively
ESG standpoint as the companies have a relatively small better than other sectors’, especially those in the natural
impact on the environment, contribute significantly to resource, manufacturing, power generation (coal, natural
community development (especially digital inclusion) and gas) and sin sectors. On an absolute basis, we do not expect
are generally well-governed, in our view. the good ESG performance to have a material positive
impact on the sector’s topline and earnings as these are
more likely to be driven by issues such as competition, M&A
and regulatory developments, in our view.
Trends Implications
In return for the licence to operate their networks, the public We are concerned about TLKM’s gradually narrowing
expects telcos to roll out networks and provide good and network gap vs. peers as this may hamper its market traction
reliable quality of service (QoS) at affordable prices. If the over the medium to longer term, though we note its peers
sector fails to achieve this, the community may call on the may still take some time to match its ex-Java 4G coverage.
regulator to intervene to correct a real/perceived market We have reflected this risk in our fundamental analysis by
failure, perhaps with the setting of more stringent QoS/ projecting gradual mobile service revenue market share
coverage targets (with fines imposed if key performance losses for TSEL (to its peers) in 2023F.
indicators are not met), imposition of tariff ceilings or the
suspension of licence/issuance of additional licences to
bring in new entrants to spur competition. Telcos that do not
consistently provide good and reliable QoS/coverage and
customer service may also, over the longer run, risk losing
subs and incur additional costs to manage high subs churn
rates. While TSEL has consistently been the telco with the
best 4G download speeds and video experience in
Indonesia, its peers have been sequentially catching up over
the past 2-3 years.
SOURCES: CGSI RESEARCH, REFINITIV
14
Insert Insert
Indonesia Telekomunikasi Indonesia

HOLD (previously ADD)
Lower net profit on higher opex, stable ARPU
Consensus ratings*: Buy 35 Hold 3 Sell 0
Current price: Rp3,430 ■ We think the introduction of Telkomsel’s Lite will enable TSEL to gain
Target price: Rp3,600 subscribers, at the expense of a more flattish ARPU growth trajectory.
Previous target: Rp4,700 ■ We raise our opex forecast post 4Q23 results and analyst call, leading us to
Up/downside: 5.0% cut TLKM’s FY24-25F core net profit by 7.7-13.4%.
CGSI / Consensus: -17.8%
■ We downgrade TLKM from Add to Hold with a lower TP of Rp3,600.
Reuters: TLKM.JK
Bloomberg: TLKM IJ
Taking into account the impact of Telkomsel Lite
Market cap: US$21,440m
Considering TSEL’s (TLKM’s subsidiary) strong network quality and brand perception, we
Rp339,783,392m
think the introduction of its Telkomsel Lite plan in late-Feb 24 would enable it to regain
Average daily turnover: US$25.74m
some market share. During its 4Q23 analyst call (see report), TSEL’s management
Rp404,491m
Current shares o/s: 99,060m
mentioned that the preliminary response to introduction of Telkomsel Lite from customers
Free float: 47.9% is positive, which we also confirmed during our channel checks. As a result, we raise our
*Source: Bloomberg estimate for total mobile subs in FY24-25F by 0.3-0.5%. However, we lower TSEL’s mobile
ARPU forecast to Rp47.1k (-0.7% yoy) in FY24F and Rp48.1k (+2.1% yoy) in FY25F, in
Key changes in this note line with TSEL’s management comment during the analyst call that it expects ARPU to be
FY24-25F blended ARPU cut by 4.1-5.0%. stable in FY24F. Overall, we lower TLKM’s revenues by 0.1-2.3% in FY24-25F.
FY24-25F number of mobile subs raised by
0.3-0.5%.
FY24-25F core net profit lowered by 7.7-
Other changes to our forecasts
13.4%. We raise our opex forecast by 5.6-6.9% in FY24-25F to take into account TLKM’s
management comment during the analyst call that it expects a normalised average of over
4% yoy growth in personnel and spectrum costs, with a decline in G&A cost only due to
Price Close Relative to JCI (RHS)
one-off transformation-related cost in 4Q23. Combined with new ARPU and mobile subs
4,300 99.2 forecasts, we lower TLKM’s FY24-25F core net profit by 7.7-13.4%.
3,800 84.6
Sensitivity to ARPU and number of subs
3,300
800
70.0 We calculate that among Indo telco operators in our coverage, TLKM would be the least
600
400
impacted by changes in ARPU and the number of subscribers given its more diversified
Vol m
200
business strategy. We estimate that every Rp0.5k/month change in ARPU would impact
Apr-23 Jul-23 Oct-23 Jan-24
TLKM's FY24F EBITDA and net profit by 1.0% and 1.8%, respectively. Meanwhile, every
Source: Bloomberg 100k change in mobile subscribers would impact FY24F EBITDA and net profit by 0.02%
Price performance 1M 3M 12M and 0.04%, respectively.
Absolute (%) -11.4 -11.8 -17.4
Relative (%) -11.9 -10.9 -24.3 Downgrade to Hold with a lower TP of Rp3,600
We downgrade TLKM from Add to Hold on the back of intensifying price competition and
Major shareholders % held
lower net profit growth. Our lower TP of Rp3,600 is still based on DCF with WACC of 11%
Govt of Indonesia 52.1
(beta: 1x, risk-free rate: 6.5%, terminal growth: 3%). TLKM’s share price has declined 12%
in the past month, which we believe indicates that investors have already priced in higher
Insert opex and stable ARPU growth. We do not expect a full-scale price war, hence we do not
think TLKM’s valuation will fall to -2 s.d. from 5-year mean (current: -1.3 s.d.). Downside
risks are an increase in price competition in mobile data, slower subscriber growth in
IndiHome and lower-than-expected subscriber growth. Upside risks are successful
monetisation of its data centre business and higher-than-expected dividend payment.
Financial Summary Dec-22A Dec-23A Dec-24F Dec-25F Dec-26F

Analyst(s) Revenue (Rpb) 147,306 149,216 156,574 160,162 162,855
Operating EBITDA (Rpb) 78,992 77,579 81,894 84,065 85,281
Operating EBITDA Margin 53.6% 52.0% 52.3% 52.5% 52.4%
Net Profit (Rpb) 20,753 24,560 26,330 26,960 26,860
Core EPS (Rp) 260.9 253.9 267.8 272.2 271.1
Core EPS Growth 10.1% (2.7%) 5.5% 1.6% (0.4%)
FD Core P/E (x) 13.15 13.51 12.81 12.60 12.65
DPS (Rp) 167.6 167.6 179.7 184.0 183.3
Dividend Yield 4.89% 4.89% 5.24% 5.36% 5.34%
Bob SETIADI EV/EBITDA (x) 4.93 5.13 4.75 4.56 4.44
T (62) 21 3006 1724 P/FCFE (x) 13.19 12.50 8.93 9.17 9.17
E bob.setiadi@cgsi.com Net Gearing 7.4% 10.9% 5.4% 2.5% 0.5%
Rut Yesika SIMAK ROE 20.6% 19.0% 18.9% 18.1% 17.1%
T (62) 21 515 1330 % Change In Core EPS Estimates (7.7%) (13.4%)
EPS/Consensus EPS (x) 0.98 0.95 0.89
E rut.simak@cgsi.com
15
Telco - Integrated │ Indonesia
Telekomunikasi Indonesia │ April 16, 2024
Lower net profit on higher opex, stable ARPU

We downgrade TLKM from Add to Hold on the back of intensifying price

competition and lower net profit growth. Our lower TP of Rp3,600 is based on DCF
with WACC of 11% (beta 1x, risk-free rate 6.5%, terminal growth 3%). On the back
of the introduction of Telkomsel’s Lite, we raise our total mobile subs forecast for
FY24-25F by 0.3-0.5%. However, we lower our mobile ARPU forecast for TSEL
to Rp47.1k (-0.7% yoy) in FY24F and Rp48.1k (+2.1% yoy) in FY25F, in line with
TSEL’s management comment during the 4Q23 analyst call that it expects ARPU
to be stable in FY24F. Overall, we lower TLKM revenues by 0.1-2.3% in FY24-
25F.
We raise our opex forecast by 5.6-6.9% in FY24-25F to take into account TLKM’s
management comment during the 4Q23 analyst call that it expects a normalised
average of over 4% yoy growth in personnel and spectrum costs, with lower G&A
cost only due to one-off business transformation-related cost such as integrating
IndiHome into its services in 4Q23. On the back of our higher opex forecasts, we
lower TLKM’s FY24-25F core net profit by 7.7-13.4%.
We believe TLKM is the least sensitive to changes in ARPU and number of

subscribers due to its leading position in both indicators compared to its peers,
EXCL and ISAT. We estimate that every Rp0.5k/month change in ARPU would
impact TLKM's 2024F EBITDA and net profit by 1.0% and 1.8%, respectively.
Meanwhile, every 100k change in mobile subscribers would impact FY24F
EBITDA and net profit by 0.02% and 0.04%, respectively.
Our FY24-25F revenue forecasts are 2-5% lower than Bloomberg consensus
because we believe that consensus has not fully accounted for the decline in
ARPU. Unlike the other two mobile network operators (MNOs), EXCL and ISAT,
which expect to raise prices in FY24, we maintain a positive outlook on TLKM due
to its lower sensitivity to changes in ARPU and its subscriber base.
TLKM is currently trading at 4.9x 12-month forward EV/EBITDA, or -1.2 s.d. below
its five-year average from 2019 to 2024. Over the past one month, TLKM’s share
price has declined 12%, which we believe indicates that investors have already
priced in higher opex and stable ARPU growth.
16
Figure 1: Forecast changes

