Global Research

4 May 2016

 

Telkom Indonesia

Good start to 2016

Q: How did the results compare vs expectations?

Telkomsel continued its strong momentum in Q116 with Revenues up 17.8% yoy to Rp20,196b driven by 1) data traffic growth +89.6% yoy and 2) better than expected minutes growth of 24.8% yoy. EBITDA came in at Rp11,673b (26.5% yoy) translating into EBITDA margin of 57.8% (+210bp qoq). Consolidated revenue at Rp27,542b grew 16.6% yoy driven by data, internet and IT services. Consol. EBITDA of Rp14,655b, (margin of 53.2%) came in slightly lower than expectations on account of higher O&M and personnel cost. Reported net profit at Rp4,587b was up 20.3% yoy. The company has achieved 24%/26%/25% of our revised 2016 Rev/EBITDA/Net income estimates.

Q: What were the most noteworthy areas in the result?

Digital business remains the key growth driver (+48.7% yoy) accounting for 34% of total revenues in Q116. Data revenues grew 48.4% yoy to Rp6,252b due to 1) increase 3G/4G device adoption to 64.5m users (+47.5% yoy, 42% of total customer base) and 2) successful migration of Pay As You Use (PAYU) customers to Flash packages. Legacy business grew by 6.4% yoy (Voice +8.9% and SMS +4.8% yoy) through successful implementation of cluster-based pricing and market segmentation. On the fixed line side, focus remains on monetization of fiber homes-passed (~10m fiber homes-passed as of Q116) and driving broadband ARPUs by pushing its IndiHome triple play services – IndiHome subs. reached 1.35m (+23% qoq) with ARPU of Rp326K (+5% qoq) in Q116.

Q: Has the company's outlook/ guidance changed?

Management reiterated its 2016 guidance - 1) Revenue growth in-line or marginally better than industry (which it expects to be ~9% yoy); 2) Marginal decline in EBITDA margins (vs 2015) for both TLKM and TSEL on account of higher opex related to digital and broadband infrastructure expansion; and 3) Capex at 22-25% of sales. TLKM also guided for dividend payout of 60%. We raise our FY16/17E earnings estimates by 2%/4% to account for better than expected minutes growth and data traffic.

Valuation: Maintain Neutral with higher SoTP based PT of Rp3,900

We increase our SoTP based PT to Rp3,900 (vs Rp3,700 previously) driven by earnings upgrade. We maintain Neutral as we believe the risk-reward is balanced following its recent share price outperformance – TLKM share price up 27.9% since Sep 2015.

Equities

Indonesia

Fixed-Line Communications

12-month ratingNeutral

12m price targetRp3,900

Prior: Rp3,700

PriceRp3,440

RIC:  TLKM.JK BBG:  TLKM IJ

Trading data and key metrics

52-wk rangeRp3,780-2,600

Market cap.Rp337,725bn/US$25.6bn

Shares o/s98,176m (ORD)

Free float35%

Avg. daily volume ('000)100,668

Avg. daily value (m)Rp343,817.5

Common s/h equity (12/16E)Rp81,581bn

P/BV (12/16E)4.1x

Net debt / EBITDA (12/16E)0.1x

EPS (UBS, diluted) (Rp)

From

To

% ch

Cons.

12/16E

184

188

2

183

12/17E

210

217

4

209

12/18E

238

244

2

233

Suresh A Mahadevan, CFA

Analyst

suresh.mahadevan@ubs.com

+65-6495 5906

Namrata Penta

Associate Analyst

namrata.penta@ubs.com

+91-22-6155 6059

Highlights (Rpbn)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Revenues

82,967

89,696

102,470

114,637

125,795

137,003

146,662

155,336

EBIT (UBS)

25,996

28,542

32,881

37,685

42,695

47,819

52,786

57,071

Net earnings (UBS)

14,409

14,461

15,524

18,499

21,336

23,928

26,123

28,196

EPS (UBS, diluted) (Rp)

150

148

159

188

217

244

266

287

DPS (Rp)

102

89

100

119

138

166

181

210

Net (debt) / cash

1,312

(2,983)

(3,677)

(3,720)

(3,816)

(1,387)

(1,070)

