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