telecom sector indonesia 19112018 sf - dbs bank market is overly concerned over excl further...

ed: KK/ sa: MA, CW, CS

Data-pricing may have bottomed out

XL Axiata’s data-pricing reached a sustainable discount of 32% to Telkomsel’s pricing in 3Q18 vs 34% in 2017

Mobile sector likely to record 7-8% revenue growth vs 2-3% decline in 2018

Top pick is XL Axiata (EXCL) on potential revenue share gains and cheap valuation

Industry data-pricing may have bottomed out. EXCL disappointed the market in 3Q18 by lowering the data-pricing further despite Telkomsel and Indosat raising the pricing. However, market is ignoring the fact that EXCL’s data-pricing discount to Telkomsel’s pricing had narrowed to 15%-20% in 1Q18-2Q18 versus an average of 34% in 2017 when EXCL had gained significant revenue share. We think EXCL should sustain 32% discount reached in 3Q18 to optimize the subscriber and revenue share. Data-pricing outside Java (ex-Java) is higher than the pricing in Java, so overall data-pricing is likely to stablize or trend upwards for EXCL from gains in the ex-Java region. Mobile sector to witness 7-8% revenue growth in 2019. XL Axiata (EXCL) intends to double its revenue market share in the ex-Java region to 30% in 4-5 years largely at the expense of Telkomsel who derives over 60% of its revenue from ex-Java versus 20% for EXCL. This coupled with below average exposure to legacy services (~20% of EXCL’s top line versus 42% for Telkomsel in 3Q18) should allow EXCL to record 10% revenue growth in 2019 versus 8% growth for Telkomsel. Fixed broadband market has seen re-pricing in the

premium segment. Telkom Indonesia (TLKM) raised pricing for its 700k premium customers by 5-10% while Link Net, which operates in the premium segment, also raised pricing by 10% in 3Q18. Smaller players such as Media Nusantara Citra (MNC) Play Media and MyRepublic have been beefing up their networks prompting Link Net to accelerate its network expansion in 2019. EXCL also plans to invest US$500m in fixed broadband coverage, which we estimate can provide coverage to 1.1m households (~40% of Link Net’s coverage) Top pick is EXCL for revenue share gains in 2019. The market is overly concerned over EXCL further lowering its data pricing 8% q-o-q in 3Q18, which we think, has bottomed out in 3Q18. We maintain our non-consensus HOLD call on Telkom Indonesia (TLKM) and upgrade Indosat (ISAT) to HOLD on benign competition although street FY18F EBITDA is too high

JCI : 6,012.40

Analyst Sachin MITTAL +65 66823699 [email protected]

EXCL offers FY18F-20F EBITDA CAGR of 10% - higher than

its peers – not reflected in its similar valuation as Indosat

*Adjusted for Singtel’s 35% stake in Telkomsel

Source: Reuters, Companies, DBS Bank

FY19F mobile revenue growth projections

Estimated Revenue Contribution

Telkomsel XL Axiata Indosat

Java (40%)

Ex‐Java (60%)

Java (80%)

Ex‐Java (20%)

Java (90%)

Ex‐Java (10%)

Y‐o‐Y 12% 5% 8% 18% 6% 5%

FY19F Blended mobile growth 8% 10% 6%

Source: DBS Bank

DBS Group Research . Equity 19 Nov 2018

Indonesia Industry Focus

Telecom sector

Refer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

Rp US$m Rp 3 mth 12 mth Rating

Telekomunikasi 4,050 27,614 3,400 20.9 (1.9) HOLD XL Axiata 2,200 1,618 3,200 (23.9) (33.9) BUY Indosat 2,180 815 2,000 (32.3) (61.4) HOLD PT Link Net Tbk 4,930 1,032 5,800 15.7 (0.4) BUY

Source: DBS Bank, Bloomberg Finance L.P. Closing price as of 16 Nov 2018

Industry Focus

Mobile Industry

Ex-Java to become focal point in FY19

EXCL did not follow Telkomsel’s re-pricing in 3Q18. Telkomsel instituted a ~20-25% hike in data yields on its popular SimPati combo packages through a series of quota curtailments and pricing revisions in June 2018, ushering a new era of competition in the post-prepaid SIM registration era. Our checks also indicate that Telkomsel has instituted ~10-30% upward pricing revisions on its data-only, 1-7-day plans since June predominantly in Java. ISAT followed suit in June by adjusting the pricing of its low-value data centric packages upwards by ~10-15% including its popular Yellow package. We expected EXCL to get on-board with the data re-pricing cycle initiated by Telkomsel in June 2018. EXCL was to benefit the most from an improvement in data yields with ~80% of its top line derived from data. Although the management reiterated that pricing on a selected range of data products have been improved, EXCL’s overall pricing has remained largely unchanged on the most popular packages since June 2018, based on our channel checks. We believe two reasons are driving EXCL’s decision to keep its data prices unchanged.

a) To broaden the discount to Telkomsel’s pricing. XL Axiata

(EXCL) lowered the data pricing 8% q-o-q in 3Q18 as EXCL’s data-pricing discount to Telkomsel had narrowed to 15%-20% in 1Q18-2Q18 versus an average discount of 34% in 2017 when EXCL had gained significant market share. With 32% discount to Telkomsel in 3Q18, we think that EXCL should be looking to sustain 32% discount to

optimize the subscriber and revenue share. Data-pricing outside Java (ex-Java) is higher than the pricing in Java, so overall data-pricing is likely to trend upwards for EXCL from gains in the ex-Java region.

Data-pricing differential had narrowed too much in 1H18

Source: Companies, DBS Bank

b) Ex-Java market share. We believe EXCL viewed the higher data prices of Telkomsel as an opportunity to snatch subscriber and revenue market share in the region, as confirmed by the ~1m subscriber additions (likely to be much higher on a gross basis considering potential SIM disconnects). Based on our computations of popular packages, EXCL’s data pricing remains substantially cheaper than Telkomsel outside Java. Although ISAT offers cheaper pricing, limited network coverage outside Java hinders potential subscriber adds for ISAT, in our view.

EXCL remains quite aggressive outside Java, Telkomsel’s ex-Java pricing is at a 22%-31% premium to its Java pricing

Oct 2018 ISAT - Freedom Combo XL - Xtra Combo Telkomsel - SimPATI Combo

Package M L XL P1 P2 P3 Combo Best Deal Combo

Price (Rp/month)

65,000

100,000

150,000

59,000

89,000

129,000

76,000

175,000

Total Data Quota 12GB 26GB 41GB 10GB 20GB 30GB 4GB 25GB

Restricted Data Quota 7GB 14GB 21GB 5GB 10GB 15GB 2GB 2GB

Unrestricted Data Quota 5GB 12GB 20GB 5GB 10GB 15GB 2GB 23GB

Calls (Off-net for EXCL) Unlimited Unlimited Unlimited 20 min 30 min 40 min 60 min 100 min

Cost per GB (Rp/GB) 5,417 3,846 3,659 5,900 4,450 4,300 19,000 7,000

Pricing (vs. EXCL) 222% 57%

Pricing of Telkomsel is for regions in Kalimantan (ex-Java). The same packages from Telkomsel are available for Rp 58k and Rp 143k in Jakarta. Prices are as of October 2018 Source: Companies, DBS Bank

Industry Focus

What’s the case for raising data prices for EXCL? EXCL’s management stated that they are planning to improve data monetisation in the future, depending on the overall pricing environment towards the end of the year. EXCL’s pricing strategy within Java would largely depend on the threat from Smartfren but we expect to see some pricing revisions in regions where competition is benign.

We believe that EXCL is likely to institute upward adjustments to its pricing in 4Q18/1Q19 in selected regions outside Java as the pricing differential between the data pricing of Telkomsel and EXCL is substantial enough for EXCL to implement an upward adjustment in pricing, without the risk of major subscriber losses.

Ex-Java to be the key focus in FY19. EXCL’s management reiterated their commitment to keep expanding coverage outside Java with ~50% of capex allocated to expanding coverage in the region. EXCL hopes to achieve ~80% 4G population coverage outside Java by the end of the year

versus 40% penetration 3-4 years ago. EXCL is now the second operator in many second and third tier cities outside Java and continues to push hard with a focus on commodity-related markets, such as Sumatra, Kalimantan and Sulawesi.

Based on our checks with tower operators, ISAT is currently upgrading the equipment of its network in existing coverage regions, but order flows for ex-Java coverage has been slow. We expect to see more ex-Java action from ISAT in 2019 once the ongoing network upgrade is complete. Telkomsel is also expanding 4G coverage and quality in the region aggressively with the recently acquired 2.3GHz spectrum.

With all three operators racing to expand coverage, to leverage on the rising adoption of smartphones in the region, we believe the market’s focus should shift to operations outside Java in FY19, as ex-Java would likely account for the lion’s share of incremental growth in the mobile industry.

Aggressive expansions have become the norm

1H18 for Indosat Source: Companies, DBS Bank

54,895

78,689

110,381

132,968

27,091 32,441

37,358 41,946

21,373

46,935

63,292

78,504

‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

FY15 FY16 FY17 9M18

3G/4G BTS Stations

Telkomsel Indosat XL Axiata

Industry Focus

Telkomsel likely to shed revenue market share to EXCL in 2019. We estimate that EXCL shed ~0.6% revenue market share in 3Q18 largely due to the re-pricing of data services by Telkomsel. However, we believe service revenue growth of Telkomsel would become normalised in 4Q18, with the impact of the re-pricing largely baked into 3Q18. Telkomsel controls ~80% of market share outside Java with EXCL accounting for ~15% of the remainder. EXCL is planning to double its market share over the course of the next five years. We believe that the bulk of these gains would stem from Telkomsel as, a) with EXCL aggressively bridging its network gaps with Telkomsel, we may see price-sensitive customers

switching to EXCL, b) with EXCL becoming the second operator in most second and third tier cities, any market share gains for EXCL would have to stem from Telkomsel. EXCL is also at an advantage with the lack of exposure to legacy revenues, the declines of which are accelerating in ex-Java regions as seen in Telkomsel’s recent quarterly results. Telkomsel, which generates ~60% of its top line from regions outside Java (vs. ~20-25% for EXCL), has seen legacy revenues contracting in the recent past, primarily due to rising smartphone adoption in ex-Java regions supported by the proliferation of cheap Chinese handsets. This could further exacerbate potential revenue share losses for Telkomsel in the region.

Revenue market share in Indonesia- Telkomsel benefited from re-pricing in 3Q18 despite subscriber losses


Ex-Java strategies to determine growth in FY19. With ex-Java becoming a key region of interest among the three major operators, we believe ex-Java strategies and operations of the operators would dictate industry growth in FY19.

67.5% 68.1% 67.7% 67.2% 67.3% 68.1%70.3% 69.8% 70.8%

13.6% 13.5% 14.0% 14.3% 15.1% 15.4%

15.5% 16.0% 15.4%

18.9% 18.3% 18.4% 18.5% 17.6% 16.6%

14.2% 14.2% 13.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Revenue market share

Telkomsel XL Axiata Indosat

Industry Focus

Ex-Java to determine mobile revenue growth in 2019

Revenue Contribution

Telkomsel EXCL ISAT

Java (40%) Ex‐Java (60%) Java (80%) Ex‐Java (20%) Java (90%) Ex‐Java (10%)

Base Case (yoy) 12% 5% 8% 18% 6% 5%

Blended FY19 Mobile growth 8% 10% 6%

Bear Case (yoy) 5% 3% 2% 5% 1% 0%


Bull Case (yoy) 15% 15% 12% 20% 10% 10%


Source: Companies, DBS Under our base case, we assume the benign competition in Java in FY19, despite intensive competition outside Java. We expect EXCL to grab ~2-3% revenue market share outside Java through aggressive pricing strategies, helping the telecommunications company (telco) grow its ex-Java base by high double-digits. The bulk of the market share gains would likely stem from Telkomsel which, coupled with declines in legacy services (~42% of Telkomsel’s top line in 3Q18) in the region would lead to 5% growth in Telkomsel’s ex-Java revenue base. Supported by benign competitive conditions in Java, which accounts for ~90% of ISAT’s topline, ISAT should be able to record mid-single digit growth in our view. Under our bear case, we assume Telkomsel would instigate a price war with EXCL both within and outside Java. This would result in substantial downward revisions in data yields, as both EXCL and Telkomsel battle each other, yielding low single-digit growth for all three operators, despite the lower revenue base in FY18. Worst affected would be ISAT which is the biggest beneficiary of benign competitive conditions in Java. Under our bull case, we assume that both EXCL and Telkomsel would raise pricing. We expect all the players to raise pricing within and outside Java collaboratively, with each operator claiming dominance over specific ex-Java territories. This coupled with a benign competitive environment within Java should result in low-mid double-digit growth for all three operators. Smartfren’s network can pose a threat but the company has a stretched balance sheet. Smartfren, a 4G-only network operator, predominantly present in Java, is aggressively expanding the

coverage of its 4G/4G+ network posing a potential threat to the Java centric incumbents. Smartfren was a Code Division Multiple Access (CDMA)-centric operator but had to shut down its CDMA network on 1900MHz in 2016 due to signal interferences with the 2100MHz band, which was set to be auctioned for the 3G network. Smartfren then launched the first 4G only network in Indonesia, but initially had trouble luring subscribers as most smartphones in Indonesia did not support the spectrum bands Smartfren operated in. Smartfren currently has ~10m subscribers, making it the fifth largest operator in Indonesia based on subscriber share. Based on nPerf, an aggregator of network coverage maps, Smartfren operates a strong 4G/4G+ network in Java with coverage extending to selected clusters outside Java. Smartfren’s aggressive pricing with unlimited data offerings at fraction of the price of the incumbents and ambitions to double its subscriber base from 10m to 20m over the next 1-2 years. However, Smartfren remains highly levered with a net debt to last-half annualised EBITDA of ~13x, which limits Smartfren’s potential to continue aggressive expansions or resort to heavily distortive pricing measures