2,026

Profitability/valuation

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

EBIT margin %

31.3

31.8

32.1

32.9

33.9

34.9

36.0

36.7

ROIC (EBIT) %

36.0

35.0

36.0

38.2

40.4

42.8

44.8

46.2

EV/EBITDA (core) x

7.7

8.2

8.2

8.8

8.0

7.3

6.7

6.3

P/E (UBS, diluted) x

14.5

17.1

17.9

18.3

15.8

14.1

12.9

12.0

Equity FCF (UBS) yield %

7.7

4.7

5.9

4.3

4.8

5.6

6.1

7.8

Net dividend yield %

4.7

3.5

3.5

3.5

4.0

4.8

5.3

6.1

Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a share price of Rp3,440 on 03 May 2016 22:36 HKT

 

Figure 1: TLKM – Q1 result snapshot

Rp bn

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

%qoq

%yoy

Telkom

 

 

 

 

 

 

 

 

 

 

 

Revenue

21,250

22,292

22,299

23,855

23,616

25,224

26,879

26,751

27,542

3.0%

16.6%

Operating expenses (ex D&A)

(10,259)

(10,954)

(10,992)

(11,818)

(11,279)

(14,021)

(13,345)

(12,410)

(12,887)

3.8%

14.3%

EBITDA

10,991

11,338

11,307

12,037

12,337

11,203

13,534

14,341

14,655

2.2%

18.8%

EBITDA margins

51.7%

50.9%

50.7%

50.5%

52.2%

44.4%

50.4%

53.6%

53.2%

 

 

Depreciation & amortization

(3,948)

(4,215)

(3,873)

(5,095)

(5,098)

(3,695)

(4,711)

(5,030)

(4,405)

-12.4%

-13.6%

EBIT

7,043

7,123

7,434

6,942

7,239

7,508

8,823

9,311

10,250

10.1%

41.6%

EBIT margins

33.1%

32.0%

33.3%

29.1%

30.7%

29.8%

32.8%

34.8%

37.2%

 

 

Net Income

3,649

3,762

4,035

3,025

3,814

3,633

4,098

3,944

4,587

16.3%

20.3%

Net income margin

17.2%

16.9%

18.1%

12.7%

16.2%

14.4%

15.2%

14.7%

16.7%

 

 

Telkomsel

 

 

 

 

 

 

 

 

 

 

 

Revenue

15,290

16,040

17,075

17,848

17,142

18,258

20,228

20,428

20,196

-1.1%

17.8%

Operating expenses (ex D&A)

(6,825)

(7,113)

(7,659)

(7,414)

(7,917)

(8,239)

(8,249)

(9,047)

(8,523)

-5.8%

7.7%

EBITDA

8,465

8,927

9,416

10,434

9,225

10,019

11,979

11,381

11,673

2.6%

26.5%

EBITDA margins

55.4%

55.7%

55.1%

58.5%

53.8%

54.9%

59.2%

55.7%

57.8%

 

 

Depreciation & amortization

(2,859)

(2,934)

(2,691)

(3,188)

(2,884)

(3,021)

(3,329)

(3,742)

(3,161)

-15.5%

9.6%

EBIT

5,606

5,993

6,725

7,246

6,341

6,998

8,650

7,639

8,512

11.4%

34.2%

EBIT margins

36.7%

37.4%

39.4%

40.6%

37.0%

38.3%

42.8%

37.4%

42.1%

 

 

Net Income

4,387

4,424

5,014

5,566

4,882

5,225

6,414

5,849

6,539

11.8%

33.9%

Net income margin

28.7%

27.6%

29.4%

31.2%

28.5%

28.6%

31.7%

28.6%

32.4%

 

 

 

Source: Company data

 

 

Figure 2: Telkomsel – Key assumptions

YE Dec

2015

2016E

2017E

2018E

2019E

2020E

Revenues (Rp bn)

76,055

85,384

94,008

102,973

110,677

117,660

- % change

14.8%

12.3%

10.1%

9.5%

7.5%

6.3%

Total outgoing minutes

224.8

245.9

262.6

276.4

287.6

296.5

- % change

14.4%

9.4%

6.8%

5.2%

4.1%

3.1%

Voice rev per minute (Rp / min)

165.9

157.6

152.1

149.0

147.5

146.8

- % change

-5.0%

-5.0%

-3.5%

-2.0%

-1.0%

-0.5%

Data traffic (m MB)

492,245

762,980

1,022,393

1,298,439

1,543,844

1,777,273

- % change

109.6%

55.0%

34.0%

27.0%

18.9%

15.1%

Implied rate per MB (Rp)

39.9

36.0

35.4

34.7

34.0

33.3

- % change

-30.8%

-10.0%

-1.5%

-2.0%

-2.0%

-2.0%

TSEL non voice revenue (Rp bn)

33,832

41,781

49,434

57,352

64,009

70,072

TSEL non voice % of total revenue

44.5%

48.9%

52.6%

55.7%

57.8%

59.6%

EBITDA (Rp bn)

42,602

47,712

52,813

57,861

62,633

66,761

EBITDA margins (%)

56.0%

55.9%

56.2%

56.2%

56.6%

56.7%

Net profit (Rp bn)

22,368

25,764

29,815

33,406

36,797

39,761

Net profit margins (%)

29.4%

30.2%

31.7%

32.4%

33.2%

33.8%

Capex (Rp bn)

15,841

15,000

14,000

15,000

15,000

15,000

Capex as a % of sales (%)

20.8%

17.6%

14.9%

14.6%

13.6%

12.7%

 

Source: Company data, UBS estimate

Figure 3: Telkom (ex TSEL) - Key assumptions

YE Dec

2015

2016E

2017E

2018E

2019E

2020E

Revenues (Rp bn)

26,415

29,253

31,787

34,030

35,985

37,677

- % change

12.7%

10.7%

8.7%

7.1%

5.7%

4.7%

EBITDA (Rp bn)

8,812

9,529

10,434

11,238

11,956

12,933

EBITDA margins (%)

33.4%

32.6%

32.8%

33.0%

33.2%

34.3%

Net profit (Rp bn)

948

1,669

1,957

2,214

2,205

2,351

Net profit margins (%)

3.6%

5.7%

6.2%

6.5%

6.1%

6.2%

Capex (Rp bn)

10,560

10,000

9,000

10,000

10,000

10,000

Capex as a % of sales (%)

40.0%

34.2%

28.3%

29.4%

27.8%

26.5%

 

Source: company data, UBS estimates

Figure 4: TLKM – SoTP valuation

(in Rp b)

Enterprise

Net Debt

Equity

Telkom's

Value per

WACC

Terminal

 

Value

(Cash)

Value

stake

share (Rp)

 

EV/EBITDA

Telkomsel

532,201

3,205

535,406

65%

3,545

10.1%

2.0%

Telkom (ex-Telkomsel)

43,835

(8,941)

34,894

100%

355

 

 

Sum of the parts

 

 

 

 

3,900

 

 

 

Source: UBS estimate

Telkom Indonesia (TLKM.JK)

Income statement (Rpbn)

12/13

12/14

12/15

12/16E

% ch

12/17E

% ch

12/18E

12/19E

12/20E

Revenues

82,967

89,696

102,470

114,637

11.9

125,795

9.7

137,003

146,662

155,336

Gross profit

-

-

-

-

-

-

-

-

-

-

EBITDA (UBS)

41,776

45,673

51,415

57,241

11.3

63,247

10.5

69,100

74,589

79,694

Depreciation & amortisation

(15,780)

(17,131)

(18,534)

(19,556)

5.5

(20,552)

5.1

(21,281)

(21,803)

(22,622)

EBIT (UBS)

25,996

28,542

32,881

37,685

14.6

42,695

13.3

47,819

52,786

57,071

Associates & investment income

(29)

(17)

(2)

15

-

0

-

0

0

0

Other non-operating income

2,099

678

(417)

0

-

200

-

200

200

200

Net interest

(668)

(576)

(1,074)

(712)

33.7

(646)

9.3

(652)

(1,122)

(1,270)

Exceptionals (incl goodwill)

(249)

(14)

(46)

(114)

-147.8

0

-

0

0

0

Profit before tax

27,149

28,613

31,342

36,874

17.7

42,250

14.6

47,367

51,864

56,001

Tax

(6,859)

(7,339)

(8,025)

(9,441)

-17.7

(10,478)

-11.0

(11,747)

(12,862)

(13,888)