FYE 31 Dec (Rp bn) New Old % change
FY24F FY25F FY24F FY25F FY24F FY25F
Total revenue 156,574 160,162 156,491 161,235 0.1 (0.7)
- Mobile 119,479 123,650 96,068 99,333 24.4 24.5
change yoy (%) 16.7 3.5 5.9 3.4
- Fixed 37,096 36,511 60,423 61,902 (38.6) (41.0)
change yoy (%) (20.8) (1.6) 2.2 2.4
Opex -74,680 -76,097 -70,744 -71,192 5.6 6.9
EBITDA 81,894 84,065 85,746 90,043 (4.5) (6.6)

change yoy (%) 5.6 2.7 7.5 5.0
margin (%) 52.3 52.5 54.8 55.8 (2.5) (3.4)
Depreciation -34,448 -35,427 -32,817 -33,176 5.0 6.8
Net interest expense -3,445 -3,540 -3,454 -3,387 (0.3) 4.5
Others -249 1 5 5 n.c (80.0)
Pretax profit 43,753 45,099 49,480 53,484 (11.6) (15.7)
Taxation -9,310 -9,560 -10,905 -11,662 (14.6) (18.0)
Minorities -8,113 -8,579 -9,826 -10,689 (17.4) (19.7)
Net profit 26,330 26,960 28,750 31,133 (8.4) (13.4)

change yoy (%) 7.2 2.4 12.5 8.3
Core net profit 26,527 26,960 28,750 31,133 (7.7) (13.4)
change yoy (%) 5.5 1.6 10.0 8.3
Key assumptions
Mobile subs ('000) 160,435 161,586 159,608 161,082 0.5 0.3
- postpaid 7,909 8,359 7,761 8,161 1.9 2.4
- prepaid 152,526 153,227 151,847 152,921 0.4 0.2
Total ARPU (Rp'000/mth) 47 48 49 51 (4.1) (5.0)

change yoy (%) (0.7) 2.1 5.3 3.0
Voice revenue (Rp bn) 5,078 3,835 7,861 6,743 (35.4) (43.1)
change yoy (%) (24.1) (24.5) (14.2) (14.2)
SMS revenue (Rp bn) 502 303 541 328 (7.2) (7.4)
change yoy (%) (34.3) (39.6) (34.4) (39.5)
Data revenue (Rp bn) 71,701 75,006 72,734 77,156 (1.4) (2.8)
change yoy (%) 8.8 4.6 9.9 6.1
Data traffic (TB) 20,070,240 21,423,869 19,764,099 21,613,978 1.5 (0.9)

change yoy (%) 12.1 6.7 11.0 9.4
Data yield (Rp/MB) 3.6 3.5 3.7 3.6 (2.9) (1.9)

change yoy (%) (3.0) (2.0) (1.0) (3.0)
Capex -30,209 -31,912 -31,713 -28,191 (4.7) 13.2

as % of revenue 19.3 19.9 20.3 17.5
17
Figure 2: TLKM’s DCF valuation

Assumptions
Risk Free Rate 6.5%
Mkt Risk Premium 7.0%
Equity Beta 1.0
Cost of Equity 13.5%
Cost of Debt 5.1%
Target Debt weight 30.0%
Target Equity weight 70.0%
Tax rate 22.0%
WACC 11.0%
Terminal growth 3.0%
Year-end 31 Dec (Rp bn) 2024F 2025F 2026F 2027F 2028F 2029F 2030F
Telkom (ex-TSEL & MTEL)
Operating profit adjusted (1-T) 6,666 5,978 5,228 4,287 3,908 3,620 3,334
Depreciation & Amortisation 8,398 8,267 8,117 8,057 8,047 13,939 14,933
Capex - 5,557 - 7,334 - 7,493 - 7,656 - 7,823 - 7,994 - 8,170
Change in Working Capital 2,548 578 923 761 563 107 - 14
Annual FCFF 12,054 7,488 6,775 5,449 4,695 9,672 10,083
Terminal value 126,496
Present value of cash flow 12,054 6,748 5,501 3,987 3,096 5,747 73,135
Total NPV (ex-TSEL & MTEL) 110,269
Net cash/(debt) at end-2024 (incl finance leases) 25,951
Value of Equity (ex-TSEL & MTEL) 136,219
Equity value of Telkomsel (70% stake) 172,275
Equity value of Mitratel (72% stake) 47,544
Total equity value of Telkom 356,038
No of shares (ex-Treasury shares) (bn) 99
Value of Equity per share (Rp) 3,600 Rounded to the nearest Rp50
Figure 3: Telkomsel’s DCF valuation

Year-end 31 Dec (Rp bn) 2024F 2025F 2026F 2027F 2028F 2029F 2030F
Operating profit adjusted (1-T) 24,832 26,048 26,432 27,097 28,031 29,872 31,962
Depreciation (ex-finance lease) 13,711 14,163 14,741 15,256 15,732 16,201 16,686
Capex - 18,519 - 19,166 - 19,682 - 20,258 - 20,895 - 21,744 - 22,668
Change in Working Capital - 1,380 - 518 - 785 - 632 - 495 - 135 - 44
Annual FCFF 18,644 20,527 20,706 21,462 22,373 24,193 25,936
Terminal value 325,378
Present value of cash flow 18,644 18,498 16,814 15,705 14,753 14,376 188,122
Total NPV 286,913
Net cash/(debt) at end-2024 (excl finance leases) - 40,806
Value of Equity (Rp bn) 246,107
Figure 4: TLKM’s EV/EBITDA band Figure 5: TLKM’s PER band
8.0 25
7.5
7.0 22
6.5
19
6.0
5.5
16
5.0
4.5
13
4.0
3.5
10
3.0 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
TLKM Mean +2 STD DEV TLKM Mean +2 Std Dev
+1 STD DEV -2 STD DEV -1 STD DEV +1 Std Dev -2 Std Dev -1 Std Dev
SOURCES: CGSI RESEARCH ESTIMATES, BLOOMBERG SOURCES: CGSI RESEARCH ESTIMATES, BLOOMBERG
18
Figure 6: Sensitivity to ARPU

% change (ARPU) -2,500 -2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500
Revenue -2.9% -2.3% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.3% 2.9%
EBITDA -5.2% -4.2% -3.1% -2.1% -1.0% 0.0% 1.0% 2.1% 3.1% 4.2% 5.2%
EBIT -8.8% -7.0% -5.3% -3.5% -1.8% 0.0% 1.8% 3.5% 5.3% 7.0% 8.8%
Net profit -8.9% -7.1% -5.4% -3.6% -1.8% 0.0% 1.8% 3.6% 5.4% 7.1% 8.9%
TP -7.9% -6.6% -5.3% -3.9% -2.6% 0.0% 1.3% 2.6% 3.9% 5.3% 6.6%
Figure 7: Sensitivity to number of mobile subscribers

% change (# mobile subs) -500 -400 -300 -200 -100 0 100 200 300 400 500
Revenue -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1%
EBITDA -0.1% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.1%
EBIT -0.2% -0.2% -0.1% -0.1% 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.2%
Net profit -0.2% -0.2% -0.1% -0.1% 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.2%
TP -2.6% -1.3% -1.3% -1.3% -1.3% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3%
19
Downside risks
Further price competition in mobile data
We believe the telco sector may see intensifying price competition due to the
rollout of advanced 4G and impending 5G networks. This competitive pressure is
likely to impact profit margins, as operators may engage in aggressive pricing
strategies to either bolster their subscriber base or maintain market share,
potentially leading to a decline in average revenue per user (ARPU).
Slower subscriber growth in IndiHome

We anticipate slower growth in IndiHome subscribers, potentially due to nearing
market saturation in densely populated urban centres or intensifying competition
from alternative broadband services. In addition, a shift in consumer preference
towards mobile data solutions over traditional fixed broadband could influence
growth trajectories.
Lower-than-expected subscriber growth

We believe the competitive landscape could pose challenges to achieving
anticipated subscriber growth going forward. We think the influx of digital
communication platforms and evolving consumer preferences could detract from
the growth of traditional telecom services, impacting the ability to secure new
subscribers or retain existing ones.
Upside risks
Successful monetisation of data centre business
Given the rapid pace of digitalisation within Indonesia, TLKM's investment in data
centre infrastructure positions it well to potentially harness a significant new
revenue channel, in our view. We think that the growing demand for cloud
computing, data storage, and related services could present an attractive
opportunity for monetisation, and aligns well with broader digital transformation
trends.
Higher-than-expected dividend payment

We believe that TLKM’s strategic focus on operational efficiency, prudent cost
control measures, and strategic asset monetisation could result in better-than-
expected financial performance. In our view, this could enhance its financial health
and provide the company with flexibility to increase dividend payments, which
would be appealing to investors seeking yield.
20
Refinitiv ESG Scores
B- A+ B- C B+ C-
ESG Score ESG Controversies ESG Combined ESG Environment ESG Social Pillar ESG Government
ESG in a nutshell Score Score Pillar Score Score Pillar Score
TLKM’s ESG Combined Score was B- by Refinitiv in 2023, categorised into Environmental (C), Social (B+) and
Governance (C-). The company’s overall score has shown a gradual improvement since 2020 (C+) due to the company’s
disclosures for the Environmental pillar. Its Environmental score saw improvements from 2020 (D+), which was previously
weighed down mainly by the lack of: i) disclosure on water/energy efficiency/renewable energy metrics and targets, ii) a
product line/service that is designed to have a positive effect on the environment, iii) reporting on take-back procedures
or recycling programmes, and iv) whether its sites/buildings were environmentally friendly. Nevertheless, there were no
major ESG controversies in 2023.