Industry Focus

Smartfren owns enough spectrum in the 850 MHz band which requires specialised 4G handsets subsidised by the

company

850MHz 900MHz 1800MHz 2100MHz 2300MHz Total (In MHz)

Telkomsel 15MHz x 2 22.5MHz x 2 15MHz x 2 45MHz 150

Indosat 2.5MHz x 2 10MHz x 2 20MHz x 2 15MHz x 2 15MHz* 110

XL Axiata 7.5MHz x 2 22.5MHz x 2 15MHz x 2 90

Hutchison 10MHz x 2 15MHz x 2 50

Smartfren 11MHz x 2 30MHz 52

* West Java exclude Bogor, Depok & Bekasi

Source: Indosat

Smartfren’s network coverage in Java is inferior than other telcos but has more 4G+ network in selected areas

Source: nPerf 2G coverage is denoted in blue, 3G in Green, 4G in orange, and 4G+ is denoted in red EXCL – Network coverage in Java - 4G coverage far better but lower 4G+ coverage than Smartfren

Source: nPerf

Industry Focus

Indosat - Network coverage in Java - 4G and 4G+ coverage is inferior to XL Axiata

Source: nPerf Smartfren’s offerings are priced aggressively


Oct 2018 Smartfren XL - Xtra Combo Indosat

Package 4G

Unlimited 4G Vouchers P1 P2 P3 Yellow Unlimited Freedom Combo

Price (Rp)

65,000

30,000

40,000

60,000

59,000

89,000

129,000

2,000 25,000

60,000

65,000

100,000 Total Data Quota Unlimited 10GB 16GB 30GB 10GB 20GB 30GB 1GB per day 1GB 5GB 12GB 26GB Restricted data quota

1GB per day on 4G 5GB 8GB 15GB 5GB 10GB 15GB Unlimited**

Unlimited** 7GB 14GB

On-Net calls 30 minutes

per day 20 minutes 30

minutes 40 minutes

Industry Focus

Fixed Broadband Industry

High speed fixed broadband penetration in Indonesia on a growth trajectory. We estimate that high speed fixed broadband penetration (connections over 5Mbps) in Indonesia doubled over the past year from 4% household penetration in 1H17 to 8% household penetration as of 3Q18. This was largely driven by aggressive expansions by Telkom Indonesia (TLKM), which added nearly 2.7m subscribers over the same period. All major fixed broadband players are aggressively

expanding their coverage regions to capitalise on the growing appetite for high-speed data among the expanding middle income class in Indonesia. Extrapolating the growth in high speed broadband penetration over the past year coupled with the growing interest in the segment by incumbents and new operators like EXCL and ISAT, we expect to see penetration of high speed broadband services rising to at least 20% over the next three years, adding ~9m new households to the high-speed broadband segment.

Accelerating coverage and high-speed fixed broadband coverage in Indonesia

Sources: Telkom Indonesia, Link Net, MNC Play Media, MyRepublic,

Department of Statistics Indonesia, World Bank Source: DBS Bank estimates

Source: DBS Bank TLKM dominates the market but smaller players are creeping up. TLKM continued its dominance in the high-speed fixed broadband market, accounting for ~82% of subscriber market share as of 3Q18. TLKM’s early entry to fixed broadband and extensive legacy network infrastructure is driving the telco’s dominance in the fixed broadband space, but smaller operators are aggressively expanding their coverage regions, with the hope of claiming dominance in selected regional clusters that are yet to be occupied by two or more players. Link Net is the second biggest operator by subscriber market share, with its network predominantly concentrated in the greater Jakarta region. MyRepublic, BizNet and Media Nusantara Citra (MNC) operates smaller regional network concentrated on residential areas and central business districts in Jakarta. Competition in the fixed broadband segment remains benign, as indicated by TLKM’s decision to raise pricing by 5-10% on a selected set of its subscribers. Link Net followed TLKM’s lead and instituted similar price changes in its package offerings. Given the low penetration of fixed broadband services, providing enough room for several operators, and the heavy

investments required to provide regional coverage, we do not expect major price wars between operators.

Fixed broadband market getting crowded with the entry of EXCL and ISAT. In 1H18, EXCL announced plans to invest US$ 500m to introduce triple-play service packages covering mobile/fixed-line broadband and Pay TV services. The telco also launched ‘XL Home POW!’ home internet broadband services targeting areas with difficult internet access. Although the service is still in pilot stages, EXCL’s management indicated its ambition to target not only tier 1 but also tier 2 and tier 3 cities. The service, with packages starting at Rp 300,000 is currently online in selected regional clusters of tier 1 cities surrounding Jakarta such as Bogor, Depok and Bekasi. Assuming EXCL sets aside ~US$100m for preliminary network set-ups and bandwidth purchases, and spends ~US$400m on rolling out its broadband network, we estimate that EXCL could provide coverage to over 1.1m households, based on our estimate of ~US$350 roll-out capex per home passed. ISAT also made its entry to the fixed broadband space with the launch of GIG early this year, offering triple play services via fixed fibre networks. In relation to this, ISAT launched GIG 2 Go in

Total high speed broadband Coverage (Homes Passed in 000's) 4Q17 3Q18 Growth

Telkom indonesia* 18,700 27,925 49%

Link Net 2,000 2,146 7%

MNC Play Media** 1,209 1,399 16%

BizNet N/A 448

MyRepublic* 500 575 15%

* - Estimated based on 17% penetration rate ** - Estimated based on 20% growth in homes passed over 2017 *** - Estimated based on 15% growth in broadband subscribers and 28% penetration 4%

8%

20%

0%

5%

10%

15%

20%

25%

1H17 3Q18 FY21F

High Speed Fixed Broadband Penetration ‐Indonesia

Industry Focus

April 2018, a prepaid Wi-Fi home fibre service available in main cities like Jakarta, Tengah, Yogyakarta, Timur and Banten and plans to expand to cities such as Jabodetabek, Bandung, Surabaya and Semarang. ISAT’s broadband-only packages start at Rp 280,000 for speeds with 20Mbps.

With the entry of EXCL and ISAT in the fixed broadband space, we estimate that the total number of fixed broadband network providers in the country has jumped to ~7.

TLKM dominates the fixed broadband market Fixed broadband penetration in Indonesia remains below APAC average

83%

11%

3%

4%

High Speed Fixed Broadband Market Share ‐ Indonesia

TLKM4.7m Households

Link Net600,000 Households

MyRepublic160,000 Households

Assuming 8.4% High speed fixed broadband penetration in Indonesia. Estimated subscribers for MyRepublic and MNC Play Media. Ignoring subscribers of other operators such as BizNet, Indosat and XL AxiataSources: Company Data, DBS Bank

MNC Play Media216,000 Households

13% 15%

43%38%

43%38%

95%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fixed Broadband Household Penetration*

*Estimated Fixed Broadband subcribers as a % of Total HouseholdsSource: Telegeography, Media Partners Asia, PWC, DBS Bank

Industry Focus

Link Net charges a premium price for its service as frequent disruptions due to fibre cuts are quite common in Indonesia

Link Net D'Lite HD Elite X1 4K Supreme X1 4K Maxima X1 4K Infinite X1 4K

Price (Rp) 429,000 619,000 939,000 1,799,000 3,129,000

Broadband Speed 12Mbps 20Mbps 32Mbps 75Mbps 200Mbps

No. of TV Channels 121 (83SD +

38HD) 144 (93SD +

51HD) 168 (105SD + 63HD)

Telkom Indonesia*

IndiHome ‐ DualPlay (Netizen II)

Price (Rp) 315,000 415,000 575,000 675,000

Broadband Speed 10Mbps 20Mbps 30Mbps 40Mbps

No. of Usee TV Channels 86 (80SD + 6HD)

Complimentary Offers Limited subscriptions to iFlix and OTT music

IndiHome ‐ DualPlay (Bonus HOOQ)

Price (Rp) 400,000 490,000 590,000

Broadband Speed 20Mbps 30Mbps 40Mbps

No. of Usee TV Channels 86 (80SD + 6HD)

Complimentary Offers Subscriptions to HOOQ

Fixed Line 1,000 Minutes

MyRepublic** Fast + Star Nova + Star Gamer + Star SuperNova + Star

Price per month (IDR) 429,000 469,000 569,000 1,139,000

Speed 50Mbps 100Mbps 150Mbps 300Mbps

No. of channels 72 (29 Elementary School + 41 HD + 2HD On Demand)

MNC Play (Interactive Cable TV ‐ Venus) Residential 1 Residential 2 Residential 3 Residential 4 Residential 5

Price (IDR per month) 363,000 470,000 683,000 1,753,000

3,163,000

Speed 15Mbps 30Mbps 50Mbps 100Mbps 200Mbps

Channels 106 (18 HD + 88 SD)

Biznet Biznet Home

Combo 1 Biznet Home

Combo 2 Biznet Home Combo 2 Plus

Biznet Home Combo 3

Price (IDR per month) 400,000 800,000 900,000 1,150,000

Speed 30Mbps 60Mbps 60Mbps 100Mbps

Cable TV channels 42 66 69 69 * Link Net, Telkom Indonesia and MyRepublic package prices include the monthly rental fees for set-up boxes and modems. Biznet requires subscribers to purchase the equipment up-front.

* IndiHome instituted 5-10% changes to package pricing only on selected 700k subscribers.

All package prices exclude on-going discounts and promotional speed-boosts and other short-term offers.


Industry Focus

Company Guides

ed: KK / sa:MA, CW, CS

HOLD

Last Traded Price( 22 Oct 2018): Rp3,800(JCI : 5,840.40) Price Target 12-mth:Rp3,400 (-11% downside) (Prev Rp3,600) Analyst Sachin MITTAL+65 [email protected]

What’s New Substantial exposure to legacy revenue and aggressive

competitors to hurt Telkomsel’s growth prospects.

Consensus ignores ex-Java revenue share losses and potential margin dilution from rising contribution of non-Telkomsel segments.

Non-consensus HOLD with a revised TP of Rp3,400.

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2017A 2018F 2019F 2020F Revenue 128,256 133,810 147,503 159,581 EBITDA 64,609 61,864 67,202 70,777 Pre-tax Profit 42,659 37,203 39,461 40,215 Net Profit 22,145 20,151 21,805 22,639 Net Pft (Pre Ex.) 22,145 20,151 21,805 22,639 Net Pft Gth (Pre-ex) (%) 14.4 (9.0) 8.2 3.8 EPS (Rp) 224 203 220 229 EPS Pre Ex. (Rp) 224 203 220 229 EPS Gth Pre Ex (%) 14 (9) 8 4 Diluted EPS (Rp) 224 203 220 229 Net DPS (Rp) 168 153 165 171 BV Per Share (Rp) 936 910 916 913 PE (X) 17.0 18.7 17.3 16.6 PE Pre Ex. (X) 17.0 18.7 17.3 16.6 P/Cash Flow (X) 7.6 7.4 6.4 6.0 EV/EBITDA (X) 6.3 6.7 6.3 6.0 Net Div Yield (%) 4.4 4.0 4.3 4.5 P/Book Value (X) 4.1 4.2 4.1 4.2 Net Debt/Equity (X) 0.1 0.1 0.1 0.0 ROAE (%) 25.0 22.0 24.1 25.0 Earnings Rev (%): 0 0 (4) Consensus EPS (Rp): 215 240 265 Other Broker Recs: B: 27 S: 0 H: 7

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

Street underestimating ex-Java share loss and costs

TLKM is not cheap, consensus EPS likely to be cut. Firstly, ~65% of Telkomsel’s (Telekomunikasi Indonesia’s (TLKM) cellular arm) revenue comes from outside the Java (ex-Java) region where competition is ramping up and reducing Tekomsel’s market share. Secondly, Telkomsel has ~50% exposure to declining voice and SMS services, much higher than its competitors. Thirdly, non-Telkomsel businesses (~32% of the group’s revenue) not only have lower EBITDA margins but also suffer from high operation expenditure and depreciation costs. In conclusion, consensus FY19F EPS is likely to be cut 8%. TLKM is not cheap either at 18x 12-month forward PER similar to its historic 5-year average.

Where we differ? Our FY19F/20F EPS is 8%/10% below consensus. We project Telkomsel to lose ~2-3% ex-Java revenue market share in FY19F and see only ~5% growth in the ex-Java business versus ~12% growth in the Java business. Growing contribution from the company’s non-Telkomsel businesses, which attract ~30% EBITDA margins vs. ~55% for Telkomsel, would also weigh on TLKM’s blended EBITDA margins as the former continues to grow faster than Telkomsel.

