Telkom Indonesia (Persero) Tbk PT (TLK) 2021 Q3 法說會逐字稿

Good day and thank you for standing by. Welcome to the Telkom's nine months of 2021 results conference call. (Operator Instructions). Please be advised that today's conference is being recorded. (Operator Instructions). I would now like to hand the conference over to your speaker today, Mr. Andi Setiawan. Please go ahead.

Thank you, everybody. Ladies and gentlemen, welcome to PT Telkom Indonesia conference call for the nine months of 2021 results. We released our results on November 24, 2021 and the reports are available on our website, www.telkom.co.id. Today's presentation is available on the webcast and we will provide an audio recording after the call for the next seven days. There will be an overview from our CEO and followed by the Q&A after the session.

Before we start, let me remind you that today's call and the responses to the questions may contain forward-looking statements within the meaning of Safe Harbor. Actual results could differ materially from projections, estimations or expectations voiced during today's call. These may involve risks and uncertainties and may cause actual results to differ substantially from what we discuss. Telkom Indonesia does not guarantee any actions that may take in reliance on the discussion held today.

Ladies and gentlemen, it's my pleasure now to introduce Telkom's Board of Directors who are joining with us today -- Mr. Ririek Adriansyah, as President Director and Chief Executive Officer; Mr. Heri Supriadi, as Finance and Risk Management Director; Mr. Herlan Wijanarko, as Network and IT Solution Director; Mr. Bogi Witjaksono, as Wholesale and International Service Director; Mr. Edi Witjara, as Enterprise and Business Office Director; Miss Venusiana, as Consumer Service Director; Mr. Budi Setyawan Wijaya, as Strategic Portfolio Director; Mr. Muhamad Fajrin Rasyid, as the Digital Business Director; and Mr. Afriwandi, as Human Capital Management Director.

Also present are the Board of Directors of Telkomsel and Mitratel -- Mr. Hendri Mulya Syam as President Director of Telkomsel; Mr. Mohamad Ramzy, as Finance and Risk Management Director of Telkomsel; Mr. Derrick Heng, as Marketing Director of Telkomsel; and Mr. Hendra Purnama as Chief Investment Officer of Mitratel. I now hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview. Please start, Ririek.

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome to our conference call for the nine months of the year 2021 results. We appreciate your participation in this call. Amidst the prolonged COVID-19 pandemic, in the nine months of 2021, Telkom maintained a positive growth of revenue by posting IDR106 billion, increased by 6.1% year on year. We successfully controlled expense but we only grew by 4.2% year on year.

On the profitability side, EBITDA grew by 8.1% year on year, while the net income increased by 13.1% year on year. We are confident that our healthy financial results could be maintained towards the end of the year and align with our budget.

Ladies and gentlemen, IndiHome continued as well as the main contributor to the group performance by posting revenue of IDR19.6 trillion, significantly grew by 21.9%. Moreover, its profitability, also sort with EBITDA margin improved to 50.0% in nine months from 47.6% in the first half of 2021. IndiHome's revenue contributed to -- consolidated revenue increased to 18.5% this year from 16.1% in the same period last year. IndiHome consistently added new subscribers and reached 8.46 million customers as of September 2021 despite the pandemic situation that might slowed down critical marketing activities and installation of the new lines. Meanwhile, ARPU improved to IDR234,000 in the third quarter from IDR270,000 in the previous quarter.

Mobile business continued to have a positive quarterly growth in revenue with legacy business remaining under pressure. Digital business continued as the growth driver that increased by 6.0% year on year, with the digital traffic remained showing strong traction by growing 50.4% year on year. As a result, revenue contribution from digital business increased from 73.2% last year to 77.5% this year. We are of the view that as the mobile industry consolidation -- this impact -- competitive environment is expected to be relatively healthier.

Along with the betterment of the economic and social activities, enterprise segment enjoyed a healthier growth by posting IDR13.8 trillion in revenue, an increase of 20.5% year on year from the same period last year. The major contributor to this achievement came from B2B IT services and enterprise connectivity solution.

Similar with the enterprise business, wholesale and international business also enjoyed positive growth by recording revenue of IDR10.5 trillion, increase by 2.6% year on year contributed by the tower business, data center and A2P services.