For the Governance pillar, TLKM fell short in terms of: i) CSR We have not factored TLKM’s ESG score into our forecasts
Strategy (C-) as it is not a UN Global Compact/Principles for and valuations at this juncture, as we believe its revenue and
Responsible Investment signatory; thus, TLKM started to earnings are more likely to be impacted by factors such as
integrate non-financial information into the management competition, M&As and regulatory developments.
discussion & analysis in its annual report in 2022, ii)
Shareholders (A-), which saw a major improvement since its
2021’s assessment (C+), and iii) Management (C-), given its
relatively poorer board independence/diversity and no long-
term/ESG performance-linked remuneration for
directors/executives. On Social, it was rated poorly for
Human Rights (C+) as it did not claim to: i) comply with the
fundamental human rights convention of the International
Labour Organisation or support the UN declaration of human
rights, and ii) disclose human rights criteria in the
selection/monitoring of suppliers.

In 2023, Refinitiv ranked TLKM first out of seven listed telco We have not applied a discount to TLKM’s valuation despite
related companies in Indonesia and ninth out of 24 ASEAN its subpar ranking by Refinitiv. Nonetheless, we think
telco-related companies, with an ESG Combined Score potential improvements in its ESG disclosures and
(53.4 out of 100) that is below the midpoint. performance in the medium- to longer-term could be an
upside risk and help spur more interest from ESG-focused
investors.
Trends Implications
In return for the licence to operate their networks, we believe We are concerned about TLKM’s gradually narrowing
Indonesians expect telcos to roll out their networks and network gap vs. peers, as this may hamper its market
provide good and reliable quality of service (QoS) at traction over the medium- to longer-term, though we note its
affordable prices. If telcos fail at this, there may be peers may still take some time to match its ex-Java 4G
community calls on the regulator to intervene to correct a coverage.
real/perceived market failures, perhaps with the setting of
more stringent QoS/coverage targets (with fines imposed if
key performance indicators are not met), imposition of tariff
ceilings or the suspension of license/issuance of additional
licences to bring in new entrants to spur competition. Telcos
that do not consistently provide good and reliable
QoS/coverage and customer service may also, over the
longer run, risk losing subs and incur additional costs to
manage high subs churn rates. While TSEL has consistently
been the telco with the best 4G download speeds and video
experience in Indonesia, its peers have been catching up in
the past 2-3 years, as per analytics company Opensignal’s
network test reports.
21
BY THE NUMBERS
P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS

3.90 21.50% 19.0 Growth 15.0%
3.70 20.94% 18.0 12.2%
3.50 20.38% 17.0 9.4%
3.30 19.81% 16.0 6.7%
15.0 3.9%
3.10 19.25%
14.0 1.1%
2.90 18.69% 13.0 -1.7%
2.70 18.13% 12.0 -4.4%
2.50 17.56% 11.0 -7.2%
2.30 17.00% 10.0 -10.0%
Jan-20A Jan-21A Jan-22A Jan-23A Jan-24F Jan-25F Jan-20A Jan-21A Jan-22A Jan-23A Jan-24F Jan-25F
Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)
Profit & Loss

(Rpb) Dec-22A Dec-23A Dec-24F Dec-25F Dec-26F
Total Net Revenues 147,306 149,216 156,574 160,162 162,855
Gross Profit 147,306 149,216 156,574 160,162 162,855
Operating EBITDA 78,992 77,579 81,894 84,065 85,281
Depreciation And Amortisation -31,761 -32,663 -34,448 -35,427 -36,508
Operating EBIT 47,231 44,916 47,447 48,638 48,773
Financial Income/(Expense) -3,129 -3,339 -3,445 -3,540 -3,593
Pretax Income/(Loss) from Assoc. -87 1 1 1 1
Non-Operating Income/(Expense) 256 -36 0 0 0
Profit Before Tax (pre-EI) 46,451 44,015 46,575 47,774 47,963
Exceptional Items -7,932 -748 -250 0 0
Pre-tax Profit 36,339 40,794 43,753 45,099 45,181
Taxation -8,659 -8,586 -9,310 -9,560 -9,534
Exceptional Income - post-tax
Profit After Tax 27,680 32,208 34,443 35,540 35,647
Minority Interests -6,927 -7,648 -8,113 -8,579 -8,787
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 20,753 24,560 26,330 26,960 26,860
Recurring Net Profit 25,841 25,150 26,527 26,960 26,860
Fully Diluted Recurring Net Profit 25,841 25,150 26,527 26,960 26,860
Cash Flow
EBITDA 78,992 77,579 81,894 84,065 85,281
Cash Flow from Invt. & Assoc.
Change In Working Capital 879 -4,684 1,167 59 138
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow 2,736 1,450 1,450 1,450 1,450
Net Interest (Paid)/Received -3,199 -3,699 -3,595 -3,690 -3,743
Tax Paid -6,054 -10,065 -9,310 -9,560 -9,534
Cashflow From Operations 73,354 60,581 71,607 72,325 73,592
Capex -35,138 -33,601 -30,209 -31,912 -32,793
Disposals Of FAs/subsidiaries 299 199 200 200 200
Acq. Of Subsidiaries/investments -3,259 -2,817 -2,845 -2,874 -2,902
Other Investing Cashflow -1,152 -690 -690 -690 -1,035
Cash Flow From Investing -39,250 -36,909 -33,544 -35,276 -36,531
Debt Raised/(repaid) -8,346 3,511 0 0 0
Proceeds From Issue Of Shares 45 2,961 2,961 2,961 2,961
Shares Repurchased
Dividends Paid -14,856 -16,603 -16,603 -17,799 -18,225
Preferred Dividends
Other Financing Cashflow -17,680 -16,436 -16,223 -17,653 -18,452
Cash Flow From Financing -40,837 -26,567 -29,865 -32,491 -33,716
Total Cash Generated -6,733 -2,895 8,199 4,558 3,346
Free Cashflow To Equity 25,758 27,183 38,063 37,049 37,062
Free Cashflow To Firm 37,303 27,371 41,658 40,739 40,805
22
BY THE NUMBERS… cont’d
Balance Sheet
Total Cash And Equivalents 33,296 30,668 38,867 43,424 46,771
Total Debtors 11,091 13,371 12,834 13,128 13,349
Inventories 1,144 997 1,116 1,137 1,159
Total Other Current Assets 9,526 10,577 10,835 11,119 11,431
Total Current Assets 55,057 55,613 63,652 68,809 72,710
Fixed Assets 193,665 203,339 206,672 210,832 214,899
Total Investments 8,653 8,162 8,817 9,472 10,472
Intangible Assets 8,302 8,731 9,004 9,203 9,324
Total Other Non-Current Assets 9,515 11,197 12,062 13,056 14,199
Total Non-current Assets 220,135 231,429 236,555 242,563 248,894
Short-term Debt 8,191 9,650 9,650 9,650 9,650
Current Portion of Long-Term Debt 8,858 10,276 10,276 10,276 10,276
Total Creditors 18,920 19,049 20,057 20,715 21,409
Other Current Liabilities 34,419 32,593 32,593 32,593 32,593
Total Current Liabilities 70,388 71,568 72,576 73,234 73,928
Total Long-term Debt 27,331 27,773 27,773 27,773 27,773
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 28,211 31,139 35,816 38,670 40,467
Total Non-current Liabilities 55,542 58,912 63,589 66,443 68,240
Total Provisions 0 0 0 0 0
Total Liabilities 125,930 130,480 136,165 139,677 142,168
Shareholders' Equity 129,258 135,744 144,275 153,010 161,712
Minority Interests 20,004 20,818 19,767 18,685 17,724
Total Equity 149,262 156,562 164,042 171,695 179,437
Key Ratios
Dec-22A Dec-23A Dec-24F Dec-25F Dec-26F
Revenue Growth 2.86% 1.30% 4.93% 2.29% 1.68%
Operating EBITDA Growth 4.41% (1.79%) 5.56% 2.65% 1.45%
Net Cash Per Share (Rp) (111.9) (171.9) (89.2) (43.2) (9.4)
BVPS (Rp) 1,305 1,370 1,456 1,545 1,632
Gross Interest Cover 12.25 10.19 10.80 10.76 10.50
Effective Tax Rate 23.8% 21.0% 21.3% 21.2% 21.1%
Net Dividend Payout Ratio 53.8% 59.8% 61.1% 61.5% 61.3%
Accounts Receivables Days 27.17 29.92 30.63 29.58 29.67
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 (%) 21.6% 19.8% 19.1% 19.3% 18.8%
ROCE (%) 25.7% 24.4% 24.5% 24.3% 23.6%
Return On Average Assets 14.5% 13.5% 13.6% 13.4% 13.0%
Key Drivers
Total mobile subscribers ('000) 156,813.0 159,340.0 160,435.0 161,585.9 162,323.8
Mobile postpaid subscribers ('000) 7,111.0 7,509.0 7,909.0 8,359.0 8,659.0
Mobile prepaid subscribers ('000) 149,702.0 151,831.0 152,526.0 153,226.9 153,664.8
Blended mobile ARPU (Rp'000/mth/sub) 44.2 47.5 47.1 48.1 49.4
IndiHome subscribers ('000) 9,212.0 10,049.0 10,849.0 11,699.0 12,599.0
IndiHome ARPU (Rp'000/mth/sub) 268.6 258.4 250.4 240.9 231.7
IndiHome subscribers ('000) N/A N/A N/A N/A N/A
IndiHome ARPU (Rp'000/mth/sub) N/A N/A N/A N/A N/A
23
DOWNGRADE C
Refinitiv ESG
Combined
Score
Company Note Telco - Mobile │ Indonesia │ April 16, 2024