Potential catalysts: More clarity on ex-Java business with 3Q18 and 4Q18 results could prompt consensus earnings downgrade. Valuation:

Maintain HOLD with lower TP of Rp 3,400. Mantain HOLD call with a revised DCF-based TP of Rp 3,400 (WACC 9.2%, terminal growth 1%) as we raise our FY19 capital expenditure (capex) on recent depreciation of the Indonesian Rupiah. Key Risks to Our View:

Bear case valuation of Rp 3,000 if Java turns competitive. Smartfren Telecom is ramping up its coverage in Java although it is still quite small at this stage. However, if big players react, we project FY19F revenue growth of 5% for Telkomsel vs. 7% base case.

Bull case valuation of Rp 4,200 if ex-Java share loss is minimal. We project ~10% FY19F cellular revenue growth for Telkomsel if its ex-Java business secures 9% growth. At A Glance Issued Capital (m shrs) 99,062 Mkt. Cap (Rpbn/US$m) 376,436 / 24,767 Major Shareholders (%) 0Republic of Indonesia (%) 51.2 Bank of New York (%) 6.0

Free Float (%) 42.8 3m Avg. Daily Val (US$m) 24.6 ICB Industry :Telecommunications / Fixed Line Telecommunications

DBS Group Research . Equity 23 Oct 2018

IndonesiaCompany Guide

Telekomunikasi Indonesia Version 10 |Bloomberg: TLKM IJ| Reuters: TLKM.JK Refer to important disclosures at the end of this report

Company Guide

Telekomunikasi Indonesia

WHAT’S NEW

Ex-Java the main battleground in FY19

Ex-Java the key focus in FY19, network expansions are underway.. Our channel checks confirm that ex-Java is the key area of focus for all three telecommunications companies (telcos) in FY19. Tower operators have also indicated that co-location orders from operators for expansion in regions outside Java have accelerated over the past few months. Telkomsel is not a monopoly in many Tier-2 and Tier-3 cities outside Java and there is a second operator offering 4G services now. We estimate that Telomsel’s effective monopoly of mobile network has reduced from ~60% of population outside Java 4-years back to ~20% now. Telkomsel’s revenue share outside Java is ~90% currently and is expected to lose 2-3% revenue share each year to competitors offering much cheaper prices. With all major operators racing to expand coverage and leverage on the rising adoption of smartphones in the region, we believe

the market’s focus should shift to operations outside Java in F19, as ex-Java would likely account for the lion’s share of incremental growth in the mobile industry. Telkomsel likely to record high single digit growth in FY19. We expect Telkomsel’s top line to contract in FY18 by ~2%, driven by subscriber losses and intense competition in the first half of the year, due to the prepaid SIM registration period. Whilst, operating conditions have improved since the end of the prepaid SIM registration period in May 2018, we believe that Telkomsel’s top line is unlikely to record positive growth in FY18F as no major upward revisions in data pricing has yet to take place. In addition, the telco still generates ~50% of its top line through declining legacy services. We expect Telkomsel’s revenue to decline by ~2% on a y-o-y basis during FY18F before recovering to single digit growth of ~7.3% in FY19F, supported by 12% growth in Java and 5% outside Java.

Telkom secures 65% of Telkomsel’s earnings; non-Telkomsel earnings suffer from high opex and depreciation costs

Source: Telkom Indonesia, DBS Bank

Non-Telkomsel businesses are diluting TLKM’s margins. Whilst, non-Telkomsel businesses comprising fixed broadband, enterprise and wholesale segments are recording double digit growth, the cost escalations pertaining to their expansion have continued to weigh down TLKM’s margins. Expanding non-Telkomsel services, particularly TLKM’s fibre broadband service indiHome, which attracts heavy opex on expansion and inherently carry lower margins, is weighing on TLKM’s EBITDA. Higher depreciation attached to network roll-outs of fibre broadband has also weighed on TLKM’s PAT margins, Whilst we expect better monetisation of IndiHome subscribers, with TLKM planning to raise pricing by 5-10% for ~500k of its subscribers to further improve the margin profile of non-Telkomsel business segments, we do not believe TLKM would be able to continue expanding its EBIT margins as projected by the street, given rising contribution from margin-dilutive non-Telkomsel businesses.

RP bn

FY16 FY17 1H17 1H18 FY16 FY17 1H17 1H18 FY16 FY17 1H17 1H18

Revenue 116,333 128,256 64,021 64,368 86,725 93,217 45,995 42,741 29,608 35,039 18,026 21,627

EBITDA 59,498 64,609 33,235 28,343 49,781 53,592 27,185 22,239 9,717 11,017 6,050 6,104

PAT before MI 29,172 32,701 17,495 12,807 28,195 30,395 15,500 11,722 977 2,306 1,995 1,085

Growth

Revenue 10% 1% 7% ‐7% 18% 20%

EBITDA 9% ‐15% 8% ‐18% 13% 1%

PAT before MI 12% ‐27% 8% ‐24% 136% ‐46%

Margins

EBITDA 51% 50% 52% 44% 57% 57% 59% 52% 33% 31% 34% 28%

Non‐TelkomselTelkomselTLKM

Company Guide


CRITICAL DATA POINTS TO WATCH

Critical Factors

Legacy revenue and aggressive competitors to hurt Telkomsel’s growth prospects. Telkomsel, TLKM’s cellular arm, continues to be the key contributor to TLKM’s top line with ~68% contribution in FY17. Telkomsel remains vulnerable to legacy declines with ~50% exposure to legacy services. Telkomsel’s revenue growth entered negative territory on a y-o-y basis for the first time in 1Q18, marred by accelerating legacy declines and intense competition during the prepaid SIM registration era. The y-o-y declines continued through to 2Q18 with revenue contracting 12% y-o-y (-4.6% q-o-q), and the quarter marking the fourth consecutive quarter of accelerating declines in legacy services for the telco. We believe the trend of legacy revenue declining will continue through FY18/19 before stabilising in FY20, when top line exposure to legacy services is expected to edge below ~40%. Telkomsel also remains vulnerable to losing revenue market share to major operators outside Java, as they continue to bridge the network gap with Telkomsel, challenging the high pricing premiums commanded by Telkomsel in the region. We expect Telkomsel to record mid-single digit growth in revenue from Ex-Java (~60% of Telkomsel’s top line) in FY19 as legacy declines in the region accelerate and Telkomsel’s pricing premiums come under attack from other operators. With benign competition supporting over 12% growth in Java, we expect Telkomsel to record 7.3% cellular growth in FY19 vs. 6.2% previously. Non-Telkomsel businesses ease top line burden slightly. Revenue from non-Telkomsel businesses derived from fixed data, enterprise and wholesale segments expanded 20% y-o-y in 1H18, partially offsetting the poor performance of Telkomsel. TLKM’s fixed broadband brand IndiHome reported strong growth during the quarter, recording an average revenue per user (ARPU) of Rp251, 000 for 2Q18. TLKM management indicated that the telco plans to increase tariffs by 5-10% over 3Q18 on ~500k IndiHome subscribers with room for further increases in the future. We project non-Telkomsel businesses to grow 22/17% in FY18/19 largely supported by expansion and price hikes of IndiHome. However, the declining proportion of high margins legacy services for Telkomsel and growing contribution from non-Telkomsel businesses, which inherently carry lower margins, should escalate operating expenses for TLKM. We project TLKM’s EBITDA margins to contract ~500bps by FY20 to 45% from the levels recorded in FY17.

GSM subscribers (m)

Data revenue

EBITDA margin %

Net Capex (Rp tr)

EBITDA (Rptn)

Source: Company, DBS Bank

Company Guide


Appendix 1: A look at Company's listed history – what drives its share price? Market share of Telkomsel is a critical factor for TLKM. In our critical factor analysis, conducted to identify what drives the share price of a stock, we have seen share price movements of TLKM follow mobile revenue share changes of Telkomsel closely. TLKM share price movement with Telkomsel revenue share changes in the last reported quarter

Source: Reuters, DBS Bank

Company Guide


Balance Sheet:

Strong balance sheet to support expansion. TLKM has the strongest balance sheet among its peers with ~94% of debt carried in Indonesian Rupiah. TLKM also boasts a FY17A net debt to EBITDA ratio of 0.13x which is well below the industry average. Low leverage means that TLKM has better flexibility for network expansion and acquiring digital and other businesses. We have projected for FY18/19F capex of Rp 33/35t (~25/24% of revenue) which TLKM should be able to fund comfortably through operating cash flows.

Share Price Drivers:

Legacy decline and key competitors’ aggressive growth plan to thwart Telkomsel. Key competitors of TLKM are aggressively ramping up ex-Java coverage, bridging their network gap with Telkomsel and challenging the high pricing premiums commanded by Telkomsel in the ex-Java region. These competitors are already at Telkomsel’s heels in most major 2nd and 3rd tier cities outside Java and they plan to increase their revenue market share, much of which would be at the expense of Telkomsel. Given TLKM’s weak outlook, with a FY17A-20F EBITDA CAGR of 3.5%, we believe TLKM is likely to remain range bound until signs of legacy stabilisation and an ex-Java strategy for Telkomsel emerges.

Key Risks:

Bull case valuation of TLKM at Rp 4,200. Under our bull case scenario, we assume substantial improvements in industry yields supported by collaborative pricing revisions by TLKM with its key competitors, as the telcos opt for territorial dominance in ex-Java regions. This should drive up TLKM’s FY19F y-o-y cellular revenue growth to 10% vs 7% under our base case scenario. Bear case valuation of TLKM is Rp 3,000. Under our bear case scenario, we assume steep declines in industry yields as TLKM counters its keycompetitors outside Java and instigates price wars within Java. This would drive down TLKM’s FY19F y-o-y cellular revenue growth to 5% vs 7% in our base case scenario. We value TLKM at Rp 3,000 under our bear case assumptions,

Company Background

TLKM Indonesia is the largest telecommunications and network provider in Indonesia. The company offers a wide range of network and telecommunications services, including fixed line connection services, cellular services, network and interconnection services, as well as internet and data communications services. TLKM also operates multimedia businesses such as content and applications, completing its business portfolio that spans Telecommunications, Information, Media, Edutainment and Services (TIMES).

Leverage & asset turnover (x)

Capital expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Rpbn

Company Guide


Key Assumptions

FY Dec 2016A 2017A 2018F 2019F 2020F GSM Subscribers (m) 175 182 189 197 205 Data revenue 59.0 68.5 80.4 94.0 107 EBITDA Margin % 51.1 50.4 46.2 45.6 44.4 Net Capex (Rp tr) 29.4 33.3 32.1 35.4 36.2 EBITDA (Rptn) 59.5 64.6 61.9 67.2 70.8

Segmental Breakdown

FY Dec 2016A 2017A 2018F 2019F 2020F Revenues (Rpbn) Fixed Line 7,542 6,665 5,865 4,692 4,223 Wireless Voice 38,497 37,246 27,935 25,141 22,627 Interconnection 4,151 5,175 4,916 4,670 4,437 Data/Internet & SMS 58,971 68,535 80,392 94,009 107,085 Others 7,172 10,635 14,702 18,991 21,208 Total 116,333 128,256 133,810 147,503 159,581

Income Statement (Rpbn)

FY Dec 2016A 2017A 2018F 2019F 2020F Revenue 116,333 128,256 133,810 147,503 159,581 Cost of Goods Sold (56,835) (63,647) (71,946) (80,301) (88,804) Gross Profit 59,498 64,609 61,864 67,202 70,777 Other Opng (Exp)/Inc (18,532) (20,446) (23,361) (26,462) (29,322) Operating Profit 40,966 44,163 38,503 40,741 41,455 Other Non Opg (Exp)/Inc (1,771) (230) 0.0 0.0 0.0 Associates & JV Inc 88.0 61.0 64.1 67.3 70.6 Net Interest (Exp)/Inc (1,094) (1,335) (1,365) (1,347) (1,311) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 38,189 42,659 37,203 39,461 40,215 Tax (9,017) (9,958) (8,929) (9,471) (9,652) Minority Interest (9,820) (10,556) (8,123) (8,185) (7,925) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 19,352 22,145 20,151 21,805 22,639 Net Profit before Except. 19,352 22,145 20,151 21,805 22,639 EBITDA 59,498 64,609 61,864 67,202 70,777 Growth Revenue Gth (%) 13.5 10.2 4.3 10.2 8.2 EBITDA Gth (%) 15.7 8.6 (4.2) 8.6 5.3 Opg Profit Gth (%) 24.6 7.8 (12.8) 5.8 1.8 Net Profit Gth (Pre-ex) (%) 24.9 14.4 (9.0) 8.2 3.8 Margins & Ratio Gross Margins (%) 51.1 50.4 46.2 45.6 44.4 Opg Profit Margin (%) 35.2 34.4 28.8 27.6 26.0 Net Profit Margin (%) 16.6 17.3 15.1 14.8 14.2 ROAE (%) 24.3 25.0 22.0 24.1 25.0 ROA (%) 11.2 11.7 10.0 10.3 10.1 ROCE (%) 22.4 22.1 17.9 18.2 17.7 Div Payout Ratio (%) 69.7 75.0 75.0 75.0 75.0 Net Interest Cover (x) 37.4 33.1 28.2 30.3 31.6


Strong growth in non-Telkomsel businesses.