Telkomsel investment in Gojek has created more opportunities to digitize micro, small, medium enterprise or MSMEs. Some notable initiatives are there's a collaboration to increase the number of Telkomsel users within Gojek ecosystem. Participants now on Gojek MSME partners become Telkomsel reseller partners. Creation of the access to Telkomsel's outlet and resellers via GoShop, improvement of customer experience in Gojek services, and integration of Telkomsel MyAds with GoBiz. These are some of the benefits from the investment beside the potential synergy and that could also be explored in the conjunction with the collaboration with Tokopedia. Furthermore, the investment provided IDR350 billion in capital gains so far, and we believe that the investment value will continue to increase.

Ladies and gentlemen, PT Daya Mitra Telekomunikasi Tbk or Mitratel has successfully conducted its initial public offering on November 22, 2021. Mitratel raised IDR18.8 trillion in [trust] fund that mostly will be utilized to support organic and inorganic business expansion. We are of the view that Mitratel still has many opportunities to continue its strong performance going forward, partly supported by 5G technology that is expected to be more development in the foreseeable future.

Data center business is another area of opportunity for the Company. We are in the process of consolidating our data center business, preparing the best structure and business model for data center so that in the future, we can unlock its value to create optimal values in of Telkom group. That is ending my remarks. Thank you.

Thank you, Ririek. We will now begin the Q&A session. (Operator Instructions).

(Operator Instructions). Arthur Pineda, Citigroup.

Hi, good afternoon. Thanks for the opportunity. Several questions please. First, in housekeeping, on the expense side, I'm just wondering what's driving the significant Q-on-Q increase in interest expense, considering that net debt was actually lower? Are there any one-off bookings being placed there?

Again, another question, with regard to expenses. On the G&A side and labor charge, that's also been -- changed a fair bit. Any one-off items being booked there in the third quarter? Last question I had is with regard to the competitive landscape on mobile. Are you already starting to see any changes on this side or is this more of a 2022 story? Thank you.

Hello. Thank you, Arthur. Heri here. For your first question, I think on this one, you are right. The interest rate lower right now compared to last year. And I think the detail on this one, I will send to you, how we calculated that one. This model timing issue, the -- but then for the -- I think the outstanding we get right now, for example in the middle of the month, it is supposed to be the first of the interest rate we pay next month. So it is more than like lagging in terms of the payment on the -- I think more to that mechanism, but we will send you about this -- detail on this one.

And second, on the G&A, any one-off item? We don't really have any one-off item on this one. I think we saw that improvement in the collection and so on. I think along with more discipline where we are -- I think acquired this customer and also the -- I think, more effort on collecting the bill that we have, I think also that way. Yes, the thing on the G&A, compared to last year, it is a bit more the same, but I think there are people still in the COVID situation. I think they are more manageable, I think, expenses on this one. Yes, the other thing, I [talked about] this one model consultancy services that we pay, consultancy services more to the, I think, platform we develop -- we bill and many other kind of corporate [expense], I think helps us be that we pay along with the [software] project we run. That's on the first and second question you addressed to us.

Hi, this is Derrick. I'll take the third question. Yes. From a mobile perspective, we see XL gradually adjusting price starting from October 2021. From Indosat perspective, we are also seeing they are trying to focus on more experience and believe that industry will improve to maintain businesses in sustainable level. So Telkomsel will support the industry to be healthier and we will continue to monitor closely the current position. And our focus is really on customer experience by maintaining granular approach, macro-level strategy based on market condition, competition and network capacity while balancing between market share, data revenue share, and margin profitability. Thank you.

Understood. Thank you. Sorry, if I could just clarify, so when we look at items like interest expenses and G&A and all, should we see 3Q as the benchmark or we have to think about this on an annualized basis? I'm just wondering how we should see this into the fourth quarter.

Looking at (inaudible) also understand the market situation still remains the same in terms of interest rate and so on. I think the amount of outstanding [loan] that we have is going to be also not so much changed on that one. So I believe it is supposed to be the trend we are going to see.

Choong Chen Foong, CIMB.