Profit after tax

20,290

21,274

23,317

27,432

17.7

31,772

15.8

35,620

39,002

42,113

Preference dividends

0

0

0

0

-

0

-

0

0

0

Minorities

(6,085)

(6,803)

(7,828)

(9,017)

-15.2

(10,435)

-15.7

(11,692)

(12,879)

(13,916)

Extraordinary items

0

0

0

0

-

0

-

0

0

0

Net earnings (local GAAP)

14,205

14,471

15,489

18,415

18.9

21,336

15.9

23,928

26,123

28,196

Net earnings (UBS)

14,409

14,461

15,524

18,499

19.2

21,336

15.3

23,928

26,123

28,196

Tax rate (%)

25.3

25.6

25.6

25.6

0.0

24.8

-3.1

24.8

24.8

24.8

Per share (Rp)

12/13

12/14

12/15

12/16E

% ch

12/17E

% ch

12/18E

12/19E

12/20E

EPS (UBS, diluted)

150

148

159

188

18.4

217

15.3

244

266

287

EPS (local GAAP, diluted)

147

148

159

188

18.1

217

15.9

244

266

287

EPS (UBS, basic)

150

148

159

188

18.4

217

15.3

244

266

287

Net DPS (Rp)

102

89

100

119

18.9

138

15.9

166

181

210

Cash EPS (UBS, diluted)1

313

324

349

388

11.0

427

10.1

460

488

518

Book value per share

617

690

765

831

8.6

907

9.2

980

1,060

1,132

Average shares (diluted)

96,359

97,534

97,534

98,176

0.7

98,176

0.0

98,176

98,176

98,176

Balance sheet (Rpbn)

12/13

12/14

12/15

12/16E

% ch

12/17E

% ch

12/18E

12/19E

12/20E

Cash and equivalents

21,568

20,469

30,935

30,892

-0.1

30,796

-0.3

33,225

33,542

36,638

Other current assets

11,507

13,825

16,977

18,676

10.0

16,839

-9.8

21,800

23,149

24,360

Total current assets

33,075

34,294

47,912

49,568

3.5

47,635

-3.9

55,025

56,691

60,998

Net tangible fixed assets

86,761

94,809

103,700

110,067

6.1

113,438

3.1

118,080

122,200

125,501

Net intangible fixed assets

1,508

2,463

3,056

3,647

19.3

4,238

16.2

4,829

5,420

6,011

Investments / other assets

6,607

10,256

11,505

12,475

8.4

13,364

7.1

11,559

12,139

12,659

Total assets

127,951

141,822

166,173

175,756

5.8

178,675

1.7

189,493

196,450

205,169

Trade payables & other ST liabilities

22,912

24,609

30,969

34,107

10.1

29,558

-13.3

33,198

32,318

33,988

Short term debt

5,525

7,709

4,444

4,444

0.00

4,444

0.00

4,444

4,444

4,444

Total current liabilities

28,437

32,318

35,413

38,551

8.9

34,002

-11.8

37,642

36,762

38,432

Long term debt

14,731

15,743

30,168

30,168

0.0

30,168

0.0

30,168

30,168

30,168

Other long term liabilities

7,359

7,769

7,164

7,164

0.0

7,164

0.0

7,164

7,164

7,164

Preferred shares

0

0

0

0

-

0

-

0

0

0

Total liabilities (incl pref shares)

50,527

55,830

72,745

75,883

4.3

71,334

-6.0

74,974

74,094

75,764

Common s/h equity

60,542

67,721

75,136

81,581

8.6

89,049

9.2

96,227

104,064

111,113

Minority interests

16,882

18,271

18,292

18,292

0.0

18,292

0.0

18,292

18,292

18,292

Total liabilities & equity

127,951

141,822

166,173

175,756

5.8

178,675

1.7

189,493

196,450

205,169

Cash flow (Rpbn)

12/13

12/14

12/15

12/16E

% ch

12/17E

% ch

12/18E

12/19E

12/20E

Net income (before pref divs)

14,205

14,471

15,489

18,415

18.9

21,336

15.9

23,928

26,123

28,196

Depreciation & amortisation

15,780

17,131

18,534

19,556

5.5

20,552

5.1

21,281

21,803

22,622

Net change in working capital

3,473

(621)

3,208

1,439

-55.1

(2,712)

-

(1,321)

(2,229)

