Zacks_Analysts' Blog : Telekomunikasi Upgraded to Neutral - Analyst Blog

We upgrade our recommendation for P.T. Telekomunikasi Indonesia Tbk (TLK) to Neutral, which signifies that the stock will perform almost in line with the broader market. Despite facing competition, Telekomunikasi is exhibiting solid growth in cellular services and data & Internet revenue that may reduce its top-line volatility.

Management estimates that its wireless subscribers will grow year over year by 10-13% in 2011. The company has given a preliminary estimation of 94 million wireless subscribers at the end of 2010. Telekomunikasi is expected to add around 10-12 million wireless subscribers in 2011.

Telekomunikasi has decided to spread out its radio access network infrastructure throughout Indonesia. The new transformation initiative will converge IP and optical networks to enable Telekomunikasi to effectively tackle growing data traffic, simplify network structure, and reduce costs.

Management has taken a decision to upgrade its existing HSPA network to HSPA+ that will enable the company to offer broadband access speed up to 21 Mbps to its subscribers. Telekomunikasi has selected Alcatel-Lucent (ALU) to supply infrastructure gears for its backbone network transformation project.

Telekomunikasi is trying hard to consummate its first ever cross-broader acquisition in Cambodia. The company is aiming to purchase the majority stake of CamGSM, the largest wireless operator in Cambodia, for approximately $500 million. Mobitel and Callcards are the two popular brands of CamGSM.

The proposed acquisition is expected to be closed by the first quarter of 2011. However, France Telecom S.A. (FTE) has also become a contender for a majority stake in CamGSM.

On the other side, Telekomunikasi declared that its fiscal 2010 revenue declined by 4%-6% year over year. This was a significant departure from the company’s earlier prediction of a year-over-year growth of 5%-10% in its top line.

Management cites declining growth of its wireless revenue as the primary reason for its downward revised estimates. The wireless services market of Indonesia is quickly maturing as several operators are offering more or less similar services.