Hi, good afternoon. Thank you so much for the conference call. Three questions from me. Firstly, in your info memo, you mentioned about the O&M expenses going up, and this was in line with the development on digital content as a value-added service to enhance your digital business. Can I try and get a better understanding of this? Do we see content as an opportunity to upsell and generate revenues, or is content a necessary cost to help us differentiate and keep our customers in the market? That's question number one.

And then my second question on the enterprise business, very strong growth for the first nine months of this year. Could you give us a bit more color as to what's driving this? Is this driven by the government from the private sector side, and do you have -- can you share also your order book for the enterprise segment and changes on a year-on-year basis? And given then the strong first nine months performance, is Telkom a lot more optimistic on the revenue growth going into FY 2022 for the enterprise segment? All right, that's question number two.

And then my third question is with regards to the data center business. Beyond the 75-megawatt Hyperscale Data Center that Telkom is currently building, are we also planning to expand beyond that? Based on the market demand, how much more data center capacity do you think Telkom can build in the next 3 to 5 years beyond the current Hyperscale Data Center? Yes, those are my three questions. Thank you.

Thank you, Mr. Foong. On the operation and maintenance expenses, actually, you are certainly (inaudible) that one. That's supposed to be seen in two of our -- I think our purpose is first, to -- about to increase the offer in our value-added service, for example, in IndiHome and so on, and also some -- our digital content. On the other side, also we need to increase the -- one number, and I think offer in the digital in order to keep our customers stay with us. I think it is part of -- I think a combination of both. But some of this content dependently are relatively new. Let's have maximum impact. Our margin we can see in the future more to like when we get the economic upscale.

And second, on the enterprise business, strong growth in nine months of 2021.

What is the right thing for this?

Actually from -- if we categorize the enterprise business, we have government segment, we have small medium enterprise, and also basically big enterprise. All these segments provide growth this year compared to last year. The growth coming from government sector, a bit less compared to the private sectors, more to government spend. I think most of effort on the thing -- on the pandemic to tackle the pandemic. So we believe then over 2022, the trend about the same. We see the digitalization in demand coming from the enterprise, also coming from government, including local government. Still quite promising. So we believe this is going to be some fundamental for our B2B business or enterprise business.

Okay, I think on the data center, we are suddenly almost completing the construction of the 25-megawatt. We're going to build another data center with similar, I think, capacity starting next year of -- let's say, next year in 2023, depending on the, however, the market demand that we have. But we believe this is going to be a rational, I think, projection according to the -- I think what we see, the progress of the digitalization in Indonesia. So that's, I think, in the short run plan for us.

In the bigger plan, actually we plan to also to consolidate all the data center business that we have, including the data center that we own in Singapore with Telin to provide, I think, mostly our, I would say, end-to-end service. And also in the radio now, we have kind of (inaudible) as the presenters that are going to be the (inaudible) to just, let's say, hyperscale that people also can provide.

Okay. And can I just follow up with a few questions? So on the first question earlier, I know that for Telkomsel right now, most of the times I see bundle in free Disney+ Hotstar content. Can I ask whether the plan over the longer run is to charge for this content, or keep it free and use it to attract customers? So that is the follow-up question for question number one.

And then number two, on the enterprise side, given the strong growth this year and the larger scale, what are the margins that we are generating on this business for the first nine months?

And then thirdly, on the data centers, Singtel -- I think about one, two months ago -- mentioned that they are in advanced talks with Telkom to build -- or to build new or buy existing data centers in Indonesia and in the region. So do you see much opportunity to grow beyond your current hyperscale data center that you are building together with Singtel in Indonesia?

Okay. I think on Disney, I ask my colleague from Telkom sales to answer that one. Maybe on the growth of the enterprise, I think my colleague Edi can answer that one. I will try to answer the other question on the data center.

I think basically the biggest market in the region is coming from Singapore and Indonesia. (inaudible) Both countries have more than 60% of total demand in this Southeast Asia region. So I think if you ask about opportunity to have a regional partnership and so on, we see a lot of synergy state that we can see. But we are in the very early of discussion on that one. But we see this can strengthen our position and have differentiation, mostly because we have not only, I think, the property itself, but we have good connectivity and also (inaudible) that we can basically manage the data (inaudible) of analytics that provide a model -- insight to how are positioning our business on this one.