Growing non-Telkomsel businesses to weigh on margins.

Company Guide


Quarterly / Interim Income Statement (Rpbn)

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 Revenue 32,999 32,982 31,253 32,343 32,025 Cost of Goods Sold (16,573) (16,168) (16,693) (16,227) (19,798) Gross Profit 16,426 16,814 14,560 16,116 12,227 Other Oper. (Exp)/Inc (4,857) (5,051) (5,765) (5,373) (4,958) Operating Profit 11,569 11,763 8,795 10,743 7,269 Other Non Opg (Exp)/Inc (256) 66.0 (451) 149 (61.0) Associates & JV Inc 0.0 0.0 0.0 0.0 29.0 Net Interest (Exp)/Inc (382) (443) (326) (360) (580) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 10,931 11,386 8,018 10,532 6,657 Tax (2,812) (2,868) (1,330) (2,554) (1,828) Minority Interest (2,703) (2,700) (2,465) (2,244) (1,865) Net Profit 5,416 5,818 4,223 5,734 2,964 Net profit bef Except. 5,416 5,818 4,223 5,734 2,964 EBITDA 16,426 16,814 14,560 16,116 12,227 Growth Revenue Gth (%) 6.4 (0.1) (5.2) 3.5 (1.0) EBITDA Gth (%) (2.3) 2.4 (13.4) 10.7 (24.1) Opg Profit Gth (%) (3.9) 1.7 (25.2) 22.1 (32.3) Net Profit Gth (Pre-ex) (%) (19.0) 7.4 (27.4) 35.8 (48.3) Margins Gross Margins (%) 49.8 51.0 46.6 49.8 38.2 Opg Profit Margins (%) 35.1 35.7 28.1 33.2 22.7 Net Profit Margins (%) 16.4 17.6 13.5 17.7 9.3

Balance Sheet (Rpbn)

FY Dec 2016A 2017A 2018F 2019F 2020F Net Fixed Assets 114,498 130,171 138,925 147,864 154,714 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 17,412 20,752 20,816 20,883 20,954 Cash & ST Invts 31,238 27,318 23,562 25,750 28,862 Inventory 584 631 755 843 932 Debtors 7,363 9,222 9,367 10,325 11,171 Other Current Assets 8,516 10,390 12,100 12,559 13,020 Total Assets 179,611 198,484 205,525 218,224 229,653 ST Debt 5,432 7,498 7,943 7,943 7,943 Creditor 13,518 15,574 20,145 22,484 24,865 Other Current Liab 20,812 22,304 19,198 21,216 23,088 LT Debt 26,367 27,974 27,529 27,084 26,639 Other LT Liabilities 7,938 13,004 13,004 13,004 13,004 Shareholder’s Equity 84,384 92,713 90,166 90,767 90,464 Minority Interests 21,160 19,417 27,540 35,725 43,650 Total Cap. & Liab. 179,611 198,484 205,525 218,224 229,653 Non-Cash Wkg. Capital (17,867) (17,635) (17,121) (19,973) (22,830) Net Cash/(Debt) (561) (8,154) (11,910) (9,277) (5,720) Debtors Turn (avg days) 23.3 23.6 25.4 24.4 24.6 Creditors Turn (avg days) 131.1 122.9 134.2 144.5 145.3 Inventory Turn (avg days) 5.3 5.1 5.2 5.4 5.4 Asset Turnover (x) 0.7 0.7 0.7 0.7 0.7 Current Ratio (x) 1.2 1.0 1.0 1.0 1.0 Quick Ratio (x) 1.0 0.8 0.7 0.7 0.7 Net Debt/Equity (X) 0.0 0.1 0.1 0.1 0.0 Net Debt/Equity ex MI (X) 0.0 0.1 0.1 0.1 0.1 Capex to Debt (%) 91.9 93.9 90.5 101.1 104.6 Z-Score (X) 4.8 4.4 4.4 4.2 4.0


Strong balance sheet to support expansion.

Company Guide


Cash Flow Statement (Rpbn)

FY Dec 2016A 2017A 2018F 2019F 2020F Pre-Tax Profit 38,189 42,659 37,203 39,461 40,215 Dep. & Amort. 18,532 20,446 23,361 26,462 29,322 Tax Paid (14,000) (13,788) (9,487) (9,335) (9,606) Assoc. & JV Inc/(loss) (88.0) (61.0) (64.1) (67.3) (70.6) Chg in Wkg.Cap. 7,297 2,192 43.9 2,717 2,812 Other Operating CF (2,699) (2,043) 0.0 0.0 0.0 Net Operating CF 47,231 49,405 51,057 59,237 62,671 Capital Exp.(net) (29,223) (33,292) (32,114) (35,401) (36,172) Other Invts.(net) 1,307 (1,003) 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 359 1,288 0.0 0.0 0.0 Net Investing CF (27,557) (33,007) (32,114) (35,401) (36,172) Div Paid (10,555) (9,289) (22,699) (21,204) (22,942) Chg in Gross Debt (3,734) 542 0.0 (445) (445) Capital Issues 3,259 0.0 0.0 0.0 0.0 Other Financing CF (6,875) (12,305) 0.0 0.0 0.0 Net Financing CF (17,905) (21,052) (22,699) (21,648) (23,387) Currency Adjustments (119) 32.0 0.0 0.0 0.0 Chg in Cash 1,650 (4,622) (3,756) 2,188 3,112 Opg CFPS (Rp) 405 477 515 571 604 Free CFPS (Rp) 183 163 191 241 267


Target Price & Ratings History

Source: DBS Bank

Analyst: Sachin MITTAL

Operating cash flows to support higher dividend payouts.

ed: CK/ sa: MA, CW, CS

BUY Last Traded Price ( 16 Nov 2018): Rp2,200 (JCI : 6,012.40) Price Target 12-mth: Rp3,200 (45% upside) (Prev Rp3,500) Analyst Sachin MITTAL +65 66823699 [email protected]

What’s New 3Q18 EBITDA of Rp2,176bn (-4.6% y-o-y, +8.8% q-o-

q) was marginally below our expectations

Market is overly concerned about data-pricing ignoring that EXCL has attained 32% discount to Telkomsel’s pricing – close to the historical average.

Reiterate BUY with revised TP of Rp3,200

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2017A 2018F 2019F 2020F Revenue 22,876 23,159 25,346 27,217 EBITDA 8,218 8,501 9,437 10,249 Pre-tax Profit 221 829 1,225 1,684 Net Profit 375 622 919 1,263 Net Pft (Pre Ex.) 375 622 919 1,263 Net Pft Gth (Pre-ex) (%) 0.0 65.7 47.7 37.5 EPS (Rp) 35.1 58.2 85.9 118 EPS Pre Ex. (Rp) 35.1 58.2 85.9 118 EPS Gth Pre Ex (%) 0 66 48 37 Diluted EPS (Rp) 35.1 58.2 85.9 118 Net DPS (Rp) 21.1 34.9 51.6 70.9 BV Per Share (Rp) 2,024 2,082 2,133 2,200 PE (X) 62.7 37.8 25.6 18.6 PE Pre Ex. (X) 62.7 37.8 25.6 18.6 P/Cash Flow (X) 2.4 4.1 2.8 2.7 EV/EBITDA (X) 4.9 4.9 4.2 3.7 Net Div Yield (%) 1.0 1.6 2.3 3.2 P/Book Value (X) 1.1 1.1 1.0 1.0 Net Debt/Equity (X) 0.8 0.8 0.7 0.6 ROAE (%) 1.8 2.8 4.1 5.5 Earnings Rev (%): (18) (14) N/A Consensus EPS (Rp): 37.6 90.7 155 Other Broker Recs: B: 32 S: 0 H: 1


Long-term winner at attractive valuations.

Offers superior growth than Telkom but is trading at over 40% discount. XL Axiata (EXCL) intends to double its revenue market share in the ex-Java region to 30% in 4-5 years largely at the expense of Telkomsel who derives over 60% of its revenue from ex-Java versus 20% for EXCL. This coupled with below average exposure to legacy services (~20% of EXCL’s top line versus 42% for Telkomsel in 3Q18) should allow EXCL to record 10% revenue growth in 2019 versus 8% growth for Telkomsel. EXCL is attractive at 4.5x FY19F EV/EBITDA at 40% discount to TLKM. Where we differ? Market is overly concerned about data yields, ignoring pricing-differentials. The market is overly concerned about the decline in EXCL’s data-pricing in 3Q18. However, market is ignoring the fact that EXCL’s data-pricing discount to Telkomsel’s pricing had narrowed to 15%-20% in 1Q18-2Q18 versus an average of 34% in 2017 when EXCL had gained significant revenue share. We think EXCL should sustain 32% discount reached in 3Q18 to optimize the subscriber and revenue share. Potential catalyst: Changes in mobile packages. Upward revisions to EXCL’s data pricing should put an end to the market’s concerns over data yields. Valuation:

BUY with lower TP of Rp3,200. We revise our DCF-based (WACC 9.4%, terminal growth 1%) TP to Rp3,200 from Rp3,500 previously, as we factor in 1) higher capex on ex-Java expansions for FY19F and depreciation of the rupiah, and 2) downward revision to FY18F EBITDA by 2.6% on slower-than- expected cellular revenue growth for FY18F. Key Risks to Our View:

Bear case valuation of Rp1,900 if Telkomsel disrupts benign competitive dynamics. Under our bear-case scenario, we assume Telkomsel to instigate price wars both within and outside Java, resulting in only 3% growth in cellular revenues for FY19 vs +10.2% growth under our base-case scenario. At A Glance Issued Capital (m shrs) 10,688 Mkt. Cap (Rpbn/US$m) 23,514 / 1,618 Major Shareholders (%) Axiata Investment (indo) Sdn, Bhd (%) 66.36

Free Float (%) 33.64 3m Avg. Daily Val (US$m) 2.1 ICB Industry : Telecommunications / Mobile Telecommunications


Indonesia Company Guide

XL Axiata Version 10 | Bloomberg: EXCL IJ | Reuters: EXCL.JK Refer to important disclosures at the end of this report

Company Guide

XL Axiata

WHAT’S NEW

All eyes on ex-Java

Slower-than-expected rebound in 3Q18 but outlook remains healthy. Revenue of Rp5,846bn (-2.1% y-o-y, +5.4% q-o-q) was marginally below our expectations of Rp6,000bn. Service revenues of Rp4,998bn (-5.3% y-o-y, +4.5% q-o-q) returned to growth after two consecutive quarters of q-o-q declines, supported by healthy competitive dynamics in the post-pre-paid SIM registration era. Revenues from data services, which now account for ~80% of EXCL’s topline (vs. ~53% for Telkomsel), grew only marginally at 5.8% q-o-q (+6.7% y-o-y) as EXCL continued to maintain an aggressive pricing stance on the data front, despite the ~5-10% upward adjustment in data pricing instituted by competitors. Data yields as a result dipped ~8% q-o-q (-39% y-o-y) over 3Q18 but it should be highlighted that EXCL gained ~1m subscribers during the quarter vs. 10/11m subscribers losses at Telkomsel and Indosat. While the bulk of the subscriber losses at EXCL’s competitors can be attributed to the continued disconnection of unregistered SIM cards, we believe that EXCL’s aggressive pricing was also a factor driving subscriber losses at Telkomsel and Indosat. We expect to see these subscriber making meaningful contributions to EXCL’s topline over the next 2-3 quarters. EXCL has achieved ~72% of our forecast for FY18.

Data yields edged down further for EXCL


Cost controls drive EBITDA growth. EBITDA of Rp2,176bn (-4.6% y-o-y, +8.8% q-o-q) was supported by a 3% y-o-y (+1.5% q-o-q) decline in operating expenses. Savings on opex were supported by lower infrastructure expenses, which declined 1.2% y-o-y, largely driven by the renewal of tower leases at favourable rates and a 17% y-o-y decline in staff expenses due to a lower headcount. Higher marketing expenses on ex-Java expansions and higher interconnection and other direct expenses partially offset the lower expenses. Depreciation and amortisation also expanded 13% y-o-y (+3.8% q-o-q) on aggressive ex-Java expansions of EXCL over the past two years, bringing EBIT to Rp251bn (-56% y-o-y, +72% q-o-q). EXCL achieved ~71% of our EBITDA forecast for FY18.

FY18 cellular revenue revised down, but FY19 revised up. We cut our cellular revenue forecast for FY18 to 1% vs. 1.8% earlier on the back of slower-than-expected rebound of EXCL in 3Q18. However, we bump up our cellular revenue forecast for FY19 to 10.2% from 8.9% earlier, on the back of potential revenue market share gains from Telkomsel and potential upward adjustments in data pricing in 4Q18/1Q19.

