Tiphone Mobile Indonesia
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27 May 2015 Asia Pacific/Indonesia Equity Research Distributors Tiphone Mobile Indonesia (TELE.JK) Rating OUTPERFORM* Price (25 May 15, Rp) 970.00 INITIATION Target price (Rp) 1,250.00¹ Upside/downside (%) 28.9 Mkt cap (Rp bn) 6,905.86 (US$0.52 bn) Pre-paid growth Enterprise value (Rp bn) 8,709 Number of shares (mn) 7,119.45 ■ Focus will remain on the voucher business. We initiate coverage on Tiphone Free float (%) 22.1 Mobile Indonesia (TELE) with an OUTPERFORM rating and Rp1,250 target 52-week price range 1,040.0-775.0 ADTO - 6M (US$ mn) 0.33 price, implying 29% potential upside. TELE is the largest prepaid mobile phone *Stock ratings are relative to the coverage universe in each voucher distributor in Indonesia. Vouchers contribute 60% to its revenue, with analyst's or each team's respective sector. ¹Target price is for 12 months. mobile phone distribution being its complementary business. Given the more resilient nature of the voucher business, going forward the company aims at Research Analyst increasing the contribution from vouchers to 80% of revenue. Priscilla Tjitra 62 21 2553 7906 ■ Exciting potential synergies with Telkom. TELE primarily distributes [email protected] Telkomsel's SIM pack and prepaid cards. Since Sep-14, PT Telkom (parent company of Telkomsel) has been a shareholder of TELE, owning a 25% stake in the company. Following the acquisition, we believe Telkomsel will assign more distribution clusters to TELE. We also expect other favourable synergies for TELE, such as higher mobile phone sales from Telkomsel bundling. ■ It is a market share gain story. We expect TELE's revenue to witness a 25% CAGR over 2014-17, largely coming from a gradual increase in Telkomsel's distribution market share. We assume its market share would increase from 12% in 2014 to 30% in the next three years. The market share gain will boost its net profit too. ■ End-2016 target price of Rp1,250. Our target price of Rp1,250 is derived based on DCF, implying 19x FY16E P/E, which is at a 12% discount to the weighted-average of Indonesian consumer and telco names, and a 38% discount based on PEG. Key risks to our call include (1) delay of TELE's Telkomsel market share gain, (2) high churn rates of Indonesian mobile subscribers, (3) reliance on third-party principals, (4) rising salaries, (5) intense competition, (6) industry regulation, and (7) macro environment. Share price performance Financial and valuation metrics Year 12/14A 12/15E 12/16E 12/17E Price (LHS) Rebased Rel (RHS) Revenue (Rp bn) 14,589.7 19,332.7 23,581.8 28,437.2 1200 160 1000 EBITDA (Rp bn) 547.5 745.4 885.0 1,056.1 800 110 EBIT (Rp bn) 532.5 718.3 855.1 1,024.3 600 400 60 Net profit (Rp bn) 304.5 390.0 477.0 600.7 EPS (CS adj.) (Rp) 43.28 53.96 66.00 83.11 Change from previous EPS (%) n.a. Consensus EPS (Rp) n.a. 52.0 61.5 72.0 The price relative chart measures performance against the JSX EPS growth (%) -19.7 24.7 22.3 25.9 COMPOSITE INDEX which closed at 5288.36 on 25/05/15 P/E (x) 22.4 18.0 14.7 11.7 On 25/05/15 the spot exchange rate was Rp13183./US$1 Dividend yield (%) 0 1.0 1.4 1.7 EV/EBITDA (x) 14.6 11.7 9.7 8.1 Performance over 1M 3M 12M P/B (x) 2.7 2.5 2.2 1.9 Absolute (%) 0.5 -0.5 16.9 ROE (%) 15.7 14.7 15.9 17.5 Relative (%) 3.2 1.9 10.5 Net debt/equity (%) 44.6 64.0 53.9 44.3 Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 27 May 2015 Focus charts and table Figure 1: Voucher distribution is TELE's main focus and Figure 2: TELE distributes Telkomsel prepaid vouchers mobile phone is a complementary business Telkom owns a 25% stake in TELE 30,000 25,000 PT Telkom Indonesia (TLKM) 20,000 75% 15,000 71% Rp bn Rp PT Telekomunikasi PT PINS Indonesia 66% Selular (Telkomsel) (PINS) Other subsidiaries 10,000 60% 65.00% 100% 77% 5,000 90% 95% 93% TELE distributes PT Tiphone Mobile Indonesia (TELE) - Telkomsel vouchers 2010 2011 2012 2013 2014 2015E 2016E 2017E 24.94% Mobile phone Voucher Others Source: Company data, Credit Suisse estimates Source: Company data Figure 3: Potentially Telkomsel will award more cluster Figure 4: We assume TELE's market share would gradually distribution to TELE from its non-performing dealers rise from 12% last year to 30% in the next three years 40% assuming TELE gets awarded more cluster 35% Tiphone Mobile TELE acquired by Telkomsel... 