Telekomunikasi Indonesia Earnings: Lots of Room for Data and Wireless Growth

By Markets Fool.com

Image source: Telkom Indonesia.

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Telekomunikasi Indonesia (NYSE: TLK) recently reported second-quarter results. The report supported Telkom's sustained share price gains, and the stock price has now increased by 55% over the past 52 weeks.

Here's what you need to know about Telkom's second quarter.

Telkom Indonesia's Q2 results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (Year Over Year)

Revenue

$2.14 billion

$1.87 billion

14.6%

Total comprehensive income

$570 million

$412 million

38.4%

GAAP EPS (per diluted American depositary share)

$0.81

$0.55

46.7%

Data source: Telkom Indonesia. Calculated by subtracting first-quarter results from first-half results using exchange rate of 13,500 Indonesian rupiah to 1 U.S. dollar.

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What happened with Telkom Indonesia this quarter?

The company is riding a strong wave of Indonesian interest in internet services and other data products. In the first half of 2016, data-related revenues jumped 50.7% higher year over year.

  • Telkom is also still exploring the early days of smartphone adoption in Indonesia. Wireless subsidiary Telkomsel saw its smartphone customer count soar 46% higher over the last four quarters, landing at 70 million users.
  • The company owns nearly 3,000 acres of currently unused land and is planning to leverage this asset in the coming years. Telkom spent about $81 million on office space rental fees last year and hopes to bring that expense down by moving into office spaces built on this land reserve. Some land may also be treated as an investment asset, sold, or leased to other companies in need of Indonesian real estate.

Management reiterated its full-year 2016 guidance targets, as follows:

  • Both Telkom and Telkomsel are expected to grow revenues faster than their local markets, driven by rising digital sales. To set the baseline for that comparison, the industry is seen growing at a 10% clip this year.
  • EBITDA margins should decline somewhat as Telkom invests heavily in its digital network infrastructure.

What management had to say

On the earnings call with financial analysts, Telkom CEO Alex Sinaga highlighted that both the company as a whole and Telkomsel on its own achieved double-digit growth across revenue, EBITDA profits, and net income. The profit growth was helped by tight cost controls, as Sinaga pointed out:

Our expenses increased 8.5% In the meantime, our expense increased by 8.5% year-on-year, lower than revenue growth, partly driven by operating and maintenance and marketing expenses. Operation and maintenance expense, which accounted 44.2% of the total expenses, grew by 14.6% in line with the continued infrastructure development both in cellular and fixed-line businesses in an effort to grow Digital Business growth.

Thanks to revenues rising faster than expenses, profit margins widened across the board. Deeper investments in the digital and wireless operations should help Telkom maintain that trend for the foreseeable future.

Looking ahead

The company has no immediate plans to increase dividend payouts or share buybacks, even though cash flows are on the rise and Telkom recently raised some additional cash in a secondary stock sale. Instead, management is investing heavily in infrastructure builds and also keeping its war chest stocked for potential acquisitions.

The IndiHome broadband and cable TV service reported 1.5 million total subscribers in the second quarter, leaving lots of runway for future growth in a nation with 238 million citizens grouped into 61 million households. Sinaga expects to reach 2 million subscribers by the end of the year. Some 80% of IndiHome's new customers sign up for the faster and more profitable fiber-optic package, with average monthly revenue per user (ARPU) 40% above the outdated copper-line service.

The ARPU levels are expected to rise as the fiber network installations expand to more Indonesian cities and suburbs. The company is planning to promote more expensive services for multiple TV sets per household, along with karaoke features and other fiber-only exclusives.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Telkom Indonesia. Try any of our Foolish newsletter services free for 30 days.

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