Company Guide

XL Axiata


FY Dec 3Q2017 2Q2018 3Q2018 % chg yoy % chg qoq

Revenue 5,970 5,545 5,846 (2.1) 5.4

Cost of Goods Sold (623) (613) (694) 11.3 13.2

Gross Profit 5,347 4,932 5,153 (3.6) 4.5

Other Oper. (Exp)/Inc (4,771) (4,786) (4,901) 2.7 2.4

Operating Profit 576 146 251 (56.4) 72.1

Other Non Opg (Exp)/Inc (93.6) (21.8) (51.5) 45.0 136.5

Associates & JV Inc

Net Interest (Exp)/Inc (314) (208) (318) (1.3) (52.9)

Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm

Pre-tax Profit 168 (84.1) (119) nm (41.2)

Tax (71.9) (13.1) 55.6 nm nm Minority Interest 0.0 0.0 0.0 nm nm

Net Profit 94.9 (97.2) (63.1) nm (35.1)

Net profit bef Except. 94.9 (97.2) (63.1) nm (35.1)

EBITDA 2,281 2,000 2,176 (4.6) 8.8

Margins (%)

Gross Margins 89.6 88.9 88.1

Opg Profit Margins 9.6 2.6 4.3

Net Profit Margins 1.6 (1.8) (1.1)

Source of all data: Company, DBS Bank

Company Guide

XL Axiata


Critical Factors

Ex-Java to dictate growth going forward. EXCL is aggressively expanding coverage outside Java and plans to reach 80% 4G population coverage outside Java by the end of 2018. Popular plans of EXCL also remain substantially cheaper in comparison to Telkomsel’s plans outside Java. This should allow EXCL to expand its ~15% revenue market share in ex-Java regions, as EXCL continues to bridge its network gaps with Telkomsel, challenging Telkomsel’s premium pricing in the region. We expect EXCL to snatch ~2-3% revenue share outside Java in FY19, the bulk of which would be at the expense of Telkomsel, helping EXCL secure high double-digit growth from ex-Java regions. This coupled with benign competitive dynamics within Java, which contributes ~80% to EXCL’s topline, and below average exposure to declining legacy revenues (~20% for EXCL vs. ~47% for TLKM and ~50% for Indosat) should allow EXCL to expand its cellular revenues by 10.2% in FY19 vs. our previous forecast of 8.9%. . EXCL has gained 1.8% revenue share since 3Q16 much of it at the expense of Indosat

Source: Companies, DBS Bank Stringent cost controls to support EXCL’s EBITDA. Tower rental renewals, lower expenses from the managed services contract and stable interconnection costs should support margin expansion for EXCL going forward. EXCL is expecting up to 50% savings on each tower lease renewal, with the bulk of its towers being renewed over the FY19/20. Managed services contract expenses are also expected to come down due to lower revenue-sharing going forward. In addition, interconnection costs are expected to remain stable despite expansion outside Java due to higher voice over internet protocol (VoIP) use. Stringent cost controls should allow EXCL to expand its operations, without major incremental expenses.

Subscribers (m)

Prepaid ARPU (Rp K)

EBITDA margins (%)

Capex (Rp tn)

EBITDA (Rpbn)


Company Guide

XL Axiata

Appendix 1: A look at Company's listed history – what drives its share price? Revenue share is a critical factor in share price movements for XL. In our critical factor analysis over the past ~6 years, we have seen share price movements to follow mobile market share changes of telcos. This was clearly observable during the revenue share drop in FY15. EXCL share price movement with revenue share changes


0%

5%

10%

15%

20%

25%

‐

50

100

150

200

250

300

350

Jan‐2012 Jan‐2013 Jan‐2014 Jan‐2015 Jan‐2016 Jan‐2017 Jan‐2018

Rev. Mkt ShareIndexed share price XL Axiata ‐ Revenue Market Share

XL Axiata Reuters Indo. Telecom Index Rev. Market share

Company Guide

XL Axiata

Balance Sheet:

Cash flow to support capex. We have revised up EXCL’s FY19 capex in view of its aggressive expansion plans outside Java and recent depreciation of the rupiah against USD. With an average operating cash flow generation of ~Rp7.6bn over the next three years and a 1.5c net debt to EBITDA as of 2Q18, EXCL should be able support its current expansion plans comfortably, in our view. EXCL’s US$300m of USD-denominated debt is fully hedged for adverse movements in foreign currency, hence the impact on the balance sheet on the back of any decline in rupiah should be negligible. Share Price Drivers:

EXCL’s ex-Java revenue share gains yet to be priced in. XL Axiata (EXCL) is continuing to expand coverage outside Java, with plans to reach ~80% population coverage on 4G by the end of the year. EXCL has also become the second operator in most 2nd and 3rd tier cities outside Java and has plans to double its 15% revenue market share outside Java over the next five years. We believe the lion’s share of EXCL’s future growth would be driven by its ex-Java play and project for EXCL to grab ~2-3% ex-Java revenue share in FY19 – the bulk of this at the expense of Telkomsel. Thus, we bump up our FY19 cellular growth forecast for EXCL to 10.2% from 8.9% before. EXCL offers a FY17A-20F EBITDA CAGR of 7.2% vs. 3.1% for PT Telkom (TLKM) and is attractive at a FY19 EV/EBITDA of 4.4x vs. 6.4x EV/EBITDA for TLKM. Key Risks:

Bull-case valuation of EXCL at Rp3,800. Under our bull-case scenario, we assume substantial improvements in industry yields would be supported by collaborative pricing revisions by TLKM and EXCL, as the telcos opt for territorial dominance in ex-Java regions. This should drive up EXCL’s FY19F cellular revenue to 14% vs 10.2% under our base-case scenario. Sustained revenue growth, should allow the carrier to record a FY17A-20F EBITDA CAGR of 10% vs. 7.2% under our base case. Bear-case valuation of EXCL at Rp1,900. Under our bear-case scenario, we assume steep declines in industry yields as Telkomsel counters EXCL outside Java and instigates price wars within Java. This would lead to only 3% growth in FY19 cellular revenues vs +10.2% growth in our base-case scenario. Should intense competition persist through FY20, EXCL would record a FY17A-20F EBITDA CAGR of just 2% vs. our base-case projection of 7.2%. Company Background

EXCL provides a wide range of mobile telecommunication services in Indonesia. EXCL is owned by Axiata Group Berhad through Axiata Investments (Indonesia) Sdn Bhd (66.5%) and the public (33.5%).

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Company Guide

XL Axiata

Key Assumptions

FY Dec 2016A 2017A 2018F 2019F 2020F Subscribers (m) 45.9 46.8 47.7 52.5 54.1 Prepaid ARPU (Rp K) 35.0 33.0 31.5 33.1 33.4 EBITDA margins (%) 37.8 36.4 36.7 37.2 37.7 Capex (Rp tn) 5.60 6.70 6.70 6.50 6.40 EBITDA (Rpbn) 8,058 8,321 8,501 9,437 10,249

Segmental Breakdown

FY Dec 2016A 2017A 2018F 2019F 2020F Revenues (Rpbn) GSM Revenue 18,588 20,443 20,643 22,748 24,538 GSM interconnect 1,744 1,383 1,425 1,467 1,511 Other GSM 0.0 0.0 0.0 0.0 0.0 Others 1,009 1,050 1,092 1,131 1,168 Total 21,341 22,876 23,159 25,346 27,217


FY Dec 2016A 2017A 2018F 2019F 2020F Revenue 21,341 22,876 23,159 25,346 27,217 Cost of Goods Sold (1,926) (2,459) (2,305) (2,497) (2,627) Gross Profit 19,415 20,416 20,854 22,849 24,591 Other Opng (Exp)/Inc (19,403) (19,046) (18,778) (20,377) (21,749) Operating Profit 12.2 1,370 2,077 2,473 2,841 Other Non Opg (Exp)/Inc 1,706 249 (29.9) (29.9) (29.9) Associates & JV Inc 0.0 (103) 0.0 0.0 0.0 Net Interest (Exp)/Inc (1,533) (1,295) (1,218) (1,218) (1,127) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 186 221 829 1,225 1,684 Tax 190 154 (207) (306) (421) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 375 375 622 919 1,263 Net Profit before Except. 375 375 622 919 1,263 EBITDA 8,058 8,218 8,501 9,437 10,249 Growth Revenue Gth (%) (6.7) 7.2 1.2 9.4 7.4 EBITDA Gth (%) (4.0) 2.0 3.4 11.0 8.6 Opg Profit Gth (%) (99.0) 11,111.9 51.6 19.1 14.9 Net Profit Gth (Pre-ex) (%) nm 0.0 65.7 47.7 37.5 Margins & Ratio Gross Margins (%) 91.0 89.2 90.0 90.1 90.3 Opg Profit Margin (%) 0.1 6.0 9.0 9.8 10.4 Net Profit Margin (%) 1.8 1.6 2.7 3.6 4.6 ROAE (%) 2.1 1.8 2.8 4.1 5.5 ROA (%) 0.7 0.7 1.1 1.7 2.3 ROCE (%) 0.0 3.1 3.4 4.1 4.7 Div Payout Ratio (%) 60.0 60.0 60.0 60.0 60.0 Net Interest Cover (x) 0.0 1.1 1.7 2.0 2.5


Sustained revenue growth vs. declining industry top line

Company Guide

XL Axiata


FY Dec 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 Revenue 5,970 5,998 5,501 5,545 5,846 Cost of Goods Sold (623) (573) (486) (613) (694) Gross Profit 5,347 5,425 5,016 4,932 5,153 Other Oper. (Exp)/Inc (4,771) (5,171) (4,878) (4,786) (4,901) Operating Profit 576 254 138 146 251 Other Non Opg (Exp)/Inc (93.6) 263 66.1 (21.8) (51.5) Associates & JV Inc nm nm nm nm nm Net Interest (Exp)/Inc (314) (222) (275) (208) (318) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 168 295 (71.1) (84.1) (119) Tax (71.9) 109 86.5 (13.1) 55.6 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 94.9 404 15.4 (97.2) (63.1) Net profit bef Except. 94.9 404 15.4 (97.2) (63.1) EBITDA 2,281 2,119 1,986 2,000 2,176 Growth Revenue Gth (%) 5.3 0.5 (8.3) 0.8 5.4 EBITDA Gth (%) 10.0 (7.1) (6.3) 0.7 8.8 Opg Profit Gth (%) 55.2 (55.8) (45.8) 5.8 72.1 Net Profit Gth (Pre-ex) (%) (2.0) 324.9 (96.2) (729.7) (35.1) Margins Gross Margins (%) 89.6 90.5 91.2 88.9 88.1 Opg Profit Margins (%) 9.6 4.2 2.5 2.6 4.3 Net Profit Margins (%) 1.6 6.7 0.3 (1.8) (1.1)


FY Dec 2016A 2017A 2018F 2019F 2020F Net Fixed Assets 33,183 34,934 35,190 34,689 33,723 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 14,907 14,207 14,207 14,207 14,207 Cash & ST Invts 1,400 2,455 1,541 1,852 3,647 Inventory 161 143 44.9 48.7 52.1 Debtors 637 565 556 608 680 Other Current Assets 4,609 4,017 4,017 4,017 4,017 Total Assets 54,896 56,321 55,556 55,421 56,326 ST Debt 3,973 4,207 4,207 2,910 2,910 Creditor 6,503 7,476 6,177 6,706 6,884 Other Current Liab 4,002 3,544 3,456 3,543 3,558 LT Debt 14,394 15,191 15,191 15,191 15,191 Other LT Liabilities 4,816 4,273 4,273 4,273 4,273 Shareholder’s Equity 21,209 21,631 22,253 22,798 23,510 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 54,896 56,321 55,556 55,421 56,326 Non-Cash Wkg. Capital (5,098) (6,294) (5,015) (5,575) (5,693) Net Cash/(Debt) (16,967) (16,942) (17,857) (16,249) (14,454) Debtors Turn (avg days) 13.1 9.6 8.8 8.4 8.6 Creditors Turn (avg days) (350.7) (568.0) (604.8) (526.2) (518.8) Inventory Turn (avg days) (7.2) (12.4) (8.3) (3.8) (3.8) Asset Turnover (x) 0.4 0.4 0.4 0.5 0.5 Current Ratio (x) 0.5 0.5 0.4 0.5 0.6 Quick Ratio (x) 0.1 0.2 0.2 0.2 0.3 Net Debt/Equity (X) 0.8 0.8 0.8 0.7 0.6 Net Debt/Equity ex MI (X) 0.8 0.8 0.8 0.7 0.6 Capex to Debt (%) 29.7 34.1 34.4 35.7 35.6 Z-Score (X) 1.0 1.1 1.2 1.2 1.2


Company Guide

XL Axiata

Cash Flow Statement (Rpbn) FY Dec 2016A 2017A 2018F 2019F 2020F Pre-Tax Profit 186 221 829 1,225 1,684 Dep. & Amort. 8,046 6,951 6,424 6,965 7,407 Tax Paid (172) 195 (316) (257) (364) Assoc. & JV Inc/(loss) 0.0 103 0.0 0.0 0.0 Chg in Wkg.Cap. (1,001) 1,310 (1,171) 511 60.1 Other Operating CF 253 832 0.0 0.0 0.0 Net Operating CF 7,312 9,612 5,766 8,444 8,788 Capital Exp.(net) (5,456) (6,618) (6,681) (6,463) (6,441) Other Invts.(net) (315) 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 1,922 (17.2) 0.0 0.0 0.0 Net Investing CF (3,849) (6,635) (6,681) (6,463) (6,441) Div Paid 0.0 0.0 0.0 (373) (551) Chg in Gross Debt (9,306) (1,926) 0.0 (1,297) 0.0 Capital Issues 2,265 0.0 0.0 0.0 0.0 Other Financing CF 1,666 4.30 0.0 0.0 0.0 Net Financing CF (5,375) (1,922) 0.0 (1,670) (551) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (1,912) 1,055 (914) 311 1,795 Opg CFPS (Rp) 778 777 649 742 817 Free CFPS (Rp) 174 280 (85.5) 185 220