459

Other operating

3,116

6,755

6,438

0

-

0

-

0

0

0

Operating cash flow

36,574

37,736

43,669

39,410

-9.8

39,176

-0.6

43,888

45,697

51,278

Tangible capital expenditure

(19,953)

(26,105)

(27,299)

(25,000)

8.4

(23,000)

8.0

(25,000)

(25,000)

(25,000)

Intangible capital expenditure

0

0

0

0

-

0

-

0

0

0

Net (acquisitions) / disposals

0

0

0

0

-

0

-

0

0

0

Other investing

(2,749)

1,357

(122)

(1,514)

-

(1,514)

-

(1,514)

(1,514)

(1,514)

Investing cash flow

(22,702)

(24,748)

(27,421)

(26,514)

3.3

(24,514)

7.5

(26,514)

(26,514)

(26,514)

Equity dividends paid

(13,044)

(15,428)

(16,614)

(11,970)

28.0

(13,869)

-15.9

(16,749)

(18,286)

(21,147)

Share issues / (buybacks)

50

74

5

0

-

0

-

0

0

0

Other financing

2,253

(1,929)

(333)

(970)

-191.17

(889)

8.29

1,805

(580)

(520)

Change in debt & pref shares

981

3,196

11,160

0

-

0

-

0

0

0

Financing cash flow

(9,760)

(14,087)

(5,782)

(12,939)

-123.8

(14,758)

-14.1

(14,945)

(18,866)

(21,668)

Cash flow inc/(dec) in cash

4,112

(1,099)

10,466

(43)

-

(96)

-123.5

2,429

318

3,096

FX / non cash items

0

0

0

0

-

0

-75.0

0

0

0

Balance sheet inc/(dec) in cash

4,112

(1,099)

10,466

(43)

-

(96)

-123.5

2,429

318

3,096

Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.1Cash EPS (UBS, diluted) is calculated using UBS net income adding back depreciation and amortization.

Telkom Indonesia (TLKM.JK)

Valuation (x)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

P/E (local GAAP, diluted)

14.7

17.1

17.9

18.3

15.8

14.1

12.9

12.0

P/E (UBS, diluted)

14.5

17.1

17.9

18.3

15.8

14.1

12.9

12.0

P/CEPS

6.9

7.8

8.1

8.9

8.1

7.5

7.0

6.6

Equity FCF (UBS) yield %

7.7

4.7

5.9

4.3

4.8

5.6

6.1

7.8

Net dividend yield (%)

4.7

3.5

3.5

3.5

4.0

4.8

5.3

6.1

P/BV x

3.5

3.7

3.7

4.1

3.8

3.5

3.2

3.0

EV/revenues (core)

3.7

4.0

3.9

4.2

3.9

3.5

3.3

3.1

EV/EBITDA (core)

7.7

8.2

8.2

8.8

8.0

7.3

6.7

6.3

EV/EBIT (core)

13.0

13.6

13.3

13.9

12.4

11.0

10.0

9.2

EV/OpFCF (core)

13.6

21.5

15.9

16.1

14.9

12.8

11.6

9.6

EV/op. invested capital

3.2

3.3

3.3

3.6

3.4

3.2

3.0

2.9

Enterprise value (Rpbn)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Market cap.

215,131

249,461

279,340

337,725

337,725

337,725

337,725

337,725

Net debt (cash)

254

836

3,330

3,698

3,768

2,602

1,228

(478)

Buy out of minorities

16,160

17,577

18,282

18,292

18,292

18,292

18,292

18,292

Pension provisions/other

0

0

0

0

0

0

0

0

Total enterprise value

231,544

267,873

300,952

359,715

359,785

358,619

357,245

355,539

Non core assets

(289)

(1,035)

(1,787)

(1,807)

(1,807)

(1,807)

(1,807)

(1,807)

Core enterprise value

231,255

266,838

299,165

357,908

357,978

356,812

355,438

353,732

Growth (%)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Revenue

7.5

8.1

14.2

11.9

9.7

8.9

7.1

5.9

EBITDA (UBS)

5.1

9.3

12.6

11.3

10.5

9.3

7.9

6.8

EBIT (UBS)

2.7

9.8

15.2

14.6

13.3

12.0

10.4

8.1

EPS (UBS, diluted)

