20240516_TLKM_Laporan Hasil Pemeringkatan_31639871_lamp1.pdf

                                                                                                              Rating Rationale


 Key Strengths

 Very strong likelihood   PEFINDO is of the view that the government will most likely provide extraordinary support to TLKM when needed, not only
 of support from the      for business expansion but also in times of financial distress. TLKM plays a crucial role in the government's strategy for
 government               technology and telecommunication infrastructure in Indonesia, encouraging increased growth in the telecommunication
                          sector and accelerating national digital transformation efforts. To support the acceleration of the national digital
                          transformation, the Government has specifically assigned Telkom to execute the Electronic Procurement System and all its
                          supporting systems, which cover funding, planning, establishment, development, integration, operation, and system
                          maintenance. This specific assignment was officiated through Presidential Regulation number 17 Year 2023 regarding the
                          Acceleration of Digital Transformation in Government Procurement of Goods/Services. The Government’s control over TLKM
                          is expected to continue going forward through its majority ownership and representatives in the board of management.

 Superior position with   We are of the view that TLKM will maintain its superior market position in the domestic telecommunication industry, given its
 diversified businesses   extensive network and infrastructure development, equipped with 247,472 units of base transceiver station (BTS), 176,663 km
 and extensive            fiber optic backbone, and around 37 million home-passed by the end of 2023. TLKM’s market dominance is also bolstered
 networks                 by its diversified businesses, including data, digital service, fixed services, IT services, and towers, which allow for efficiencies
                          and synergies, such as through the sharing of infrastructure and bundling products and services, with data, internet, and
                          information technology service as the key revenue driver in the near to medium term. As of December 31, 2023, TLKM
                          successfully maintained its position as the top player in the Indonesian cellular and fixed broadband market with 159.3 million
                          cellular subscribers and 8.7 million Indihome subscribers for B2C segment, represented more than 50% and around 80% of
                          the market share, respectively. TLKM’s leading position has enabled it to have very strong profit margins. In 2023, its
                          profitability performance was relatively stable with EBITDA margin of 52.0% compared to the average in 2029-2022 of 51.8%.
                          We expect TLKM’s EBITDA margin to be in the mid 50% in the near to medium term stemming mainly from economies of
                          scale given its large subscribers base and extensive network coverage. Potential pricing rationalization triggered by increasing
                          demand for better data service will create potential revenue generation for TLKM leading to better profit margin.

 Very strong financial    We expect TLKM’s financial profile to remain very strong in the near to medium term, underpinned by its very conservative
 profile                  capital structure, very strong cash flow protection measures, and adequate liquidity. The very conservative capital structure is
                          reflected in projected debt to EBITDA ratio of 1.1x and debt to equity ratio of 0.6x on average for 2024–2026. Its cash flow
                          protection measures are also expected to be very strong as measured by funds from operations (FFO) to debt ratio of more
                          than 75% and EBITDA to IFCCI ratio at around 15x on average for 2024–2026. As of December 31, 2023, its cash and cash
                          equivalent of IDR29.0 trillion and projected EBITDA of around IDR81 trillion were adequate compared to its short-term debt
                          of IDR38.6 trillion, including IDR13.2 trillion in payables related to the purchase of equipment, goods, and services, projected
                          interest payment of around IDR4.6 trillion, and capital expenditures plan of around IDR40 trillion, assuming utilization of 26%
                          capital expenditure to total revenue generation.



 Key Weaknesses

 Intense competition in   PEFINDO is of the view that the telecommunications industry continues to come across intense market competition, especially
 the industry             in terms of service offered. As the driver for growth is currently derived from data services, maintaining healthy data yield is
                          pivotal that requires significant amount of capex to maintain excellent service quality and network experience.
                          Telecommunications operators’ subscriber growth may also remain under pressure in the future given high penetration of
                          cellular phones, as reflected in TLKM’s declining subscribers base in 2022 by 11% YoY. In the mobile segment, despite holding
                          a significant share of 50.5% in the market in 2023, the Company's position has slightly declined compared to its standings of
                          59.9% and 49.5% in 2021 and 2022, respectively. Likewise, in the fixed broadband segment, Indihome's market dominance,
                          which stood at 66.7% as of December 2023, has decreased from its figures of 75.2% and 80.2% in 2022 and 2021, respectively.




http://www.pefindo.com                                                     2/3                                                                      May 2024

                                                                                                                               Rating Rationale




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http://www.pefindo.com                                                                    3/3                                                                           May 2024