Source: DBS Bank


Operating cash flow to support the network expansions

ed: CK/ sa: MA, CW, CS

HOLD (Upgrade from Fully Valued) Last Traded Price ( 16 Nov 2018): Rp2,180 (JCI : 6,012.40) Price Target 12-mth: Rp2,000 (-8% downside) (Prev Rp2,500) Analyst Sachin MITTAL +65 66823699 [email protected]

What’s New 3Q18 EBITDA of Rp1,653bn (-49% y-o-y, +6% q-o-q)

was significantly below our expectations

Our FY19F EBITDA is 28% below consensus

Upgrade to o HOLD with lower TP of Rp2,000 as negatives are largely priced in

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2017A 2018F 2019F 2020F Revenue 29,926 22,462 23,867 25,320 EBITDA 12,724 7,004 7,472 7,940 Pre-tax Profit 1,940 (3,994) (2,893) (2,435) Net Profit 1,136 (2,863) (2,142) (1,926) Net Pft (Pre Ex.) 1,136 (2,863) (2,142) (1,926) Net Pft Gth (Pre-ex) (%) 2.8 nm 25.2 10.1 EPS (Rp) 209 (527) (394) (354) EPS Pre Ex. (Rp) 209 (527) (394) (354) EPS Gth Pre Ex (%) 3 nm 25 10 Diluted EPS (Rp) 209 (527) (394) (354) Net DPS (Rp) 0.0 0.0 0.0 0.0 BV Per Share (Rp) 2,576 2,049 1,655 1,300 PE (X) 10.4 nm nm nm PE Pre Ex. (X) 10.4 nm nm nm P/Cash Flow (X) 1.3 2.1 1.7 1.8 EV/EBITDA (X) 2.6 5.0 4.7 4.5 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 0.8 1.1 1.3 1.7 Net Debt/Equity (X) 1.4 1.8 2.2 2.7 ROAE (%) 8.3 (22.8) (21.3) (24.0) Consensus EPS (Rp): (138) (5.6) 77.7 Other Broker Recs: B: 10 S: 7 H: 11


Consensus too high although worst is behind

Negatives are largely priced in with 55% drop in the share price YTD. We expect Indosat (ISAT) to post ~6% growth in cellular revenue over FY19F, supported by benign competition in Java. We expect ~7% EBITDA growth in FY19F, supported by cost-cutting initiatives and lower churn rates. While ISAT has improved its network over the last 6-months, it may take another 12-months to change the perception and Indosat is likely to lag the industry growth rate of 7-8%. Where we differ: Our FY19F revenue/EBITDA is 10%/28% below consensus. The street is projecting a 50% q-o-q in 4Q18, which is highly unlikely given the limited room for pricing revisions. We also point out that street is projecting EBITDA margins near 40% in FY19, despite the contraction of 9M18 EBITDA margin to 31%. While cost initiatives would help, we believe 42% margins seen in the past, are highly unlikely. Potential Catalyst: Pricing revisions of competitors and news of potential acquisitions – Pricing revisions by other telcos would provide better clarity on competitive dynamics in Java. The new management has not ruled out acquisition of smaller operators. Valuation:

Upgrade to a HOLD with lower TP of Rp2,000. We revise our DCF-based (WACC 9.4%, terminal growth 0%) TP to Rp2,000 from Rp2,500 as we trim our FY18F-20F and adjust for higher capex on accelerating ex-Java expansions and depreciation of the rupiah. We upgrade the counter to a HOLD as we believe that downside risks are now aptly priced in. Key Risks to Our View:

Bull-case valuation of ISAT at Rp2,600. Indosat would benefit if competitors collaboratively raise pricing within Java, leading to FY19 cellular growth of ~8% for ISAT vs. 6% base case. Bear-case valuation of ISAT at Rp1,600. If Telkomsel disrupts pricing in Java in a bid to slow-down ex-Java expansions of EXCL, ISAT may see FY19 cellular growth of ~1%. At A Glance Issued Capital (m shrs) 5,434 Mkt. Cap (Rpbn/US$m) 11,846 / 815 Major Shareholders (%) Ooredoo Asia Pte Ltd (%) 65.0 Republic of Indonesia (%) 14.3 Free Float (%) 20.7 3m Avg. Daily Val (US$m) 0.15 ICB Industry : Telecommunications / Mobile Telecommunications


Indonesia Company Guide

Indosat Version | Bloomberg: ISAT IJ | Reuters: ISAT.JK Refer to important disclosures at the end of this report

Company Guide

Indosat

WHAT’S NEW

Benign competition in Java to support ISAT

EBITDA was below our expectations. 3Q18 EBITDA of Rp1,653bn (-49% y-o-y. +6% q-o-q) was below our expectation of Rp2,800bn. 3Q18 total revenues of Rp5,695bn (-24% y-o-y, +6% q-o-q) represent a q-o-q rebound after four consecutive q-o-q declines, supported by data re-pricing. Prepaid ARPU improved ~37% q-o-q, with the 5-10% upward revision in data yields ISAT instituted in June 2018, following Telkomsel’s lead. However, ISAT lost over 11m subscribers in 3Q18 as prepaid SIM cancellations continued through the quarter. Subscriber losses are expected to stabilise over 4Q18, with the impact of the prepaid SIM registrations largely baked in over 2Q/3Q18. Contraction of voice and SMS revenues, which account for ~30% of ISAT’s topline, further exacerbated the decline of revenues. EBITDA margin remained stable on a q-o-q basis at 29%.

FY18F revenue and EBITDA cut by 20%/34%. We expect ISAT to record ~30% y-o-y decline in cellular revenues (vs. -12% earlier) for FY18F on weakness in 1H18 and continued subscriber losses over 3Q18 vs our expectations of a stabilisation. ISAT recorded ~26% y-o-y decline in revenues in 9M18 owing to tight competition and subscriber losses in the pre-paid SIM registration era, which marked its end in May 2018. ISAT was particularly hit hard as the telco was heavily reliant on its strategy of pushing SIM starter packs loaded with promotional offers to subscribers, a strategy that became less appealing to subscribers with the mandatory registration of prepaid SIM cards coming in to play.

Competitive conditions in Java have improved since the end of prepaid SIM registrations, with Telkomsel and ISAT instituting upward revisions in data prices, helping ISAT return to a growth trajectory on a q-o-q basis. However, costs

remain escalated despite the lower revenue base, which has led to a 13% contraction of ISAT’s 9M18 EBITDA margin, from 44% to 31%. Given the higher cost base and milder- than-expected rebound seen over 3Q18 we have revised down our FY18 cellular revenues and EBITDA for ISAT by ~20%/34% respectively.

Mid-single-digit growth likely over FY19. We expect competitive conditions in Java, the region which accounts for ~90% of ISAT’s topline, to remain benign over FY19 as indicated by the recent pricing adjustments by Telkomsel. While, we do not expect another data re-pricing cycle in the near term, given EXCL’s current stance and lack of pricing revisions, we believe that industry data yields bottomed out in 2Q18 and do not expect to see a repetition of the double- digit quarterly declines in data yields as seen in the recent past, over FY19. Stable data yields and double-digit growth in data usage should allow ISAT to improve prepaid ARPUs, in our view. Besides, with the market shifting to re-charge based pricing policies, ISAT can now focus on building a more long- term relationship with subscribers, providing room for upliftments in ARPU through cross-sells and up-sells. Supported by benign competition in Java and a stickier base of subscribers, we expect ISAT to record 6% growth in cellular revenues over FY19. EBITDA is likely to record faster growth, as margins improve in the absence of high SIM card costs on starter pack sales, lower marketing and promotional expenses and other cost transformation initiatives. As such, we expect ISAT to record 7% growth in EBITDA over FY19

Company Guide

Indosat


Critical Factors

Revenue market share stabilisation unlikely in FY19. Since 3Q16, ISAT has lost ~5% revenue market share (RMS) owing to legacy declines and lack of exposure to the flourishing revenue opportunity outside Java, leaving ISAT with ~14% RMS by 3Q18. ISAT is likely to trail industry growth over FY19 as well, given the telco’s lack of exposure to ex-Java (~10% of ISAT’s topline vs. 60% for Telkomsel and ~20% for EXCL) and declines in voice and SMS revenues which account for ~28% of ISAT’s topline. Whilst, ISAT announced plans to expand its network footprint outside Java in 1Q18, our checks indicate that the telco is presently upgrading equipment in its existing coverage regions to battle ongoing issues in network quality and rising growth of data usage in Java. Hence, we do not expect a major improvement in revenue flow from ex-Java regions for ISAT in FY19. Besides the tier 2 and tier 3 cities targeted by ISAT are likely to be competitive already with at least two major operators occupying these cities. However, ISAT is the biggest beneficiary of benign competitive conditions in Java, where ISAT led by Telkomsel has already instituted upward revisions in data pricing. Under our base-case assumption of benign competitive conditions in Java continuing to be the norm through FY19, we expect ISAT to record 6% growth in cellular revenues over FY19 vs. 1.9% before.

Revenue market share losses have become the norm for ISAT


Subscribers (m)

Blended ARPU (Rp k)

EBITDA Margin %

Capex (Rp tn)

EBITDA (Rpbn)


Company Guide

Indosat

Appendix 1: A look at Company's listed history – what drives its share price? Revenue share is a critical factor in share price movements for Indonesian telcos. In our critical factor analysis, we have seen share price movements to follow mobile revenue share changes of telcos. For example, when ISAT saw a significant loss in market share in FY13, the counter had underperformed its peers significantly. ISAT share price movement with revenue share changes


0%

5%

10%

15%

20%

25%

0

20

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60

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2012 2013 2014 2015 2016 2017 2018

Indosat Reuters Indo. Telecom Index ISAT Rev. Market share

Company Guide

Indosat

Balance Sheet:

Higher capex is not a concern. ISAT's balance sheet restructuring via replacing its expensive USD loan with a series of IDR bond issuances has been positive for its balance sheet and cash flows. ISAT's USD loan portion dropped to 2% in 1H18 from 5% in 2H17. We have revised up capex for FY19/20 on the back of accelerating ex-Java expansions and depreciation of the rupiah. ISAT has the capacity to leverage its balance sheet if needed to fund higher capex in our view. Share Price Drivers:

Upward pricing revisions by EXCL. 5-10% upward adjustments to pricing by EXCL would provide room for another re-pricing cycle for Telkomsel and ISAT, helping ISAT further improve its prepaid ARPU. News on potential acquisitions. The new management at ISAT is looking to aggressively expand ISAT’s network and has mentioned that it has not ruled out the potential acquisition of a smaller operator. News of such consolidation could act as a positive catalyst for the stock Key Risks:

Bull-case valuation of ISAT at Rp2,600. ISAT would benefit if operators led by Telkomsel collaboratively undertake price hikes in Java to offset a more aggressive competitive stance outside Java. Improving yields of the industry would help ISAT improve FY19F growth in cellular revenues to ~8% vs. our base case of ~6%. Bear-case valuation of ISAT at Rp1,600. ISAT is likely to be the most affected if Telkomsel disrupts pricing in Java in a bid to slow down ex-Java expansions of EXCL. This could result in a substantial decline in industry yields, dragging down ISAT’s FY19 cellular revenue growth to 1% vs. our base case of 6%. Company Background

ISAT is a telecommunication and information service provider in Indonesia that provides cellular services (both prepaid and postpaid), fixed data services or MIDI (Multimedia, Internet & Data Communication) and fixed voice, including fixed wireless access services.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Company Guide

Indosat

Key Assumptions

FY Dec 2016A 2017A 2018F 2019F 2020F Subscribers (m) 85.6 110 86.0 94.9 96.8 Blended ARPU (Rp k) 25.2 20.3 14.8 17.0 17.0 EBITDA Margin % 43.8 42.5 31.2 31.3 31.4 Capex (Rp tn) 7.20 5.80 7.00 7.20 7.10 EBITDA (Rpbn) 12,778 12,724 7,004 7,472 7,940

Segmental Breakdown

FY Dec 2016A 2017A 2018F 2019F 2020F Revenues (Rpbn) FWA & IDD 959 913 822 789 757 Cellular 24,095 24,496 17,033 18,009 19,088 MIDI 4,131 4,518 4,608 5,069 5,474 Others 0.0 0.0 0.0 0.0 0.0 Total 29,185 29,926 22,462 23,867 25,320