10.5

-0.9

7.4

18.4

15.3

12.1

9.2

7.9

Net DPS

23.6

-12.6

11.6

18.9

15.9

20.8

9.2

15.6

Margins & Profitability (%)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Gross profit margin

-

-

-

-

-

-

-

-

EBITDA margin

50.4

50.9

50.2

49.9

50.3

50.4

50.9

51.3

EBIT margin

31.3

31.8

32.1

32.9

33.9

34.9

36.0

36.7

Net earnings (UBS) margin

17.4

16.1

15.1

16.1

17.0

17.5

17.8

18.2

ROIC (EBIT)

36.0

35.0

36.0

38.2

40.4

42.8

44.8

46.2

ROIC post tax

27.0

26.0

26.8

28.4

30.4

32.2

33.7

34.7

ROE (UBS)

25.7

22.5

21.7

23.6

25.0

25.8

26.1

26.2

Capital structure & Coverage (x)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Net debt / EBITDA

(.0)

0.1

0.1

0.1

0.1

0.0

0.0

(.0)

Net debt / total equity %

(1.7)

3.5

3.9

3.7

3.6

1.2

0.9

(1.6)

Net debt / (net debt + total equity) %

(1.7)

3.4

3.8

3.6

3.4

1.2

0.9

(1.6)

Net debt/EV %

(0.6)

1.1

1.2

1.0

1.1

0.4

0.3

(0.6)

Capex / depreciation %

131.3

158.1

155.0

134.2

117.2

122.8

119.7

115.2

Capex / revenue %

24.0

29.1

26.6

21.8

18.3

18.2

17.0

16.1

EBIT / net interest

38.9

49.6

30.6

52.9

66.1

73.3

47.1

44.9

Dividend cover (UBS)

1.5

1.7

1.6

1.6

1.6

1.5

1.5

1.4

Div. payout ratio (UBS) %

68.5

60.3

62.8

63.0

63.3

68.2

68.2

73.0

Revenues by division (Rpbn)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Others

82,967

89,696

102,470

114,637

125,795

137,003

146,662

155,336

Total

82,967

89,696

102,470

114,637

125,795

137,003

146,662

155,336

EBIT (UBS) by division (Rpbn)

12/13

12/14

12/15

12/16E

12/17E

12/18E

12/19E

12/20E

Others

25,996

28,542

32,881

37,685

42,695

47,819

52,786

57,071

Total

25,996

28,542

32,881

37,685

42,695

47,819

52,786

57,071

Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.

Forecast returns

Forecast price appreciation+13.4%

Forecast dividend yield3.5%

Forecast stock return+16.9%

Market return assumption12.8%

Forecast excess return+4.1%

Valuation Method and Risk Statement

Telkom faces some risk relating to execution of its fixed-line business. Although management is trying its best to focus on shareholder value, Telkom's legacy could thwart these efforts. Also, there is some regulatory risk associated with the interconnect rates being reviewed annually that could create some short-term earnings pressure. Irrational competition amongst the existing operators also poses risk to our estimates and rating.

We use SOTP based valuation method for Telkmosel.

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UBS Investment Research: Global Equity Rating Definitions

12-Month Rating

Definition

Coverage1

IB Services2

Buy

FSR is > 6% above the MRA.

49%

32%

Neutral

FSR is between -6% and 6% of the MRA.

38%

26%

Sell

FSR is > 6% below the MRA.

14%

19%

Short-Term Rating

Definition

Coverage3

IB Services4

Buy

Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event.

<1%

<1%

Sell

Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event.

<1%

<1%

Source: UBS. Rating allocations are as of 31 March 2016.
1:Percentage of companies under coverage globally within the 12-month rating category.

2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.

3:Percentage of companies under coverage globally within the Short-Term rating category.

4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.

KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months.

EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.

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UBS Securities Pte. Ltd.: Suresh A Mahadevan, CFA. UBS Securities India Private Ltd: Namrata Penta.

Company Disclosures

Company Name

Reuters

12-month rating

Short-term rating

Price

Price date

Telkom Indonesia16

TLKM.JK

Neutral

N/A

Rp3,440

03 May 2016

Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date

16.UBS Securities LLC makes a market in the securities and/or ADRs of this company.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Investment Research.

Telkom Indonesia (Rp)

Source: UBS; as of 03 May 2016

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