Insert Insert
Indonesia Indosat
Lower mobile subs growth
Current price: Rp11,250 ■ Given ISAT’s ongoing commitment to mobile data repricing, we think the
Target price: Rp11,900 launch of Telkomsel Lite would negatively affect ISAT’s subscriber growth.
Previous target: Rp12,700 ■ After adjusting our forecasts, we now expect revenue to decline by 5% yoy in
Up/downside: 5.8% FY24F, which is slightly lower than management’s target.
■ We downgrade ISAT from Add to Hold with a lower TP of Rp11,900.
Reuters: ISAT.JK
Bloomberg: ISAT IJ
Considering the impact of Telkomsel Lite
Post 4Q23 analyst call and the launch of Telkomsel’s Lite in late-Feb 24, ISAT’s
Rp90,705,408m
management said it remains focused on its price recovery strategy. Our forecasts are
based on this assumption, and we still expect ISAT’s mobile ARPU to grow from Rp35.6k
Rp49,756m
in FY23 to Rp40.4k in FY24F and Rp42.1k in FY25F. Our FY24-25F ARPU for ISAT is
Free float: 16.4% c.0.5% lower than our previous forecasts. Nonetheless, we believe Telkomsel's Lite to
*Source: Bloomberg potentially increase ISAT's churn, despite efforts to reduce it over the last two years,
leading us to reduce ISAT's mobile subscriber forecast by 1.5-2.5% for FY24-25F.
Key changes in this note
FY24-25F blended ARPU lowered by 0.5%. Fine-tuning our forecasts for FY24-25F
FY24-25F number of mobile subs cut by 1.5- Following the changes in our assumptions for ARPU and number of mobile subs, we cut
2.5%.
ISAT’s FY24-25F revenues by 1.1-2.1%. We now forecast FY24F revenue to rise by 5.2%
FY24-26F core net profit cut by 4.3-8.5%.
yoy due to lower ARPU and number of mobile subs, which is below management’s target
of mid- to high-single digit growth. That said, we believe it is aiming for more stringent cost
Price Close Relative to JCI (RHS) control, thus we also cut FY24-25F opex by 1.0-2.4%. We forecast EBITDA margin of
12,000 166 49.3% in FY24F (vs. management’s guidance of c.50%). All-in, we cut FY24-26F core net
10,000 140 profit by 4.3-8.5%. Our FY24-25F core EPS is 2-6% lower than Bloomberg consensus
8,000 115 which we think indicates that market has slightly higher ARPU growth forecasts than us.
6,000 89
200
150
100
Sensitivity to ARPU and number of mobile subscribers
Vol m
50 Among major mobile network operators (MNOs), we believe that ISAT falls in the middle
Apr-23 Jul-23 Oct-23 Jan-24 in terms of sensitivity to changes in ARPU and number of subscribers. We estimate that
Source: Bloomberg every Rp0.5k per month change in ARPU would affect ISAT's FY24F EBITDA and net profit
by 1.8% and 7.6%, respectively. In addition, we believe a change of 100k in mobile
Price performance 1M 3M 12M
Absolute (%) -2.8 21.3 64.8 subscribers could impact FY24F EBITDA by 0.1% and FY24F net profit by 0.6%.
Relative (%) -3.3 22.2 57.9
Downgrade rating to Hold with a lower TP of Rp11,900
Major shareholders % held After adjusting our forecasts, we cut our DCF-based TP to Rp11,900 (WACC: 11.1%, TG:
Ooredoo Hutchison Asia 65.6
3%) and downgrade ISAT from Add to Hold due to lower-than-expected ARPU and mobile
PT Tiga Telekomunikasi Indonesia 8.3
subscribers. ISAT is trading at 5.2x 12M fwd EV/EBITDA (+1.9 s.d. of its five-year mean).
PT Perusahaan Pengelola Aset 9.6
We forecast a 15.7% net profit CAGR in FY23-26F which we believe should limit valuation
Insert
downside to +1 SD of 5 year mean (i.e. ~4.7x EV/EBITDA). Key downside risks: ISAT
turning more aggressive on its starter pack offerings to maintain its number of subs, higher-
than-expected opex growth and higher capex due to 5G spectrum bidding. Upside risks
are lower-than-expected leasing costs and successful expansion to the ex-Java market.

Net Profit (Rpb) 4,723 4,506 5,081 6,021 6,997
Core EPS (Rp) 165.2 441.7 630.2 746.8 867.8
Core EPS Growth 26% 167% 43% 19% 16%
FD Core P/E (x) 57.06 25.44 17.85 15.06 12.96
DPS (Rp) 248.1 248.1 279.5 315.1 373.4
Dividend Yield 2.20% 2.20% 2.48% 2.80% 3.32%
T (62) 21 3006 1724 P/FCFE (x) 4.40 12.50 6.61 6.73 5.59
T (62) 21 515 1330 % Change In Core EPS Estimates (4.28%) (5.67%) (8.45%)
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Telco - Mobile │ Indonesia
Indosat │ April 16, 2024
Lower mobile subs growth

Following the changes in our assumptions for ARPU and number of subs, we
lower ISAT’s FY24-25F revenues by 1.1-2.1%. After adjusting our forecasts, we
lower our TP to Rp11,900 (from Rp12,700) and downgrade ISAT from Add to Hold.
Our TP is based on a DCF method with 11.1% WACC and 3% terminal growth.
We forecast that ISAT still offers a 15.7% net profit CAGR in FY23-26F which
would limit its downside. In terms of valuation, ISAT is trading at 5.2x 12M fwd
EV/EBITDA (+1.9 s.d. of its five-year mean).
Post 4Q23 analyst call and launch of Telkomsel’s Lite in late-Feb 24, ISAT’s
management said it plans to remain focused on its price recovery strategy. Thus,
we still expect ISAT’s mobile ARPU to grow from Rp35.6k in 2023 to Rp40.4k in
2024F and Rp42.1k in 2025F.
Our FY24-25F ARPU for ISAT is c.0.5% lower than our previous forecasts.
Nonetheless, we think the introduction of Telkomsel’s Lite could lead to rotational
churn for ISAT which the company has actively tried to reduce in the past two
years. As a result, we lower ISAT’s total number of mobile subscribers by 1.5-
2.5% in FY24-25F.
We now forecast FY24F revenue to grow 5.2% yoy due to lower ARPU and
number of mobile subs, which is below management’s guidance of mid- to high-
single digit growth. That said, we believe it aims for more stringent cost control,
thus we also lower FY24-25F opex by 1.0-2.4%. We forecast ISAT to book
EBITDA margin of 49.3% in 2024F (vs. management’s guidance of c.50%). All-in,
we lower ISAT’s FY24-26F core net profit by 4.3-8.5%. We note that our FY24-
25F core EPS is 2-6% lower than Bloomberg consensus which we think indicates
that the market has slightly higher ARPU growth forecasts than us.
Furthermore, we believe ISAT falls in the middle among major mobile network
operators (MNOs) in terms of sensitivity to changes in ARPU and the number of
subscribers. We estimate that every Rp0.5k per month change in ARPU would
affect ISAT's 2024F EBITDA and net profit by 1.8% and 7.6%, respectively. In
addition, we expect a change of 100k in mobile subscribers could impact FY24F
EBITDA and net profit by 0.1% and 0.6%, respectively.
25