FY Dec 2016A 2017A 2018F 2019F 2020F Revenue 29,185 29,926 22,462 23,867 25,320 Cost of Goods Sold (25,238) (25,914) (23,753) (24,727) (25,698) Gross Profit 3,946 4,012 (1,291) (860) (378) Other Opng (Exp)/Inc 0.0 0.0 0.0 1.00 1.00 Operating Profit 3,946 4,012 (1,291) (860) (378) Other Non Opg (Exp)/Inc (6.3) (15.1) (704) (41.8) (43.5) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (2,145) (2,057) (1,999) (1,991) (2,014) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,795 1,940 (3,994) (2,893) (2,435) Tax (520) (639) 1,314 952 731 Minority Interest (171) (166) (183) (201) (221) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,105 1,136 (2,863) (2,142) (1,926) Net Profit before Except. 1,105 1,136 (2,863) (2,142) (1,926) EBITDA 12,778 12,724 7,004 7,472 7,940 Growth Revenue Gth (%) 9.0 2.5 (24.9) 6.3 6.1 EBITDA Gth (%) 13.1 (0.4) (45.0) 6.7 6.3 Opg Profit Gth (%) 47.9 1.7 (132.2) (33.4) (56.1) Net Profit Gth (Pre-ex) (%) nm 2.8 nm 25.2 10.1 Margins & Ratio Gross Margins (%) 13.5 13.4 (5.7) (3.6) (1.5) Opg Profit Margin (%) 13.5 13.4 (5.7) (3.6) (1.5) Net Profit Margin (%) 3.8 3.8 (12.7) (9.0) (7.6) ROAE (%) 8.6 8.3 (22.8) (21.3) (24.0) ROA (%) 2.1 2.2 (5.9) (4.7) (4.3) ROCE (%) 6.8 6.8 (3.4) (2.4) (1.1) Div Payout Ratio (%) 0.0 0.0 N/A N/A N/A Net Interest Cover (x) 1.8 2.0 (0.6) (0.4) (0.2)


EBITDA growth at a faster pace than revenue

ARPU improvement over FY19 likely with rising data usage and potential for up‐selling

Company Guide

Indosat


FY Dec 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 Revenue 7,290 7,823 7,453 7,360 5,692 Cost of Goods Sold (6,458) (6,403) (6,431) (6,602) (5,767) Gross Profit 832 1,420 1,023 758 (74.1) Other Oper. (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Operating Profit 832 1,420 1,023 758 (74.1) Other Non Opg (Exp)/Inc 5.80 (1.3) (27.9) (12.1) (17.8) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (528) (513) (496) (519) (495) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 309 906 499 227 (587) Tax (97.9) (247) (140) (153) 121 Minority Interest (37.3) (47.8) (52.9) (28.1) (39.9) Net Profit 174 610 306 45.5 (506) Net profit bef Except. 174 610 306 45.5 (506) EBITDA 3,100 3,574 3,232 2,857 1,942 Growth Revenue Gth (%) (4.8) 7.3 (4.7) (1.2) (22.7) EBITDA Gth (%) (8.8) 15.3 (9.6) (11.6) (32.0) Opg Profit Gth (%) (31.3) 70.7 (28.0) (25.9) (109.8) Net Profit Gth (Pre-ex) (%) (33.2) 250.9 (49.8) (85.1) (1,211.8) Margins Gross Margins (%) 11.4 18.2 13.7 10.3 (1.3) Opg Profit Margins (%) 11.4 18.2 13.7 10.3 (1.3) Net Profit Margins (%) 2.4 7.8 4.1 0.6 (8.9)


FY Dec 2016A 2017A 2018F 2019F 2020F Net Fixed Assets 39,078 35,892 34,414 33,101 31,732 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 3,687 5,290 5,149 5,008 4,867 Cash & ST Invts 1,850 1,926 505 162 205 Inventory 79.3 87.8 87.8 93.1 98.7 Debtors 2,707 3,846 2,887 3,067 3,381 Other Current Assets 3,437 3,871 3,599 3,745 3,898 Total Assets 50,839 50,913 46,642 45,176 44,182 ST Debt 8,366 5,178 5,000 5,000 5,000 Creditor 845 872 784 832 881 Other Current Liab 9,875 10,402 9,077 9,505 9,665 LT Debt 15,309 17,458 17,458 17,458 17,958 Other LT Liabilities 2,266 2,187 2,187 2,187 2,187 Shareholder’s Equity 13,350 13,997 11,134 8,993 7,067 Minority Interests 827 819 1,001 1,202 1,424 Total Cap. & Liab. 50,839 50,913 46,642 45,176 44,182 Non-Cash Wkg. Capital (4,497) (3,470) (3,287) (3,431) (3,169) Net Cash/(Debt) (21,824) (20,709) (21,953) (22,296) (22,753) Debtors Turn (avg days) 34.0 40.0 54.7 45.5 46.5 Creditors Turn (avg days) 17.9 18.2 19.6 18.0 18.0 Inventory Turn (avg days) 1.3 1.8 2.1 2.0 2.0 Asset Turnover (x) 0.5 0.6 0.5 0.5 0.6 Current Ratio (x) 0.4 0.6 0.5 0.5 0.5 Quick Ratio (x) 0.2 0.4 0.2 0.2 0.2 Net Debt/Equity (X) 1.5 1.4 1.8 2.2 2.7 Net Debt/Equity ex MI (X) 1.6 1.5 2.0 2.5 3.2 Capex to Debt (%) 30.4 25.8 31.0 31.9 30.9 Z-Score (X) 1.1 1.1 1.2 1.2 1.2


Company Guide

Indosat


FY Dec 2016A 2017A 2018F 2019F 2020F Pre-Tax Profit 1,795 1,940 (3,994) (2,893) (2,435) Dep. & Amort. 9,114 8,994 8,577 8,614 8,600 Tax Paid (236) (936,165) 419 1,133 841 Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (1,959) (738) 712 (37.6) (373) Other Operating CF 1,037 934,930 0.0 0.0 0.0 Net Operating CF 9,752 8,961 5,715 6,817 6,633 Capital Exp.(net) (7,208) (5,831) (6,958) (7,160) (7,090) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (83.9) (941) 0.0 0.0 0.0 Net Investing CF (7,291) (6,773) (6,958) (7,160) (7,090) Div Paid 0.0 0.0 0.0 0.0 0.0 Chg in Gross Debt (4,126) (1,601) (178) 0.0 500 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (107) (511) 0.0 0.0 0.0 Net Financing CF (4,233) (2,112) (178) 0.0 500 Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (1,773) 75.9 (1,421) (344) 43.6 Opg CFPS (Rp) 2,155 1,785 921 1,261 1,289 Free CFPS (Rp) 468 576 (229) (63.2) (84.0)



Source: DBS Bank


Operating cash flows and an unlevered balance sheet to support higher capex

ed: KK/ sa: MA, CW, CS

BUY

Last Traded Price ( 16 Nov 2018): Rp4,930(JCI : 6,012.35) Price Target 12-mth:Rp5,800 (18% upside) (Prev Rp6,200) Analyst Sachin MITTAL+65 [email protected]

What’s New 3Q18 EBITDA of Rp556bn (+10% y-o-y, +0.1% q-o-q)

was slighly lower than our forecast of Rp565bn due lower subscriber adds.

Upgraded home-passed guidance should assuage market concerns over slow expansion

Maintain BUY with a revised TP of Rp5,800

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2017A 2018F 2019F 2020F Revenue 3,399 3,805 4,213 4,649 EBITDA 2,001 2,208 2,416 2,665 Pre-tax Profit 1,339 1,489 1,629 1,800 Net Profit 1,007 1,120 1,225 1,353 Net Pft (Pre Ex.) 1,007 1,120 1,225 1,353 Net Pft Gth (Pre-ex) (%) 23.1 11.2 9.4 10.4 EPS (Rp) 341 379 434 479 EPS Pre Ex. (Rp) 341 379 434 479 EPS Gth Pre Ex (%) 25 11 14 10 Diluted EPS (Rp) 341 379 415 458 Net DPS (Rp) 170 189 217 239 BV Per Share (Rp) 1,531 1,739 2,055 2,317 PE (X) 14.5 13.0 11.4 10.3 PE Pre Ex. (X) 14.5 13.0 11.4 10.3 P/Cash Flow (X) 9.4 8.0 6.9 6.2 EV/EBITDA (X) 7.0 6.2 5.3 4.7 Net Div Yield (%) 3.5 3.8 4.4 4.9 P/Book Value (X) 3.2 2.8 2.4 2.1 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 23.7 23.2 22.4 21.9 Earnings Rev (%): (1) (7) (7) Consensus EPS (Rp): 385 444 491 Other Broker Recs: B: 7 S: 0 H: 1


Faster network rollout to lower risk of new entrants in the long term Accelerating subscriber growth amid benign competition. Link Net has upgraded its guidance on homes passed to 250k for FY19F from 180k in FY18 indicating potential pick up in subscriber growth. we think the timing is quite opportune as its key competitor Telkom has been raising pricing for its premium subscribers. We project revenue and EBITDA CAGR of 11% and 10% respectively over FY18-21F at Link Net. The stock is is attractive, trading at a FY19F forward EV/EBITDA of 5.1 vs 7.0 of peers and 1SDs below its historical average of xxx . Where we differ. Our FY19F EBITDA is 2% lower than consensus due to lower margin assumption. We think faster network rollout may result in slighly lower EBITDA margins. We foresee benign competition and continuation of the oligopolistic market structure over FY18/19F. The change in the composition of the board of directors should address investors’ concerns about corporate governance issue. Potential catalyst: Acceleration in subscriber growth in 1Q19F as the impact of 10% higher pricing by LinkNet towards the end of 3Q18 should have stablized by then. Valuation:

BUY with a revised TP of Rp 5,800. Our DCF-based TP (WACC of 10.2% & terminal growth of 3%) is lowered to Rp 5,800 from 6,200, due to ~20% rise in FY19F/20F capital expenditure and 1%/3%3% lower FY18F/19F/20F EBITDA. We roll forward our TP to FY19F. Key Risks to Our View:

Broadband penetration in existing coverage areas may drop. If broadband penetration in areas with home-passed drops by 20 basis point each versus our base case assumption of stable penetration, it may lead to our bear case valuation of Rp4100 At A Glance Issued Capital (m shrs) 3,043 Mkt. Cap (Rpbn/US$m) 15,000 / 1,032 Major Shareholders (%) Asia Link Dewa Pte Ltd (%) 34.95 PT First Media (%) 27.42 UBS AG LDN (%) 6.23

Free Float (%) 31.4 3m Avg. Daily Val (US$m) 0.30 ICB Industry :Telecommunications / Fixed Line Telecommunications


IndonesiaCompany Guide

PT Link Net Tbk Version 2 |Bloomberg: LINK IJ| Reuters: LINK.JK Refer to important disclosures at the end of this report

Company Guide

PT Link Net Tbk

WHAT’S NEW

Shifting priority away from ROIC growth

3Q18 EBITDA was within expectations. 3Q18 EBITDA of Rp 556bn (+10% y-o-y, +0.1% q-o-q) was in line with our estimate of Rp 565bn. EBITDA was supported by only a marginal rise in content costs of 2.7% q-o-q (-6.9% y-o-y), despite the depreciation of the Rupiah against the US Dollar, partially offsetting the impact of higher marketing and other expenses. 3Q18 revenue of Rp 949bn (+11.0% y-o-y, 1.1% q-o-q) was in line with our expectations but growth decelerated in 3Q18 from 11.5% in 2Q18. Link Net raised pricing by 5-10% following Telkom Indonesia’s lead, which also raised pricing by 5-10% on a selected base of 700k subscribers, but the price changes were instituted in September and as a result average revenue per user (ARPU) remained stable at Rp 420k (0.0% y-o-y). With the price increase Link Net recorded an increase in subscriber churn and as a result recorded only 6,000 net subscriber additions over the quarter vs. ~12,000 subscribers added on average over the past four quarters. 9M18 revenue represents ~73% of our annual revenue forecast for Link Net. Its 3Q18 net income of Rp 269bn (+7.5% y-o-y, -4.1% q-o-q) was slightly below our expectations. A rise in interest expenses (55% y-o-y) and depreciation and amortisation costs (+12% y-o-y) dented net profits for the quarter.

Penetration edged down as a result of lower subscriber adds and expanded household coverage. Link Net expanded coverage to 74k households in 3Q18 vs. 76k over 1H18. Lower subscriber adds of 6,000 however, resulted in a dip in penetration over the quarter to 27.9% from 28.6% in 2Q18.

Link Net plans to expand coverage by 250k homes passed in FY19F up ~40% from FY18F’s guided network expansion of 180k (150k YTD). With high speed broadband penetration at 5-6%, Link Net has immense potential to capitalise on by expanding coverage. For example, IndiHome by Telkom Indonesia added 570k subscribers in 3Q18 (1.7m over 9M18) driven by aggressive expansion plans. Link Net is shifting its focus away from prioritising ROIC to revenue and EBITDA growth through aggressive expansion, which we believe should bode well for the telecommunications company (telco) as Link Net exposes itself to a wider base of subscribers. The move also limits the ability of smaller operators to capitalise on the absence of Link Net on certain regions. Accordingly, we have revised up our FY19F capex forecast upwards by 19% to Rp 1.3tn and brought down our penetration levels to ~29% over FY18-20F to reflect for the lag in subscriber additions in new coverage regions.

