Valuation December 2016: Telkom Indonesia (TLKM.JK)

Internet penetration in Indonesia is still low (20.4%) compared to other emerging countries, such as Malaysia (68.6%), Vietnam (52%), and Thailand (42.7%). This situation provides the opportunities for high growth of internet revenue by telephone providers in the next few years. Indonesia is expected to have double digit growth for the next 5-8 years due to conversion of traditional telephone to smartphone by majority of the population. In this valuation, I’m highlighting the valuation of Telkom Indonesia (TLKM.JK), the biggest telco provider in Indonesia.

Screen Shot 2016-12-17 at 4.35.00 PM.pngSource: Internetlivestats.com

Telkom revenue is expected to grow moderately, especially in the data and internet revenue. The revenue growth is supported by the higher smartphone penetration and higher data consumption by the youngster and the middle class.

Screen Shot 2016-12-17 at 4.45.23 PM.png

Download the excel file containing the full valuation: tlkm-3q16

screen-shot-2016-12-17-at-4-00-19-pmscreen-shot-2016-12-17-at-4-00-36-pm

I use Free Cash Flow to Firm (FCFF) method for the valuation and derived at the fair value of Rp 6520/share. On Friday, December 18th 2016, TLKM closed at Rp 3820/share, giving an upside potential of 71%. To check whether the fair value is justified, I compare it to the historical sector PE, PS, and PBV ratio from reuters. The PE, PS, PBV ratio gives justified price of Rp 4650/share, Rp 5075/share, and Rp 5525//share respectively. To sum the results from various valuation method (both DCF and multiplier method), I averaged the fair value, resulting in fair value of Rp 5690/share. Therefore, I recommend BUY for TLKM with TP Rp 5690/share.

screen-shot-2016-12-17-at-5-29-51-pmscreen-shot-2016-12-17-at-5-30-02-pm

Published by Journeyman

A global macro analyst with over four years experience in the financial market, the author began his career as an equity analyst before transitioning to macro research focusing on Emerging Markets at a well-known independent research firm. He read voraciously, spending most of his free time following The Economist magazine and reading topics on finance and self-improvement. When off duty, he works part-time for Getty Images, taking pictures from all over the globe. To date, he has over 1200 pictures over 35 countries being sold through the company.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: