Telecommunications in Indonesia: Telkom, Indosat & XL Axiata

Together, these three companies control an 85 percent market share in Indonesia’s mobile phone market. Although the country has a population that numbers 250 million, about 308.2 million mobile phones are in use in Indonesia, implying that some people use two or more mobile phones.

However, smartphone and Internet penetration are still low. At the end of 2013, only 28 percent of the Indonesian population had Internet access, while smartphone penetration stood at 23 percent in the urban areas of Indonesia. Therefore, Indonesian telecommunication providers have increasingly shifted their focus to data services, for example the development of 4G long term evolution.

Meanwhile, the Indonesian government is also eager to develop the country’s broadband network in an effort to enhance Indonesia’s infrastructure. The government created the ‘Indonesia Broadband Plan’ (Rencana Pita Lebar Indonesia) through which it aims to provide broadband Internet to 30 percent of the total Indonesian population by 2019. Other targets set in this plan include raising the ratio of Indonesian households connected to broadband (20 Mbps) to 71 percent by 2019, and fixed broadband (1 Gbps) penetration in buildings to 100 percent. Meanwhile, mobile broadband penetration is targeted to be raised to 100 percent as well.

As the government is eager to enhance Internet connectivity throughout the country, Indonesia’s telecommunication providers will benefit from these efforts.

Telekomunikasi Indonesia (Telkom)

Indonesia’s largest telecommunications network and services provider Telekomunikasi Indonesia (Telkom) recorded 8.1 percent (y/y) growth in revenue to IDR 89.7 trillion (USD $7.0 billion) over 2014. However, net profit only grew 3.1 percent (y/y) to IDR 14.6 trillion (USD $1.1 billion) over the same period.

The company’s net profit growth was supported by an increase in number of broadband services subscribers from 27.8 million in 2013 to 40.5 million in 2014 (+45.3 percent year-on-year). Particularly mobile broadband services experienced good growth. The number of Telkomsel Flash (an Internet package) subscribers grew from 17.3 million in 2013 to 31.2 million in 2014. Meanwhile, the number of fixed broadband (Telkom Speedy) subscribers grew 12.8 percent (y/y) to 3.4 million. As expected, the number of Blackberry package users fell from 7.6 million in 2013 to 5.8 million in 2014.

That Telkom is Indonesia’s largest telecommunications provider is also apparent from data traffic. Over 2014, the company’s data traffic expanded 143 percent to 235 petabytes, primarily caused by the rise in number of smartphone users.

At 38.2 percent, the mobile phone business segment (particularly prepaid) still accounts for the largest share of Telkom’s revenues. Telkom offers KartuHalo, Simpati (both are prepaid) and Kartu As (postpaid) to mobile subscribers. Although this market has saturated to a considerable degree, the number of mobile phone subscribers still grew 6.9 percent (y/y) to 140.6 million people.

Compared to its rivals, Telkom (which is for 51 percent owned by the Indonesian government) has a competitive edge as it is not affected by limited cash reserves (the company has no US dollar-denominated debt and is therefore not hurt by sharp rupiah depreciation). Telkom is also known for having a good reputation and brand in Indonesia, and has a better developed network across Indonesia (therefore it is expected to benefit most from the government’s 4G long term evolution program). At the end of 2014, Telkom owned a total of 85,420 base transceiver stations (BTS). About 45 percent of these are 3G BTS. However, the company already owns 200 BTS 4G.

Stock Quote Telekomunikasi Indonesia - TLKM:

The graph below shows a steep decline as Telkom conducted a stock split with a ratio of 1:5 in August 2013. This measure was taken to increase the company’s share liquidity.

Telkom's Financial Highlights:

	2009	2010	2011	2012	2013	2014
Total Revenues	68,220	68,629	71,253	77,143	82,967	89,696
Operating Profit	24,081	22,937	21,958	25,698	27,846	29,377
Net Profit	11,399	11,537	10,965	12,850	14,205	14,663
Total Assets	97,931	100,501	103,054	111,369	127,951	140,895
Total Liabilities	48,436	44,086	42,073	44,391	50,527	54,770

^{in billion IDR rupiah, except stated otherwise
Source: Telekomunikasi Indonesia}

Future Projection Financial Performance Telkom Indonesia:

	2012	2013	2014	2015F	2016F
Total Revenues	77.1	83.0	89.7	96.4	106.1
Net Profit	12.9	14.2	14.7	17.2	19.5
EBITDA	40.2	43.6		49.3	54.1
P/E Ratio (x)	17.4	15.7		13.0	11.4

^{in trillion IDR rupiah, except stated otherwise
Source: Investor Daily}

Indosat

The financial results of Indosat are mixed. Although the company - known for its Mentari brand - still recorded a net loss over 2014, this net loss improved significantly from the preceding year. In 2014 Indosat’s net loss was IDR 2.0 billion (USD $156,250), better than the IDR 2.8 billion net loss in 2013. Meanwhile, the company’s revenues only increased 1 percent (y/y) to IDR 24.1 trillion (USD $1.9 billion).