FYE 31 Dec (Rp bn) New Old % change
FY24F FY25F FY26F FY24F FY25F FY26F FY24F FY25F FY26F
Total revenue 53,899 55,981 58,152 54,471 57,175 60,038 (1.1) (2.1) (3.1)
- Cellular 46,038 47,705 49,497 46,610 48,900 51,382 (1.2) (2.4) (3.7)
change yoy (%) 5.2 3.6 3.8 6.5 4.9 5.1
- MIDI (Fixed Data) 7,017 7,547 8,013 7,017 7,547 8,013 0.0 0.0 0.0
change yoy (%) 8.4 7.6 6.2 8.4 7.6 6.2
- Fixed Telco 844 728 642 844 728 642 0.0 0.0 0.0
change yoy (%) (16.1) (13.7) (11.8) (16.1) (13.7) (11.8)
Opex -27,533 -28,376 -29,061 -27,822 -29,075 -30,024 (1.0) (2.4) (3.2)
EBITDA 26,367 27,605 29,091 26,650 28,100 30,013 (1.1) (1.8) (3.1)
change yoy (%) 10.1 4.7 5.4 11.3 5.4 6.8
margin (%) 48.9 49.3 50.0 48.9 49.1 50.0
Depreciation -15,235 -15,460 -15,811 -15,247 -15,508 -15,920 (0.1) (0.3) (0.7)
Net interest expense -4,350 -4,146 -4,022 -4,352 -4,156 -4,044 (0.0) (0.2) (0.5)
Others 20 20 20 20 20 20 0.0 0.0 0.0
Pretax profit 6,801 8,019 9,278 7,071 8,456 10,070 (3.8) (5.2) (7.9)
Taxation -1,428 -1,684 -1,948 -1,485 -1,776 -2,115 (3.8) (5.2) (7.9)
Net Profit 5,373 6,335 7,330 5,586 6,680 7,955 (3.8) (5.2) (7.9)
change yoy (%) 12.5 17.9 15.7 17.0 19.6 19.1
Core Net Profit 5,081 6,021 6,997 5,308 6,383 7,642 (4.3) (5.7) (8.4)
change yoy (%) 42.7 18.5 16.2 48.7 20.3 19.7
Net debt/EBITDA (x) 0.2 0.1 0.0 0.2 0.1 0.1
Key assumptions
Mobile subs ('000) 98,300 98,300 98,550 99,800 100,800 101,800 (1.5) (2.5) (3.2)
- postpaid 1,600 1,600 1,600 1,600 1,600 1,600 0.0 0.0 0.0
- prepaid 96,700 96,700 96,950 98,200 99,200 100,200 (1.5) (2.5) (3.2)
Blended ARPU (Rp '000/mth) 40.4 42.1 43.7 40.6 42.3 44.2 (0.5) (0.5) (1.0)
change yoy (%) 13.5 4.2 3.9 14.1 4.2 4.3
Voice revenue (Rp bn) 675 505 379 680 515 390 (0.8) (2.0) (2.8)
change yoy (%) (24.9) (25.2) (24.9) (24.3) (24.2) (24.3)
SMS revenue (Rp bn) 150 119 96 151 122 98 (0.8) (2.0) (2.8)
change yoy (%) (21.6) (20.2) (19.9) (21.0) (19.2) (19.2)
Data revenue (Rp bn) 43,955 45,930 47,978 44,562 47,199 49,986 (1.4) (2.7) (4.0)
change yoy (%) 6.7 4.5 4.5 8.1 5.9 5.9
Data traffic (PB) 15,692 16,905 18,111 15,669 16,935 18,301 0.1 (0.2) (1.0)
change yoy (%) (89.1) 7.7 7.1 (89.1) 8.1 8.1
Data yield (Rp/MB) 2.80 2.72 2.65 2.84 2.79 2.73 (1.5) (2.5) (3.0)
change yoy (%) (2.0) (3.0) (2.5) (0.5) (2.0) (2.0)
Capex -11,500 -11,615 -11,731 -11,700 -12,051 -12,413 (1.7) (3.6) (5.5)
as % of revenue 21.3 20.7 20.2 21.5 21.1 20.7
26
Figure 2: ISAT’s DCF valuation

Assumptions
Risk Free Rate 6.5%
Equity Beta 1.0
Cost of Debt 5.5%
Tax rate 22.0%
WACC 11.1%
Year-end 31 Dec (Rp bn) 2024F 2025F 2026F 2027F 2028F

Adjusted operating profit (1-T) 6,103 6,920 7,767 8,691 9,672
Depreciation (ex-finance lease) 9,388 9,647 9,889 10,116 10,330
Capex (11,500) (11,615) (11,731) (11,848) (11,967)
Change in Working Capital 437 (163) (137) (148) (158)
Annual FCFF 4,428 4,788 5,787 6,810 7,877
Terminal value
Present value of cash flow 4,428 4,311 4,690 4,968 5,173
Total NPV 101,876
Net cash/(debt) at end-2024F (5,842)
Value of Equity 96,034
No of shares (bn) 8
Value of Equity per share (Rp) 11,900 Note: rounded to the nearest Rp100
Figure 3: ISAT’s EV/EBITDA band Figure 4: ISAT’s PER band
6.0
50
5.5
40
5.0
4.5
30
4.0
20
3.5
3.0 10
2.5
0
2.0 Apr-21 Apr-22 Apr-23 Apr-24
Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24
ISAT Mean +2 STD DEV ISAT Mean +2 Std Dev

% change (ARPU) -2,500 -2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500
Revenue -5.1% -4.1% -3.1% -2.0% -1.0% 0.0% 1.0% 2.0% 3.1% 4.1% 5.1%
EBITDA -9.1% -7.3% -5.5% -3.6% -1.8% 0.0% 1.8% 3.6% 5.5% 7.3% 9.1%
EBIT -21.5% -17.2% -12.9% -8.6% -4.3% 0.0% 4.3% 8.6% 12.9% 17.2% 21.5%
Net profit -37.9% -30.3% -22.7% -15.1% -7.6% 0.0% 7.6% 15.1% 22.7% 30.3% 37.9%
TP -30.8% -24.7% -18.5% -12.3% -6.2% 0.0% 6.2% 12.3% 18.5% 24.7% 30.8%

Revenue -0.4% -0.3% -0.2% -0.2% -0.1% 0.0% 0.1% 0.2% 0.2% 0.3% 0.4%
EBITDA -0.7% -0.5% -0.4% -0.3% -0.1% 0.0% 0.1% 0.3% 0.4% 0.5% 0.7%
EBIT -1.6% -1.3% -1.0% -0.6% -0.3% 0.0% 0.3% 0.6% 1.0% 1.3% 1.6%
Net profit -2.8% -2.3% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.3% 2.8%
TP -22.2% -17.8% -13.3% -8.9% -4.4% 0.0% 4.4% 8.9% 13.3% 17.8% 22.2%
27
Downside risks
We think the highly competitive nature of the telco market, particularly for mobile
data services, could lead to ISAT implementing aggressive pricing strategies to
retain or expand its market share, which could put pressure on profit margins if
not managed prudently.
Higher-than-expected opex growth

ISAT may face higher opex to acquire new mobile subs, as the TSEL Lite is more
affordable than ISAT’s starter pack, in our view. Factors such as regulatory
changes, network maintenance costs, and enhancements to customer service
could contribute to higher-than-expected opex, impacting the company's overall
financial health.
Higher capex due to 5G spectrum bidding

In our view, the global shift towards 5G technology could lead to significant capex,
especially in terms of spectrum acquisition costs. High costs associated with 5G
spectrum bidding could strain ISAT's financial resources in the short term,
especially if the monetisation of 5G investments takes longer than expected.
Upside risks
Lower-than-expected leasing costs
We think that technological advancements or successful negotiations of
infrastructure providers could lead to lower-than-expected leasing costs for ISAT.
Reduced dependency on physical infrastructure or favourable leasing terms could
improve the company's profit margins and free up capital for strategic investments.
Expansion to the ex-Java market

Expanding its market presence outside of Java offers ISAT a considerable growth
opportunity. By targeting less saturated regions and tapping into underserved
markets, ISAT has the potential to significantly increase its customer base and
revenues, which could improve its market position.
28
C A+ C D B D
ISAT’s ESG Combined Score was C by Refinitiv in 2023, which is broken down into Environmental (D), Social (B) and
Governance (D). For Environmental, its score was weighed down by the lack of: i) disclosure on water/energy efficiency
metrics and targets, ii) a product line or service that is designed to have a positive effect on the environment, and iii)
reporting on take-back procedures and recycling programmes. Nevertheless, there were no major ESG controversies in
2023.

ISAT’s Social pillar improved slightly, human rights was We have not factored ISAT’s ESG scores into our forecasts
rated C- and community C+, as it did not claim to comply and valuations yet, as we think its revenue and earnings are
with the fundamental human rights convention of the more likely to be driven by issues such as competition,
International Labour Organisation or support the UN M&As and regulatory developments.
declaration of human rights, nor provide disclosure on its
criteria in the selection/monitoring of suppliers. On
Governance, it fell short in terms of shareholders (D+), as
the Indonesian government owns a stake while Ooredoo
owns a stake of over 50%, and CSR strategy (C-) for not
being a UN Global Compact/Principles for Responsible
Investment signatory and integrating non-financial
information into the management discussion and analysis in
its annual report.