So I think that's in essence what we see the data center business with us. I think, Bogi, if you want to put some more color?

Maybe just a few things beyond what is on plan -- as already mentioned that we have (inaudible) will grow this business, especially on the data center. One thing that you have (technical difficulty) to consolidate amount (inaudible) which will be consolidate with (inaudible) combining data center and edge computing and will depend -- it will (inaudible) data center and (inaudible) ecosystem to create the 5G (inaudible). Thank you.

I think we go to the question on the enterprise -- are we going to see the margin.

Yes. Basically the enterprise segment -- the most contributor coming from the corporate customer, because as Heri said, we have basically three segments: small/medium enterprise, and government, and also corporate customer.

And right now Telkom has contributor in some of the revenue mostly coming from the corporate customer. Also, the margin -- I think we have some solution to -- much more better in the margin compared to the industry. Thank you.

I can take the question on bundling of content such as Disney services.

Okay, thanks, Derrick.

Yes. So in Telkomsel, we want to strike a balance between our core and digital services. We want to (technical difficulty) and that, to us, will support the improvement in ARPU as we drive digital adoption in lifestyle services -- not just Disney, but we like to drive digital at scale: for example, growing games; elevating self-serve channels, like MyTelkomsel; and even expanding the video business.

So digital services and content will help us to make our core connectivity business more relevant and contextual to customer lifestyle requirement needs. So in the long term we feel this will definitely improve ARPU as customers take on a very similar and convenient way to access lifestyle services through Telkomsel.

José [Chafi], UBS.

Hi, good afternoon and thanks for the call. A few questions from me.

Firstly, on the mobile side, especially in the ex-Java, just want to understand, with consolidation and with (inaudible) past infrastructure, do Telkomsel see potentially higher competition in ex-Java in the coming years?

And a related question is on the near-term outlook on mobile. With the reopening -- with opening up, how do you see mobile competition trending?

The next question is on the IndiHome side. Just want to see -- just want to understand that is IndiHome -- is it more than 50% EBITDA margin? What should we guide steady-state margins for IndiHome? And the related question is how many home [spas] IndiHome has right now. Thank you.

Hi, this is Derrick. I will take the question on the competition landscape in ex-Java. So within ex-Java, the competition is indeed very -- quite competitive, and coupled with challenges on more cost to roll out. And we also want to factor the current challenges due to the pandemic situation.

But Telkomsel will consistently manage the improved and strengthened both distribution -- when we say distribution, it's the product availability with the rate pricing -- and deliver superior network quality and capacity. So our strategy is to really maintain and defend our market share in ex-Java by offering relevant product in selected cities. In fact, we did some press-up initiatives, and from an experience perspective, customers are still key when it comes to choosing the telco provider of choice. So with that, we like to maintain our leadership in ex-Java.

I will address you on the EBITDA margin of IndiHome. Yes, currently we have around 50% of EBITDA margin, which is I think quite high in this kind of business. Of course, maybe you may address that with a bigger, let's say, customer base we can continue to improve the margin; but we also do understand actually we need to balance within the short run and also the long run.

What we think is 50% already very good. So what we want to see -- actually, higher customer satisfaction in which we need to provide some benefit as well to the customer in order to make them becoming more sticky with us. Also to preplan more (inaudible) and so on. The look we can provide to you is EBITDA margin 50% already very good. So we try to balance between short run and the long run. And then in the homepass (inaudible)?

For the homepass, (inaudible) for the customer is about IDR20 [million]. So now our homepass option -- for homepass it was 24%.

Yes, but I think homepass -- it is between home [bundle], home connected, we have around 44%. So I think about 20 million of homepass right now.

Piyush Choudhary, HSBC.

Two questions. Firstly on the IndiHome, could you share us -- with strong subscriber growth that you are still witnessing, what would be the probably outlook for 2022 on the subscriber net addition side?

And secondly, could you also talk about your strategy around bundling offering, and I mean bundling of mobile and IndiHome together? I remember a few years back there were some pilots done by the Company. So can you provide us an update on what's the plan?

The reason I ask is if you look at other markets, like in India, Airtel Black is offering -- is targeting high value customers to improve ARPU by bundling the services and providing better customer experience. So what is your thoughts regarding that?