The company was hurt by the legal case of its subsidiary Indosat Mega Media (IM2), an Internet service provider. Indonesia’s Supreme Court found both IM2 and former President Director Indar Atmanto guilty of misusing a 2.1 gigahertz frequency band. In late March 2015, Atmanto filed a judicial review over the Supreme Court’s ruling.

Indosat’s financial performance was also negatively impacted by rupiah depreciation (against the US dollar). The company has a US dollar-denominated debt of USD $650 million (bonds that are due in 2020). Given that it is highly likely that the rupiah is to depreciate further in 2015 ahead of looming higher US interest rates, the financial performance of Indosat will need to absorb this factor.

However, the company expects that it will post net profit in 2015. This optimistic view is based on the completion of a network upgrade (which contributed to net loss in the past two years), debt refinancing, hedging and hope that the IM2 legal case will finish soon.

The company has focused on development of its network. As of 31 December 2014, Indosat operated 40,229 BTS, including 22,166 2G and 18,063 3G BTS.

Stock Quote Indosat - ISAT:

Indosat's Financial Highlights:

	2009	2010	2011	2012	2013	2014
Operating Revenues	18.82	19.74	20.53	22.42	23.86	24.09
Operating Income	3.18	3.41	3.16	3.19	1.51	0.67
Net Income (loss)	1.50	0.66	0.97	0.38	(2.78)	(1.99)
EBITDA	8.75	9.64	9.66	10.54	10.38	10.06
Total Assets	55.04	53.32	53.23	55.23	54.52	53.25
Total Liabilities	36.75	35.07	34.26	35.83	38.00	39.06

^{in trillion IDR rupiah
Source: Indosat}

Future Projection Indosat's Financial Highlights:

	2012	2013	2014	2015F	2016F
Operating Revenues	22,419	23,855	24,085	25,094	26,283
EBITDA	10,574	10,376	10,059	10,604	11,039
Net Income (loss)	375,1	(2,782)	(1,987)	128	662
P/E Ratio (x)	34.5	0		11.8	60.9

^{in billion IDR (rupiah), unless stated otherwise
Source: RHB OSK Securities}

XL Axiata

Over 2014, XL Axiata posted a 10.3 percentage point growth (y/y) in revenues to IDR 23.5 trillion (USD $1.8 billion). However, it posted net loss of IDR 891.1 billion (USD $69.6 million) over the same period. XL Axiata was also victim of rupiah depreciation hence increasing costs for the company. The net loss was also caused by the acquisition of Axis Telekom Indonesia for USD $865 million in 2014.

XL Axiata also posted a 4 percent decline (y/y) to 58.9 million subscribers over 2014. On a positive note, however, the company’s EBITDA margin improved to 38.9 percent in the fourth quarter of 2014 from 34.3 percent in the previous quarter primarily due to cost control management.

Stock Quote XL Axiata - EXCL:

XL Axiata's Financial Highlights:

	2009	2010	2011	2012	2013	2014
Gross Revenue	13,880	17,236	18,468	21,278	21,350	23,460
Net Profit (loss)	1,709	2,891	2,830	2,744	1,056	(891)
Total Assets	27,380	27,251	31,171	35,456	40,278	63,706
Total Liabilities	18,577	15,536	17,478	20,086	24,978	49,745

^{in billion IDR rupiah
Source: XL Axiata}

Future Projection XL Axiata's Financial Highlights:

	2012	2013	2014	2015F	2016F
Gross Revenue	21,278	21,350	23,460	25,526	27,732
EBITDA	9,745	8,659	8,623	9,373	10,213
Net Profit (loss)	2,744	1,056	(891.0)	1,208	1,776
P/E Ratio (x)	14.2	38	(44.1)	32.5	22.1

^{in billion IDR rupiah, except stated otherwise
Source: Danareksa Sekuritas}

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