In FY23, Refinitiv ranked ISAT fourth out of seven listed telco We have not applied a premium or discount to ISAT’s
companies in Indonesia and 16th out of 23 ASEAN telcos, valuation despite its poor ESG ranking by Refinitiv.
with an ESG combined score (41.3 out of 100) that is below However, potential improvements in its ESG disclosures and
the midpoint. performance in the medium- to longer-term could be an
upside risk and help it garner more interest from ESG-
focused investors.
Trends Implications
In return for the licence to operate their networks, we believe We view ISAT’s progressive network improvements
Indonesians expect telcos to roll out their networks and positively, as this has helped and may continue to help
provide good and reliable quality of service (QoS) at improve its market traction over the medium term. We have
affordable prices. If telcos fail at this, there may be reflected this in our fundamental analysis by forecasting
community calls on the regulator to intervene to correct a gradual mobile service revenue market share gains for ISAT
real/perceived market failure, perhaps with the setting of over FY23-25F.
ceilings or the suspension of licence/issuance of additional
manage high subs churn rates. Post the IOH merger, ISAT
was able to improve its 4G download speed and video
experience, especially for users of Tri’s network. Tri users
witnessed their average download/upload speeds increase
by c.31%.
29
BY THE NUMBERS

5.27 20.0% 250 Growth 1,740%
4.77 16.0%
4.27 12.0% 200 1,340%
3.77 8.0%
3.27 4.0% 150 940%
2.77 0.0%
2.27 -4.0% 100 540%
1.77 -8.0%
1.27 -12.0% 50 140%
0.77 -16.0%
0.27 -20.0% 0 -260%
Profit & Loss

Gross Profit 46,752 51,229 53,899 55,981 58,152
Operating EBIT 6,052 9,317 11,131 12,145 13,280
Pretax Income/(Loss) from Assoc. 28 -72 20 20 20
Non-Operating Income/(Expense) 167 -104 0 0 0
Exceptional Items 4,394 1,343 0 0 0
Pre-tax Profit 6,536 5,932 6,801 8,019 9,278
Taxation -1,166 -1,156 -1,428 -1,684 -1,948
Profit After Tax 5,370 4,776 5,373 6,335 7,330
Minority Interests -647 -269 -292 -314 -333
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 4,723 4,506 5,081 6,021 6,997
Cash Flow
EBITDA 19,755 23,938 26,367 27,605 29,091
Change In Working Capital -750 -1,139 437 -163 -137
Other Operating Cashflow 5,170 6,057 6,057 6,057 6,057
Tax Paid 215 -807 -1,428 -1,684 -1,948
Capex -10,350 -11,760 -11,500 -11,615 -11,731
Acq. Of Subsidiaries/investments 6,279 0 0 0 0
Other Investing Cashflow 138 2,144 0 0 0
Debt Raised/(repaid) 521 -6,520 -2,011 -2,730 -1,246
Proceeds From Issue Of Shares 0 0 0 0 0
Shares Repurchased
Dividends Paid -2,041 -2,396 -2,587 -2,875 -3,345
Preferred Dividends
Cash Flow From Financing -6,155 -11,111 -9,861 -10,836 -9,920
Total Cash Generated 10,544 2,656 5,880 5,376 7,548
Free Cashflow To Equity 17,220 7,247 13,730 13,482 16,222
30
Balance Sheet
Total Cash And Equivalents 9,516 5,207 5,048 4,420 5,854
Total Debtors 2,374 3,139 2,853 2,964 3,079
Inventories 73 226 137 141 145
Fixed Assets 69,070 72,861 74,973 76,941 78,783
Total Investments 0 0 0 0 0
Total Other Non-Current Assets 6,244 5,878 5,981 6,112 6,239
Short-term Debt 4,056 970 970 970 970
Current Portion of Long-Term Debt 213 1,011 1,730 246 1,924
Total Creditors 850 746 752 775 794
Minority Interests 3,272 2,963 3,255 3,569 3,902
Total Equity 31,615 33,709 36,829 40,623 44,943
Key Ratios
Revenue Growth 48.9% 9.6% 5.2% 3.9% 3.9%
Operating EBITDA Growth 43.2% 21.2% 10.1% 4.7% 5.4%
Net Cash Per Share (Rp) -1,459 -954 -725 -464 -132
BVPS (Rp) 3,531 3,819 4,170 4,602 5,096
Net Dividend Payout Ratio 606% 63% 44% 42% 43%
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 (%) 11.7% 10.0% 11.2% 12.0% 12.8%
ROCE (%) 15.7% 19.1% 23.8% 25.3% 26.5%
Key Drivers
31
DOWNGRADE B-
Refinitiv ESG
Combined
Score
Company Note Telco - Mobile │ Indonesia │ April 16, 2024

Insert Insert
Indonesia XL Axiata
Most sensitive to ARPU changes
Current price: Rp2,300 ■ EXCL’s management said that it is still focusing on improving profitability as it
Target price: Rp2,450 expects pricing competition to remain healthy.
Previous target: Rp3,500 ■ We believe EXCL’s net profit is more sensitive to changes in ARPU and mobile
Up/downside: 6.5% subs assumptions due to its leverage position.
■ We cut EXCL’s FY24-25F net profit by 18-24%, resulting in a lower TP of
Reuters: EXCL.JK Rp2,450. We also downgrade EXCL from Add to Hold.
Bloomberg: EXCL IJ
Management’s guidance from its 4Q23 analyst call
Rp30,195,390m
EXCL guided for 1) high single-digit revenue growth, 2) c.50% EBITDA margin, and 3)
c.Rp8tr capex in FY24F. During its 4Q23 analyst call on 13 Feb 2024, management said it
Rp54,421m
expects pricing competition to remain healthy; ARPU should drive revenue growth in 2024.
Free float: 38.8%
It stays focused on achieving profitable ARPU growth by preventing rotational churn as
*Source: Bloomberg well as increasing convergence and synergy between mobile and fixed broadband. EXCL
expects to complete the acquisition of Link Net’s (LINK.JK, NR, CP: Rp1,055) residential
Key changes in this note customers (see our report) in 1H24, funded by a combination of internal cash and debt.
FY24-25F blended ARPU lowered by 3.5-
3.7%. Changes to our forecasts
FY24-25F number of mobile subs lowered by We expect slower mobile subs growth and ARPU growth for EXCL due to the introduction
2.6-3.9%.
FY24-25F core net profit lowered by 18-24%. of Telkomsel’s Lite plan in late-Feb 24. Hence, we cut EXCL’s FY24-25F mobile subs by
2.6-3.9% and blended ARPU by 3.5-3.7%. But we still expect EXCL’s blended ARPU to
rise to Rp43.9k/month in 2024F (4Q23: Rp43k/month), mostly due to 1) two price increases
Price Close Relative to JCI (RHS)
in 2H23, and 2) assuming that EXCL will not cut prices too aggressively on the back of the
2,600 141.0 launch of Telkomsel Lite. We cut EXCL’s FY24-25F revenues by 1.9-3.4% and net profit
2,100 116.0
by 18-24%. We have yet to factor in the impact of Link’s retail customer acquisitions.
1,600
200
91.0 Sensitivity to ARPU and mobile subs
150
100
We calculate that every Rp0.5k/month change in ARPU would impact EXCL’s FY24F
Vol m
50 EBITDA and net profit by 1.8% and 15.4%. Meanwhile, every 100k change in mobile subs
Apr-23 Jul-23 Oct-23 Jan-24 would impact FY24F EBITDA and net profit by 0.1% and 1.2%. This makes EXCL the most
Source: Bloomberg sensitive to changes in ARPU and mobile subs among Indo telco players in our coverage.
Based on the current ARPU landscape, we assume that EXCL would be able to lower its
Price performance 1M 3M 12M
Absolute (%) -9.5 9.5 15.9 total debt (ex-lease liabilities) by Rp1.6tr-2.3tr p.a. in FY24-26F.
Relative (%) -10 10.4 9
Downgrade to Hold with a lower TP of Rp2,450
Major shareholders % held After adjusting our forecasts, we cut our DCF-based TP to Rp2,450 (WACC: 11.3%, TG:
Axiata Group 61.2
3%) and downgrade EXCL from Add to Hold due to its high sensitivity to ARPU changes
compared to other telcos under our coverage. We believe EXCL is fairly valued at 4.4x
12M fwd EV/EBITDA (+0.1 s.d. of its five-year mean) and its healthy net profit growth of
Insert
15-29% in FY24-25F should provide valuation buffer. Key downside risks: higher capex
and opex from 5G spectrum auction, slower-than-expected data traffic, and further price
competition in mobile data. Upside risks: better-than-expected valuation of LINK’s deal and
lower-than-expected leasing costs.