30% 12% Simpatindo in Jan-15 30% 28% CV Akar Daya Telkom became TELE's shareholder 24% 10% 25% in Sep-14 20% Simpatindo Other players 20% 53% 8% 15% Koperasi 11% 12% 12% Telkomsel 9% 10% 10% Potential to 6% shift to TELE Selular Shop Global 6% distribution Telkomselin share market TELE's 5% Teleshop 5% 0% 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Figure 5: Market share gain should boost its net profit Figure 6: We have an end-2016 TP of Rp1,250 on TELE 700 50% 45% Weighted Target Value/share 44% Discount 600 average multiple (Rp) 25% CAGR 40% 14-17E 500 35% 33% 34% 30% P/E 15% 16.7 14.2 937 400 28% 26%25% PEG 15% 0.9 0.8 1,340 Rp bn Rp 300 22% 20% DCF 1,250 200 15% 10% 100 5% 3% - 0% 2010 2011 2012 2013 2014 2015E 2016E 2017E Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates Tiphone Mobile Indonesia (TELE.JK) 2 27 May 2015 Pre-paid growth We initiate coverage on Tiphone Mobile Indonesia (TELE) with an OUTPERFORM rating Initiating coverage on TELE and a Rp1,250 TP, implying 19x FY16E P/E and 29% potential upside. On a PEG basis, with an OUTPERFORM the stock is trading at a 40% discount to the weighted-average of Indonesian consumer rating and a Rp1,250 target staples, discretionary and telco names. price Voucher business as its main focus TELE is Indonesia’s largest prepaid mobile phone voucher distributor. The company primarily distributes Telkomsel's SIM packs and prepaid cards. Prepaid mobile voucher is the main focus of TELE's business (60% of revenue), and mobile phone distribution is a TELE is the largest prepaid complementary business. Due to the more stable growth and margins from the voucher mobile phone voucher business, TELE plans to focus on increasing the contribution of its voucher business to distributor in Indonesia 80% of revenue in the coming years. Following Telkom's 25% stake acquisition in TELE in Sep-14, we see favourable synergies emerging for both the companies. We believe TELE will be assigned more distribution clusters from Telkomsel. It is a market share gain story… We estimate that TELE's revenues will witness a 25% CAGR over 2014-17 on the back of Following it joining force Telkomsel voucher distribution market share increase. We assume a gradual increase in with Telkom, we expect TELE's market share from 12% in 2014 to 30% in the next three years, as Telkomsel shifts TELE's market share in the distribution from its non-performing dealers to TELE. We also expect stable gross Telkomsel's voucher margins from voucher distribution, and a slight improvement in margins for the handset distribution to increase and business compared to 2014, which was dragged down by Samsung's oversupply be its growth driver problems. We expect its total debt to remain stable (at Rp2.3 tn); thus we assume stable interest costs. TELE's core earnings should post a 25% CAGR over 2014-17. Initiating with OUTPERFORM rating and Rp1,250 TP We evaluate three valuation methodologies—DCF, P/E, and PEG—to value TELE. Our DCF- derived target price of Rp1,250 falls in the middle of the range between our P/E- and PEG- Our target price of Rp1,250 based fair values. Using P/E, which does not consider the future growth from the company's is derived based on DCF expansion, we arrive at a value of Rp937/share, while based on PEG, we get Rp1,340/share. methodology We assume a 10% WACC, applying an 8% risk-free rate, 0.8 beta and a 5.0% risk premium. We assume a 12% cost of debt, and 5% terminal value growth, on our DCF. Investment risks We assume TELE would gain market share in the next few years, with Telkomsel likely shifting its distribution business from non-performing dealers to TELE—we see a risk to The key risk to our view is a our forecasts, if this is delayed or cancelled. Other risks associated with TELE's business: delay in Telkomsel's market (1) changes in mobile phone technologies, (2) high churn rates of Indonesian mobile share gain compared to our phone subscribers, (3) reliance on third-party principals for products, (4) rise in wages and forecast salaries, (5) new players entering the market and intense competition, (6) unfavourable industry regulation, and (7) Indonesia's macroeconomic environment.