Indonesian Telecommunications Overweight (Unchanged)
Total Page：16
File Type：pdf, Size：1020Kb
2015 Alpha 2015 Asiamoney's 2014 Institutional Asiamoney’s Southeast Asia Global 2013 Finance Asia's Investors 2013 2014 Best Banking & Finance Best Domestic Best Highest Ranked Best Domestic Research Call Review Sector flash Equity House Equity House Local Research Equity House FMCG Sector Best Research House House 15 February 2016 Indonesian Telecommunications Overweight (Unchanged) Leonardo Henry Gavaza, CFA E-mail: [email protected] Phone: +6221 250 5081 Ext. 3608 Pulsating Exhibit 1. Rating & target price summary Code Share price +/- 3M TO Higher smartphone penetration to boost data demand Rating (IDRb/ CP TP (%) USDm) Smartphone usage in Indonesia has been accelerating, boosting data demand. TLKM 3,285 3,750 14.2 BUY 277.3/20.5 We expect this trend to continue and reach the 50% level in 2017 (9M15: EXCL 3,930 4,400 11.9 BUY 18.8/1.4 35.5%; 9M14: 25.0%), backed by the increased availability of cheap 3G ISAT 5,375 6,800 26.5 BUY 1.9/0.1 models, as several leading brands such as Samsung and Nokia continue to ERAA 550 850 54.5 BUY 2.0/0.2 pursue the lower-end 3G-smartphone segment. In our view, this is the only TELE 630 1,180 87.3 BUY 3.0/0.2 TOWR 4,135 5,000 20.9 BUY 0.7/0.1 way to improve the 3G penetration rate, as most Indonesians (around 65%) TBIG 6,100 6,500 6.6 HOLD 11.6/0.9 purchase handsets priced at less than IDR1mn (USD75), while sales at above Source: Bloomberg, Bahana estimates IDR2mn (USD150) per unit represent less than 20% of volume, based on 2015 (Based on closing prices on 12 Feb 2016) data (exhibit 5). Thus, the availability of lower smartphone prices would have a Exhibit 2. Comparative valuations, 2016F Mkt EV/ EPS Code P/E ROAE positive impact on data demand, supporting the sector‟s migration from the cap EBITDA growth legacy business (voice calls and SMS) to the digital era (data-related). In (USDm) (X) (X) (%) (%) 9M15, data usage rose 107% y-y, although both voice and SMS usage fell. TLKM 24.5 18.6 8.3 12.6 22.6 EXCL 2.5 76.2 5.8 na 3.1 Rational competition should allow for higher pricing ISAT 2.2 21.9 3.4 na 10.0 With no serious outside competitors for the three incumbents, we expect Operators 22.9 10.5 34.2 20.0 competition to remain rational, allowing for continued pricing improvements. ERAA 0.1 6.3 5.6 19.8 7.9 TELE 0.3 9.6 7.7 21.0 15.4 As the penetration rate is already at 125%, we expect revenue growth to come Retailers 8.5 9.2 20.6 13.5 from higher ARPU, backed by deeper smartphone penetration. As of 9M15, in TOWR 3.3 26.5 11.5 61.3 25.0 line with higher smartphone penetration, incumbent ARPU reached IDR37k TBIG 2.2 22.7 15.1 22.0 37.3 (USD2.6)/month, +12% y-y. However, this was still far below the ASEAN Towers 24.9 13.0 45.2 30.0 Source: Bloomberg, Bahana estimates (excluding Singapore) ARPU of USD5.9/month. Thus, we expect pricing (Based on closing prices on 12 Feb 2016) improvements to support the sector‟s EBITDA. Exhibit 3. Telecom sector relative to JCI (%) (%) Supportive policy to benefit sector earnings sustainability 30 25 26.1 The sector‟s sustainability should also be supported by several government 25 23.0 20 regulations. The Ministry of Information and Telecommunication (TMIT) has 20 14.6 15 15 stated that Indonesia should have a maximum of four mobile operators by 11.6 10 10 2019, with smaller players merged or exiting the industry. Furthermore, 5 0.7 5 following the rearrangement of the 1,800MHz frequency, TMIT plans to re- 0 (2.0) (5) 0 tender the 2,100MHz and 2,300MHz frequencies in 2016. With new regulations ytd 1M 3M 6M 9M 12M Telco sector relative to JCI on SIM registration, we expect migration amongst mobile operators to be Source: Bloomberg limited, causing the continuation of the current rational operating environment. Exhibit 4. Relative performance to JCI, ytd OVERWEIGHT with TLKM as top pick, followed by ISAT and TELE (%) (%) 10 10 5.0 Our sector OVERWEIGHT is based on expected data and earnings growth, 3.2 1.2 1.0 spurred by consolidation. We expect higher sector revenue supported by 0 0 (1.7) strong data segment growth coupled with improved pricing power. While we (4.9) (10) (10) have BUY ratings on all three telco operators, we favor TLKM, which is trading (15.6) at a 2016F EV/EBITDA of 8.3x, at par with regional peers – our 12M DCF- (20) (20) (20.8) based TP of IDR3,750 reflects 14% upside potential. Our second pick is ISAT (30) (30) EXCL TLKM TBIG SECTOR ERAA ISAT TOWR TELE on an earnings recovery, backed by network monetization and an improved Source: Bloomberg balance sheet as well as one of the cheapest regional valuations at a 2016F EV/EBITDA of 3.4x – our IDR6,800 TP translates into a 35% peer discount. On telecom derivatives, our top pick is TELE, trading at a 2016F PE of 9.6x, with an IDR1,180 TP (87% upside potential), supported by higher market share and solid Telkomsel growth. Sector risks: Intensifying competition and the ministry‟s decision on interconnection policy. Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor in making their investment decision. Please see the important disclaimer information on the back of this report 2015 Alpha 2015 Asiamoney's 2014 Institutional Southeast Asia Global 2013 Finance Asia's Investors 2014 Best Banking & Finance Best Domestic Best Highest Ranked Research Call Review 15 February 2016 Equity House Equity House Local Research FMCG Sector House Best Research House PT Bahana Securities – Equity Research – Indonesian Telecommunications 2 2015 Alpha 2015 Asiamoney's 2014 Institutional Southeast Asia Global 2013 Finance Asia's Investors 2014 Best Banking & Finance Best Domestic Best Highest Ranked Research Call Review 15 February 2016 Equity House Equity House Local Research FMCG Sector House Best Research House TABLE OF CONTENTS . INVESTMENT THESIS ……………………………………………………………………………………………………………………………………5 ………………… . REGULATORY ENVIRONMENT ……………………………………………………………………………………………………………………………………………………19 . COMPETITION RISKS ……………………………………………………………………………………………………………26 . PORTER FIVE FORCES ………………………………………………………………………………………………………………30 . VALUATION ……………………………………………………………………………………………………………………………32 . RECOMMENDATION …………………………………………………………………………………………………………… 34 . COMPANIES, P&L, BALANCE SHEET, RATIO…………………………………………………………………………………………………………36 PT Bahana Securities – Equity Research – Indonesian Telecommunications 3 2015 Alpha 2015 Asiamoney's 2014 Institutional Southeast Asia Global 2013 Finance Asia's Investors 2014 Best Banking & Finance Best Domestic Best Highest Ranked Research Call Review 15 February 2016 Equity House Equity House Local Research FMCG Sector House Best Research House PT Bahana Securities – Equity Research – Indonesian Telecommunications 4 2015 Alpha 2015 Asiamoney's 2014 Institutional Southeast Asia Global 2013 Finance Asia's Investors 2014 Best Banking & Finance Best Domestic Best Highest Ranked Research Call Review 15 February 2016 Equity House Equity House Local Research FMCG Sector House Best Research House INVESTMENT THESIS Higher smartphone penetration to boost data demand The Indonesian telco sector is experiencing an increased proportion of smartphone The availability of cheap subscribers, as several leading brands such as Samsung and Nokia continue to penetrate smartphone continues the cheap smartphone segment. We believe that this is the only way to improve the to increase the smartphone penetration rate, as most Indonesians (around 65%) buy handsets costing smartphone proportion below IDR1mn (USD75), with fewer than 20% purchasing handsets above IDR2mn ... (USD150) (exhibit 5). Currently, the cheap handset market is dominated by Samsung, Nokia, Evercoss/Cross, Advan, Mito, Lenovo and other Chinese-based handsets. Exhibit 5. Handset sales by price, 2015 ... as most Indonesians buy handsets priced at lower than IDR1mn >IDR2mn (USD75) per unit (19.5%) IDR0-1mn (65.0%) IDR1-2mn (15.5%) Source: GFK Currently, 5 out of the 10 most popular handsets are already using the 3G network. We expect the Samsung clearly dominates with four 3G handsets, followed by Asus with one 3G handset smartphone proportion (exhibit 6). With a rising proportion of 3G handsets in monthly sales, we expect the to continue to rise as ... smartphone proportion to continue to increase. Exhibit 6. 10 most popular handsets, 2015 No Type Network Price 1 Nokia 105 2G IDR242k ... 5 of the 10 most popular handsets are Samsung Galaxy V 4GB G313H 3G IDR1.1mn 2 already using the 3G 3 Samsung Galaxy Grand Prime Duos G530H 3G IDR2.3mn network 4 Samsung Galaxy J 1 j100h 3G IDR1.5mn 5 Samsung E1272 2G IDR336k Samsung Galaxy Young 2 G130 6 3G IDR734k 7 Samsung E1205 2G IDR231k 8 Asus Zenfonce C 1GB/18GB ZC451CG 3G IDR1.2mn 9 Nokia 220 Dual SIM 2G IDR519k 10 Nokia 108 Dual SIM 2G IDR427k Source: GFK PT Bahana Securities – Equity Research – Indonesian Telecommunications 5 2015 Alpha 2015 Asiamoney's 2014 Institutional Southeast Asia Global 2013 Finance Asia's Investors 2014 Best Banking & Finance Best Domestic Best Highest Ranked Research Call Review 15 February 2016 Equity House Equity House Local Research FMCG Sector House Best Research House In this report, we use 3Q15 data from the three incumbents, because so far only EXCL has We use 3Q15 data to announced 4Q15 results. TLKM is due to release results on 4 March and ISAT on 24 March. analyze the sector’s performanceThe number In the past 2 years, the number of smartphone users in Indonesia has increased by 136% of smartphone users in The number of (exhibit 7), currently representing 35.5% of total subscribers.