Net Profit (Rpb) 1,109 1,271 1,566 2,015 2,892
Core EPS (Rp) 104.0 85.3 119.3 153.5 220.3
Core EPS Growth 8.9% (18.0%) 39.8% 28.7% 43.6%
FD Core P/E (x) 24.60 27.08 19.28 14.99 10.44
DPS (Rp) 42.0 51.2 71.6 92.1 132.2
Dividend Yield 1.83% 2.23% 3.11% 4.00% 5.75%
T (62) 21 3006 1724 P/FCFE (x) 16.34 37.89 5.35 5.20 4.40
T (62) 21 515 1330 % Change In Core EPS Estimates (17.8%) (24.2%)
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the
THE UNITED STATES IT IS DISTRIBUTED BY CGS INTERNATIONAL SECURITIES USA, INC AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
XL Axiata │ April 16, 2024
Most sensitive to ARPU changes

We lower our TP to Rp2,450 (from Rp3,500) and downgrade EXCL from Add to
Hold. Our TP is based on DCF with an unchanged 11.3% WACC and 3% terminal
growth. We believe that EXCL is fairly valued at 4.4x 12M fwd EV/EBITDA (+0.1
s.d. of its five-year mean) and the company still offers healthy net profit growth of
15-29% in FY24-25F.
On the back of the introduction of Telkomsel’s Lite in late-Feb 24, we expect EXCL
to see slower-than-expected mobile subs and ARPU growth. As a result, we lower
EXCL’s FY24-25F mobile subs by 2.6-3.9% and blended ARPU by 3.5-3.7%.
However, we still assume EXCL’s blended ARPU will grow to Rp43.9k/month in
2024F (4Q23: Rp43k/month), mostly due to the two price increases in 2H23 and
by assuming that EXCL will not cut prices too aggressively due to the launch of
Telkomsel Lite. Overall, we lower EXCL’s FY24-25F revenues by 1.9-3.4% and
net profit by 18-24%. We have yet to factor in the impact of Link’s retail customer
acquisitions.
In addition, we estimate that EXCL is the most sensitive (compared to other mobile
network operators (MNOs) in our coverage) to changes in ARPU and the number
of mobile subscribers. Our calculations show that every Rp0.5k/month change in
ARPU would affect EXCL's FY24F EBITDA and net profit by 1.8% and 15.4%
respectively. Moreover, we estimate that every 100k change in mobile subscribers
would impact FY24F EBITDA and net profit by 0.1% and 1.2%, respectively.
Based on the current ARPU landscape, we expect EXCL could reduce its total
debt (ex-lease liabilities) by Rp1.6tr-2.3tr p.a. in 2024-26F.
Our FY24-25F revenue forecasts are 4-6% below Bloomberg consensus, as we

believe consensus has not fully factored in the decline in ARPU. However, we
have not yet factored in the potential impact of upcoming mergers and acquisitions
(M&A) on EXCL in our current calculations, should these M&A activities start to
materialise.
33

New Old % Change
FYE 31 Dec (Rp bn)
FY24F FY25F FY24F FY25F FY24F FY25F
Gross revenues 32,940 34,148 33,576 35,365 (1.9) (3.4)
change yoy (%) 1.9 3.7 6.7 5.3
- Service revenue (ex-IC) 31,223 32,351 32,045 33,837 (2.6) (4.4)
change yoy (%) 2.7 3.6 7.2 5.6
- Interconnection & roaming 1,473 1,517 1,044 992 41.1 52.9
change yoy (%) 3.0 3.0 (10.0) (5.0)
- Other telco services 243 280 487 536 (50.0) (47.7)
change yoy (%) 15.0 15.0 15.0 10.0
Opex (16,570) (16,708) (16,851) (17,446) (1.7) (4.2)
EBITDA 16,370 17,440 16,726 17,919 (2.1) (2.7)

change yoy (%) 4.1 6.5 9.9 7.1
margin (%) 49.7 51.1 49.8 50.7
Depreciation & amortisation (11,565) (12,173) (11,486) (11,742) 0.7 3.7
Net interest expense (2,588) (2,539) (2,717) (2,754) (4.8) (7.8)
Associates (150) (100) (50) - 200.0 n.c.
Exceptional items (incl. forex) 0 0 0 0 n.c n.c
Taxation (488) (600) (555) (753) (12.1) (20.3)
Net profit 1,566 2,015 1,906 2,658 (17.8) (24.2)

change yoy (%) 23.0 28.4 55.5 39.2
Core net profit 1,566 2,015 1,906 2,658 (17.8) (24.2)
change yoy (%) 40.4 28.7 56.0 39.5
EPS (Rp) 119 153 145 202 (17.8) (24.2)
change yoy (%) 22.7 28.7 56.0 39.5
Core EPS (Rp) 119 153 145 202 (17.8) (24.2)
change yoy (%) 39.8 28.7 56.0 39.5
Net debt/EBITDA (x) 0.42 0.30 0.53 0.44
Key assumptions
Mobile subs ('000) 57,600 57,700 59,150 60,025 (2.6) (3.9)
- postpaid 1,650 1,700 1,550 1,575 6.5 7.9
- prepaid 55,950 56,000 57,600 58,450 (2.9) (4.2)
Blended ARPU (Rp'000) 43.9 45.6 45.5 47.3 (3.5) (3.7)

change yoy (%) 3.0 3.8 5.7 4.0
Voice revenue (Rp bn) 642 483 655 499 (2.0) (3.3)
change yoy (%) (24.9) (24.9) (23.9) (23.9)
SMS revenue (Rp bn) 11 5 9 4 22.5 20.9

change yoy (%) (60.0) (59.9) (59.4) (59.4)
Data revenue (Rp bn) 30,319 31,537 31,148 33,030 (2.7) (4.5)
change yoy (%) 3.1 4.0 7.8 6.0
Data traffic (PB) 10,687 11,460 10,681 11,440 0.1 0.2

change yoy (%) 10.9 7.2 11.1 7.1
Data yield (Rp/Mb) 2.8 2.8 2.9 2.9 (2.7) (4.7)

change yoy (%) (7.0) (3.0) (3.0) (1.0)
Capex (Rp bn) (10,000) (10,150) (9,000) (7,500) 11.1 35.3

as % of revenue 30.4 29.7 26.8 21.2
34
Figure 2: EXCL’s DCF valuation

Assumptions
Risk Free Rate 6.5%
Equity Beta 1.1
Cost of Debt 30.0%
Tax rate 22.0%
WACC 11.3%
FYE 31 Dec (Rp bn) 2024F 2025F 2026F 2027F 2028F 2029F 2030F
Adjusted operating profit 2,910 3,316 3,338 5,354 6,539 7,822 9,207
Depreciation 6,873 7,387 7,678 7,952 8,209 8,450 8,677
Taxes (488) (600) (834) (1,096) (1,386) (1,702) (2,044)
Capex (10,000) (10,150) (10,302) (10,405) (10,509) (10,614) (10,721)
Change in Working Capital 1,196 6 22 28 33 38 44
Annual FCFF 492 (42) (98) 1,834 2,886 3,994 5,163
Terminal value
Present value of cash flow 492 (38) (79) 1,329 1,878 2,335 32,534
Value of firm (EV) 38,451

Net cash/(debt) at end-2024 -6,856
19% stake in Link Net 578
Value of Equity 32,173
No of shares (m) 13,128
Value per share (Rp) 2,450 Note: rounded to the nearest Rp50
Figure 3: EXCL’s EV/EBITDA band Figure 4: EXCL’s PER band
6.0 60
5.5 50
5.0 40
4.5 30
20
4.0
10
3.5
-
3.0 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24
Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24
EXCL Mean +2 STD DEV EXCL Mean +2 Std Dev

35

% change (ARPU) -2,500 -2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500
Revenue -5.2% -4.2% -3.1% -2.1% -1.0% 0.0% 1.0% 2.1% 3.1% 4.2% 5.2%
EBITDA -9.4% -7.5% -5.6% -3.8% -1.9% 0.0% 1.9% 3.8% 5.6% 7.5% 9.4%
EBIT -32.0% -25.6% -19.2% -12.8% -6.4% 0.0% 6.4% 12.8% 19.2% 25.6% 32.0%
Net profit -76.9% -61.5% -46.1% -30.8% -15.4% 0.0% 15.4% 30.8% 46.1% 61.5% 76.9%
TP -56.1% -44.9% -33.6% -22.4% -11.2% 0.0% 11.2% 22.4% 33.6% 44.9% 56.1%

Revenue -0.4% -0.3% -0.2% -0.2% -0.1% 0.0% 0.1% 0.2% 0.2% 0.3% 0.4%
EBITDA -0.7% -0.6% -0.4% -0.3% -0.1% 0.0% 0.1% 0.3% 0.4% 0.6% 0.7%
EBIT -2.4% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.4%
Net profit -5.9% -4.7% -3.5% -2.4% -1.2% 0.0% 1.2% 2.4% 3.5% 4.7% 5.9%
TP -40.9% -32.8% -24.6% -16.4% -8.2% 0.0% 8.2% 16.4% 24.6% 32.8% 40.9%
Downside risks
Higher capex and opex from 5G spectrum auction
We think that similar to other telco players, EXCL may need to invest in 5G
technology to secure 5G spectrum and upgrade infrastructure. This strategic
move, while essential for staying competitive in the era of 5G technology, could
result in increased capex and opex, which could impact the company's short-term
financial flexibility.
Slower-than-expected data traffic

EXCL could see a slower-than-expected increase in data traffic. This could stem
from various factors, including market saturation, changes in consumer behaviour,
weak purchasing power, or the emergence of new technologies that affect data
consumption patterns.

We think the telco sector is already highly competitive, and further price
competition in mobile data could erode margins. This could be intensified by new
entrants or by existing players seeking to capture larger market share through
aggressive pricing strategies.
Upside risks
Successful monetisation of its data centre business
With the rising demand for cloud services and data storage, we think EXCL’s
strategic investments in its data centre operations could unlock new revenue
streams and contribute to profitability going forward.
Higher-than-expected dividend payment and lower-than-expected leasing

costs
Improved operational efficiency or successful business initiatives could enhance
EXCL’s financial performance, potentially allowing for higher dividend payments
to shareholders, in our view. In addition, lower-than-expected leasing costs due
to favourable market conditions or negotiations could be positive for the
company's financial performance
36
B- A+ B- C+ C+ A-
XL’s ESG combined score by Refinitiv was B- in 2023, which is broken down into Environmental (C+), Social (C+) and
Governance (A-). For Environmental, it has seen an improvement since 2021’s score (C), as the company has started to
disclose its waste/water/carbon emissions/energy efficiency metrics and targets. Details on its environmental investments
are also starting to be disclosed which have seen a major improvement in 2022, with Rp150m allocation (2021: Rp18.2m).
Nonetheless, there were no major ESG controversies in 2017-19.