Company Guide

PT Link Net Tbk


FY Dec 3Q2017 2Q2018 3Q2018 % chg yoy % chg qoq

Revenue 855 939 949 11.0 1.1

Cost of Goods Sold (181) (197) (205) 13.3 3.8

Gross Profit 674 741 744 10.4 0.4

Other Oper. (Exp)/Inc (332) (364) (370) 11.3 1.6

Operating Profit 342 378 375 9.6 (0.8)

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm

Associates & JV Inc 0.0 0.0 0.0 nm nm

Net Interest (Exp)/Inc (9.4) (4.6) (17.0) (81.3) (269.5)

Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm

Pre-tax Profit 333 373 358 7.6 (4.1)

Tax (82.5) (92.5) (88.7) 7.6 (4.1)

Minority Interest 0.0 0.0 0.0 nm nm

Net Profit 250 281 269 7.5 (4.1)

Net profit bef Except. 250 281 269 7.5 (4.1)

EBITDA 504 555 556 10.4 0.1

Margins (%)

Gross Margins 78.9 79.0 78.4

Opg Profit Margins 40.0 40.2 39.5

Net Profit Margins 29.3 29.9 28.3

Source of all data: Company, DBS Bank

Company Guide

PT Link Net Tbk


Critical Factors

Penetration rates to edge down due to expansions before subsequent pick up. Penetration - defined as the number of subscribers using Link Net’s services within areas of coverage - hovered around ~28% in 3Q18, suggesting ample room for subscriber growth in the future. According to the company, areas with new network roll-outs recording penetration levels of ~10% in the first year, could rise to 20%-30% over the next 2-3 years depending on the competitiveness of the region. This suggests that there is a lag in subscriber additions and revenue generation after the initial deployment of the network. Link Net has covered ~327k homes over the past two years and plans to add 200k / 250k homes passed in FY18/19, implying rapid expansion plans. As a result of the penetration lag associated with the expansion, we expect penetration to edge down in the short term before accelerating subsequently over the next 2-3 years. However, aggressive marketing efforts by Link Net in existing coverage regions should partially offset any lags in penetration, in our view. ARPU growth in the near term. Given the low penetration of fixed broadband and high capex involved in providing fixed coverage in Indonesia, we do not expect more than two players to compete in the same geographical markets. As a result, we believe much of the competition Link Net is likely to face would come from TLKM’s IndiHome, the current market leader in the fixed broadband space. TLKM’s services in this segment are marketed at a slight discount to Link Net’s services. Indihome, raised pricing in 3Q18 by 5-10%. This indicates rational pricing behaviour by the market leader, which bodes well for the fixed broadband sector. Following IndiHome’s footsteps, Link Net also instituted 5-10% upward revision in pricing over 3Q18. We believe further upward adjustments would be possible if IndiHome continues to raise pricing. Conservatively, we have projected a 2%/1% growth in ARPU for FY18F/19F to reflect this.

Broadband Penetration

Bundled ARPU

Total RGUs


Company Guide

PT Link Net Tbk

Appendix 1: A look at Company's listed history – what drives its share price? Penetration and ARPU are critical factors. In the critical factor analysis we have conducted using quarterly data since 2014, we have seen Link Net share price movements follow penetration and blended ARPU. We believe penetration has had a higher impact on share prices than blended ARPU however. Higher penetration generally indicates better asset utilisation (due to higher % of households using Link Net network) without a significant increase in capex which has a positive impact on ROICs of the company. In addition, higher ARPU also has a positive impact on earnings as it drives better revenue and margins.

Sources: Company data, Reuters, DBS Bank

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Company Guide

PT Link Net Tbk

Balance Sheet:

Strong balance sheet and cash flow generation. Link Net has consistently maintained a net cash position with fairly low levels of debt. This provides the company with ample room to gear up and the management is willing to resort to debt for its guided expansion in FY19, with a projected capex of ~Rp1.3tn.We believe that the company should be able to comfortably fund this capex through its operating cash flows. With strong cash generation, we expect the management to be able to meet its guided payout ratios (~50%) over the next 1-2 years. Share Price Drivers:

Reaccelerating subscriber and EBITDA growth even at the expense of ROIC. Link Net upgraded its guidance on homes passed to 250k for FY19F from 180k in FY18 suggesting that the company is now going for subscriber and EBITDA growth at the expense of ROIC. This should put to rest concerns over Link Net not expanding fast enough, opening up room for smaller broadband operators to capitalise on, in our view. We project revenue and EBITDA CAGR of 11.4% and 11.3% respectively over FY18-21F. Link Net is attractive, trading at a FY19F forward EV/EBITDA of 5.1 vs 7.0 of peers and 1SDs below. Bull-case TP of Rp6,600. In our bull-case scenario, we have assumed higher demand growth for high-speed broadband in Indonesian metros along with lower-than-expected competition levels in areas of new roll-outs. We believe this would lead to a faster uptake of Link Net’s services with a penetration rate of 29.1% in FY19F. Benign competition in roll-out areas would also translate to faster growth in blended ARPU to Rp436k in FY19 vs our base-case scenario of Rp433k. This would result in a TP of Rp6,600. Bear-case TP of Rp4,200. In our bear-case scenario, we have assumed lower growth for high-speed broadband along with escalated competition in new rollout regions. We believe this would lead to a drop in penetration levels to 28.1% in FY19 from 28.5% in FY17 while escalated competition in new regions would lead to a faster contraction of blended ARPUs to Rp405k in FY19. This would result in a TP of Rp4,200. Key Risks:

Broadband penetration in existing coverage areas may not rise depressing growth. If Link Net is unable to improve broadband penetration in existing areas due to competition or poor marketing, revenue and EBITDA growth will lag our projections. Company Background

Link Net is a leading residential fixed broadband and Pay TV operator in Indonesia.

Leverage & asset turnover (x)

Capital expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Company Guide

PT Link Net Tbk

Key Assumptions

FY Dec 2016A 2017A 2018F 2019F 2020F Broadband Penetration 0.03 0.03 0.03 0.03 0.03 Bundled ARPU 407 421 428 428 426 Total RGUs 1,024 1,120 1,227 1,359 1,494

Segmental Breakdown

FY Dec 2016A 2017A 2018F 2019F 2020F Revenues (Rpbn) Broadband Internet 1,670 1,920 2,140 2,358 2,589 Pay Tv 1,086 1,243 1,386 1,527 1,677 Others 199 236 279 328 383 Total 2,954 3,399 3,805 4,213 4,649 (Rpbn)


FY Dec 2016A 2017A 2018F 2019F 2020F Revenue 2,954 3,399 3,805 4,213 4,649 Cost of Goods Sold (637) (707) (804) (898) (997) Gross Profit 2,317 2,693 3,001 3,315 3,653 Other Opng (Exp)/Inc (1,195) (1,336) (1,493) (1,684) (1,856) Operating Profit 1,122 1,357 1,508 1,631 1,797 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (32.7) (17.5) (19.1) (1.4) 2.93 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,089 1,339 1,489 1,629 1,800 Tax (271) (332) (369) (404) (446) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 819 1,007 1,120 1,225 1,353 Net Profit before Except. 819 1,007 1,120 1,225 1,353 EBITDA 1,727 2,001 2,208 2,416 2,665 Growth Revenue Gth (%) 15.2 15.1 11.9 10.7 10.3 EBITDA Gth (%) 20.8 15.9 10.3 9.4 10.3 Opg Profit Gth (%) 20.0 21.0 11.2 8.1 10.2 Net Profit Gth (Pre-ex) (%) 28.0 23.1 11.2 9.4 10.4 Margins & Ratio Gross Margins (%) 78.4 79.2 78.9 78.7 78.6 Opg Profit Margin (%) 38.0 39.9 39.6 38.7 38.6 Net Profit Margin (%) 27.7 29.6 29.4 29.1 29.1 ROAE (%) 21.5 23.7 23.2 22.4 21.9 ROA (%) 17.2 18.6 18.4 18.1 18.0 ROCE (%) 20.8 22.6 22.4 21.6 21.1 Div Payout Ratio (%) 35.0 50.0 50.0 50.0 50.0 Net Interest Cover (x) 34.3 77.5 79.2 1,128.8 NM


Growth mainly stemmed from the broadband segment.

Company Guide

PT Link Net Tbk


FY Dec 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 Revenue 855 894 907 939 949 Cost of Goods Sold (181) (186) (189) (197) (205) Gross Profit 674 708 718 741 744 Other Oper. (Exp)/Inc (332) (354) (358) (364) (370) Operating Profit 342 354 360 378 375 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (9.4) 1.98 (5.9) (4.6) (17.0) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 333 355 354 373 358 Tax (82.5) (88.5) (87.9) (92.5) (88.7) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 250 267 266 281 269 Net profit bef Except. 250 267 266 281 269 EBITDA 504 522 534 555 556 Growth Revenue Gth (%) 1.6 4.6 1.4 3.5 1.1 EBITDA Gth (%) 0.2 3.6 2.4 3.9 0.1 Opg Profit Gth (%) (0.6) 3.4 1.9 4.8 (0.8) Net Profit Gth (Pre-ex) (%) (1.6) 6.8 (0.3) 5.3 (4.1) Margins Gross Margins (%) 78.9 79.2 79.2 79.0 78.4 Opg Profit Margins (%) 40.0 39.6 39.7 40.2 39.5 Net Profit Margins (%) 29.3 29.9 29.4 29.9 28.3


FY Dec 2016A 2017A 2018F 2019F 2020F Net Fixed Assets 3,807 4,117 4,410 4,944 5,460 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 340 415 429 442 456 Cash & ST Invts 547 766 1,036 1,164 1,386 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 324 399 447 494 546 Other Current Assets 36.1 68.8 68.8 68.8 68.8 Total Assets 5,055 5,766 6,390 7,113 7,917 ST Debt 48.9 37.1 37.1 37.1 37.1 Creditor 233 314 352 390 430 Other Current Liab 569 664 683 703 725 LT Debt 130 94.3 45.6 45.6 45.6 Other LT Liabilities 111 132 132 132 132 Shareholder’s Equity 3,963 4,524 5,140 5,806 6,547 Minority Interests 0.0 0.0 0.0 0.0 0.01 Total Cap. & Liab. 5,055 5,766 6,390 7,113 7,917 Non-Cash Wkg. Capital (441) (511) (519) (529) (541) Net Cash/(Debt) 368 635 953 1,081 1,303 Debtors Turn (avg days) 35.0 38.8 40.6 40.8 40.8 Creditors Turn (avg days) 2,315.6 1,599.5 1,169.4 1,199.7 1,162.8 Inventory Turn (avg days) N/A N/A N/A N/A N/A Asset Turnover (x) 0.6 0.6 0.6 0.6 0.6 Current Ratio (x) 1.1 1.2 1.4 1.5 1.7 Quick Ratio (x) 1.0 1.1 1.4 1.5 1.6 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 416.5 738.7 1,216.6 1,610.9 1,691.1 Z-Score (X) 8.9 8.2 8.0 8.0 8.0


Gross margins have remained relatively stable.

Company Guide

PT Link Net Tbk


FY Dec 2016A 2017A 2018F 2019F 2020F Pre-Tax Profit 1,089 1,339 1,489 1,629 1,800 Dep. & Amort. 605 644 700 785 868 Tax Paid (243) (352) (351) (384) (424) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 119 90.0 (10.1) (10.2) (10.8) Other Operating CF (9.2) (175) 0.0 0.0 0.0 Net Operating CF 1,561 1,547 1,828 2,020 2,233 Capital Exp.(net) (746) (971) (1,006) (1,332) (1,398) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 1.79 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (745) (971) (1,006) (1,332) (1,398) Div Paid (128) (286) (504) (560) (613) Chg in Gross Debt (68.7) (48.7) (48.7) 0.0 0.0 Capital Issues (386) (15.4) 0.0 0.0 0.0 Other Financing CF (8.1) (7.2) 0.0 0.0 0.0 Net Financing CF (591) (358) (552) (560) (613) Currency Adjustments (4.0) 0.37 0.0 0.0 0.0 Chg in Cash 221 219 270 128 222 Opg CFPS (Rp) 478 493 622 719 794 Free CFPS (Rp) 270 195 278 244 295



Source: DBS Bank


Management expects to gradually increase the dividend payout over time.

Industry Focus

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 19 Nov 2018 19:00:43 (WIB) Dissemination Date: 19 Nov 2018 19:13:27 (WIB)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated

corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)

redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees

only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Industry Focus

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have

a proprietary position in the securities XL Axiata and Indosat recommended in this report as of 31 Oct 2018

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

Compensation for investment banking services:

3. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12

months for investment banking services from XL Axiata, Indosat as of 31 Oct 2018

4. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend

to seek compensation for investment banking services from XL Axiata as of 31 Oct 2018

5. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering

of securities for XL Axiata, Indosat in the past 12 months, as of 31 Oct 2018

6. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of

securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons

wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any

security discussed in this document should contact DBSVUSA exclusively

Disclosure of previous investment recommendation produced:

7. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published

other investment recommendations in respect of the same securities / instruments recommended in this research report during the

preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment

recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other

affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his

spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Industry Focus

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn

No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Industry Focus

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Industry Focus

DBS Regional Research Offices HONG KONG DBS (Hong Kong) Ltd Contact: Carol Wu 11th Floor The Center 99 Queen’s Road Central Central, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected]

MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]

SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E

THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]

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