Telkom Alert : FY10 result guidance is below projection

Telkom CEO is quoted in Investor Daily that the company may deliver yoy revenue and net profit growth of 2-3% and 1% respectively. These would imply FY10 gross revenue and net profit of Rp68.9-69.6tr and Rp11.5tr; which equate to approximately 95% of our FY10 projections. Ex-forex,
Telkom's FY10 NP would have risen by approx 7% yoy.Based on these, we have provided a more detail FY10 result preview (refer to table below). Despite lower top line revenue trend, the consolidated Ebitda may reach Rp38.8tr (+6% yoy), which is inline with our projection.
 

We believe that lower than expected revenue is largely due to weak Telkomsel number, in particular during 4Q10. Intense competition remains during the 4Q10. As we have highlighted, Tsel launched new promo "Double Talkmania" in response to the competitors' promo. These should result into lower service prices (including for voice and SMS).
 

Unfortunately, we think this will continue into 1Q11. We have noticed that Natrindo Telecom Selular (NTS) had recently received more support from its parent company; while XL had just launched another new acquisition strategy. We argue with still 10 operators in the market, the industry will continue to face with a very high churn rate of 15-20% per month - making it difficult for any operator to raise their prices - until after perhaps there are regulatory changes that may be more fair to major three operators.

Price (IDR) 7,150
Price target (IDR) 9,000
52-week range (IDR) 9,800.00 -7,100.00
Market cap (USDm) 16,065
Shares outstanding (m) 19,733.7
Net debt/equity (%) 9.3
Book value/share (IDR) 2,561
Price/book (x) 2.79

analysis by : Deutsche Bank