For the Social pillar, XL was rated decent by Refinitiv for We have not yet factored XL’s ESG score into our forecasts
workforce (C+) which was continuously downgraded since and valuations, as we think its revenue and earnings are
2019 (A-) because XL did not provide some metrics in the more likely to be driven by issues such as competition,
Social pillar, such as total lost days and occupational M&As, and regulatory developments.
diseases. However, the company has maintained its
Governance score (A-), given its good board
independence/diversity, as well as performance-oriented
remuneration for executives/directors.

In 2023, Refinitiv ranked XL second out of seven listed telco- We have not applied a premium to XL’s valuation despite its
related companies in Indonesia and tenth out of 24 ASEAN decent ESG ranking by Refinitiv. However, its decent
telco-related companies, with an ESG combined score (53.2 rankings and potential further improvements in its ESG
out of 100), which is above the midpoint. disclosures/performance in the medium- to longer-term
could be upside risks, and help it garner more interest from
ESG-focused investors.
Trends Implications
In return for the licence to operate their networks, we believe We view XL’s progressive network improvements positively,
Indonesians expect telcos to roll out their networks and as this has helped market traction previously and may
provide good and reliable quality of service (QoS) at continue to help improve its market traction over the medium
affordable prices. If telcos fail at this, there may be term.
community calls on the regulator to intervene to correct a
real/perceived market failure, perhaps with the setting of
ceilings, or the suspension of licence/issuance of additional
manage high sub churn rates. EXCL has consistently been
the second-ranked telco in 2023 and has been improving its
network performance in terms of 4G download speed since
end-2018, while closing the gap with incumbent Telkomsel,
based on Opensignal’s Feb-May 2023 test. In terms of 4G
video experience, Indosat and Hutch have caught up to XL
in recent quarters, resulting in largely similar performances
among the Big 4.
37
BY THE NUMBERS

1.90 7.50% 49.0 Growth 1,460%
1.70 6.75% 44.0 1,231%
39.0 1,003%
1.50 6.00%
34.0 774%
1.30 5.25%
29.0 546%
1.10 4.50%
24.0 317%
0.90 3.75% 19.0 89%
0.70 3.00% 14.0 -140%
Profit & Loss

Gross Profit 29,142 32,323 32,925 34,133 35,770
Operating EBIT 3,658 4,380 4,805 5,267 6,289
Pretax Income/(Loss) from Assoc. 4 -191 -150 -100 -50
Non-Operating Income/(Expense) -61 13 0 0 0
Exceptional Items 0 0 0 0 0
Pre-tax Profit 1,353 1,705 2,067 2,628 3,739
Taxation -232 -420 -488 -600 -834
Profit After Tax 1,121 1,284 1,579 2,028 2,905
Minority Interests -12 -13 -13 -13 -13
Preferred Dividends 0 0 0 0 0
FX Gain/(Loss) - post tax 0 0 0 0 0
Other Adjustments - post-tax 0 0 0 0 0
Net Profit 1,109 1,271 1,566 2,015 2,892
Cash Flow
EBITDA 14,235 15,728 16,370 17,440 18,849
Change In Working Capital 293 -2,925 1,196 6 22
Other Operating Cashflow -196 3,540 3,540 3,540 3,540
Tax Paid -228 -247 -488 -600 -834
Capex -8,831 -10,425 -10,000 -10,150 -10,302
Acq. Of Subsidiaries/investments -2,971 0 0 0 0
Other Investing Cashflow 202 37 0 0 0
Debt Raised/(repaid) 1,847 -1,982 -2,000 -1,500 -1,500
Proceeds From Issue Of Shares 5,000 0 0 0 0
Shares Repurchased
Dividends Paid -544 -549 -669 -940 -1,209
Preferred Dividends
Cash Flow From Financing 2,686 -6,995 -7,361 -7,226 -7,591
Total Cash Generated 2,518 -4,216 283 79 778
Free Cashflow To Equity 1,679 797 5,644 5,805 6,869
38
Balance Sheet
Total Cash And Equivalents 5,184 966 1,249 1,328 2,106
Total Debtors 852 1,435 1,165 1,207 1,265
Inventories 408 378 414 417 423
Fixed Assets 60,474 63,890 67,018 69,781 72,405
Total Investments 2,750 2,534 2,534 2,534 2,534
Total Other Non-Current Assets 742 721 821 921 1,021
Short-term Debt 5,622 854 854 854 854
Current Portion of Long-Term Debt
Total Creditors 11,337 9,383 10,335 10,421 10,563
Minority Interests 131 144 144 144 144
Total Equity 25,774 26,505 27,402 28,477 30,160
Key Ratios
Revenue Growth 9.0% 10.8% 1.9% 3.7% 4.8%
Operating EBITDA Growth 8.0% 10.5% 4.1% 6.5% 8.1%
Net Cash Per Share (Rp) (527.5) (696.1) (522.2) (402.0) (228.4)
BVPS (Rp) 1,953 2,008 2,076 2,158 2,286
Net Dividend Payout Ratio 40.6% 52.6% 60.0% 60.0% 60.0%
Inventory Days 3,323 9,886 9,802 9,898 9,549
Accounts Payables Days 129,329 260,586 244,096 247,171 238,452
ROIC (%) 5.41% 5.60% 5.55% 5.92% 6.80%
ROCE (%) 12.3% 12.9% 14.4% 16.0% 19.0%
Key Drivers
39
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43
Distribution of stock ratings and inv estment banking clients for quarter ended on 31 March 2024
634 companies under cov erage for quarter ended on 31 March 2024
Rating Distribution (%) Inv estment Banking clients (%)
Add 65.5% 1.3%
Hold 24.1% 0.2%
Reduce 10.4% 0.3%
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.
#03c
44

ID Telco Compendium 160424

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DOWNGRADE

Sector Note Telecommunications │ Indonesia │ April 16, 2024

Figure 1: Indonesia’s telco sector comparison (data as at 15 Apr 2024)

Target Market Last 2024F

Figure 2: Telco sector comparisons

Indonesian telco providers

Malaysian telco companies

Singaporean telco providers

Thai telco companies

Indonesian tower companies

Asian tower companies

Other region tower companies

Figure 3: Key takeaways from FY23 analyst meeting

SOURCES: CGSI RESEARCH, COMPANY REPORTS

Most severe price

Figure 6: Average yearly ARPU

Telkomsel Indosat XL Axiata

SOURCES: CGSI RESEARCH, COMPANY REPORTS

Figure 7: Quarterly ARPU, 1Q19-4Q23 Figure 8: Quarterly ARPU gap, 1Q19-4Q23

TSEL EXCL ISAT Industry TSEL-EXCL TSEL-ISAT

TSEL ISAT EXCL TSEL ISAT EXCL

Compared with Bloomberg consensus forecasts, our industry ARPU forecasts in

Figure 11: ARPU forecast by company

TSEL ISAT EXCL

SOURCES: CGSI RESEARCH ESTIMATES

50.0 49.2 52.0

47.5 46.8 50.0

New Old Our forecast Consensus forecast

What is Telkomsel Lite?

Figure 16: Quarterly mobile data revenue market share

18% 18% 18% 19%

TSEL ISAT EXCL

SOURCES: CGSI RESEARCH, COMPANY REPORTS

400 140% 16,000

126% 127% 10,000

340 125% 8,000

Total mobile subscribers % to total population (RHS) TSEL ISAT EXCL

Affordable mobile data but lack of loyalty among

Malaysia 9.6 0.93% 20%

Thailand 6.1 0.94%

However, we think there is minimal network quality difference in Java’s major

According to nPerf, a service that tests Internet connection speeds, Telkomsel

45.0 20.0 120%

(GB per subscriber)

35.0 2.0 20%

Valuation and recommendation

Figure 26: Historical EV/EBITDA during price wars

SOURCES: CGSI RESEARCH, BLOOMBERG SOURCES: CGSI RESEARCH, BLOOMBERG

SOURCES: CGSI RESEARCH, BLOOMBERG SOURCES: CGSI RESEARCH, BLOOMBERG

Domestic institutional ownership remains in the telco sector

From the perspective of domestic ownership, domestic institutions have continued

14.0 100% 0.6 200% 1.8 180%

0.0 -100% 0.0 -80%

Key upside and downside risks

 TSEL strictly limiting TSEL Lite offerings. By carefully controlling the

 Adverse macroeconomic conditions. Should there be a downturn in the

 Higher-than-expected capex for new spectrum auctions. As the Ministry

Keep your eye on Implications

ESG highlights Implications

Indonesia Telekomunikasi Indonesia

Financial Summary Dec-22A Dec-23A Dec-24F Dec-25F Dec-26F

Lower net profit on higher opex, stable ARPU

We downgrade TLKM from Add to Hold on the back of intensifying price