I will try to answer your first question. I think on the subscriber projection for 2022, we see that for IndiHome we can have around 1 million additional subscribers. Why that's quite big compared to -- larger compared to what we have this year? Because we have, I think, some obstacles this year with just the situation of COVID.

We do expect next year the situation going to be better. So I think in terms of delivering the line out to home, that is going to be more -- I think easier compared to what we experienced this year.

Second, this year also we will focus on providing better services to upgrade, for example, the capacity content; and also, I think, transfer our network from some of (inaudible) becoming fully fiber. So this is the strategy we run in 2021 with regard to the market situation and also objectives that we have.

However, this already provide us with very good growth in the [current] term. For next year we're going to push again to have quite larger customer base, additional to the existing we have today. I think that's about IndiHome.

And on fixed mobile (inaudible) on this one, I think there is -- you are right. And I think periods back, we do have this plan. But I think -- on that time, I think the demand on broadband, home broadband, also is not as strong as today, and I think today becoming stronger. But in the same time, we need to see not only in the short run, but also in the long run.

As we believe this -- I think [two] technology can provide some benefit in terms of similar experience to our customers. I think more efficient investment for the Group, in which we see Telkom and Telkomsel here. And the other thing -- I think we need also to see the technology trend in the future. So I think this is going to provide more customer satisfaction, more efficient in terms of the investment.

I think we're also going to have better differentiation and positioning in the future on this business. So I think this is also for -- if we refer to some experience in some markets, they happen (inaudible) earlier than us, this in a more massive way. And then I think -- (inaudible) also currently still ongoing some initiatives on this area. I think there's a thing -- our [pilpa business] on this FMC business.

If I may ask again on the (inaudible) side, my question was more on Telkomsel Halo, which is targeting high-value postpay customers in IndiHome. Can you bundle the talk better, so for customers it is one bill, one customer service center, etc.? Is there any initiative towards that?

Currently we don't have one billing yet. We are in the process of having a pilot project to extend this one; currently more to cross-selling, I think, on this one -- on that one. Later on, I think we need to see -- as you mentioned, provided we also did to minutes. But I think regulatory, so some -- I think on the (inaudible). But I think that's a kind of an area in which we can see this synergy can happen.

[Nicholas Santosa], [Wantana].

Good afternoon. Just one question from me. Can you share a little bit on Mitratel's third-quarter performance? So on the -- do we see improvement in the Company's performance? And maybe if you could [itemize] a bit on what's next for the Company? That's all from me.

For Mitratel we are still under the regulation (inaudible) to inform our financial result. The earliest result will be announced -- it's actually for this December 2021. But what we can comment -- that our third-quarter result is specifically in line with the consensus that -- from the analysts that has been distributed during the IPO process.

Pierre (inaudible)

I have three questions. The first one is on data center. Could you please share the expected revenue and EBITDA for data center in 2021 and 2022; and the timing of -- potential timing of the IPO of data center? That's the first question.

The second question is on 5G. Can you share when probably we're going to roll out 5G aggressively in the country? And then given that Huawei is still under the sanction list to some extent, I wonder whether there's any difficulty in sourcing equipment from Huawei?

And then the third question is on the cost. Can you share the cash cost increase for 2022? Thank you.

On the data center expected revenue, I think what we cannot disclose is to -- (inaudible) on this one. But the thing that we can say to you is first, on the EBITDA, I think follow end of March, I think (inaudible) around 35% to 40% of (technical difficulty) EBITDA margin we have today. We have around, as you may know, about 45 -- 43 MW of capacity right now. So I think I'm hoping for (inaudible) right now above 80%, with of course the financial metric (inaudible) that we have in the data center.

So on the 5G, please, I think from (inaudible).

For the 5G (technical difficulty) Indonesia, whereby we don't have any problem in the Huawei, because most of the cities have (technical difficulty) Huawei (inaudible).

And also we are continuing to deploy the Huawei (inaudible) on next year, specifically to copper (inaudible) for the AA. And also for the B2B, currently we are working to get one of the manufacturers and also with the mining company.

On the expense trends for 2022, I think what we aim is to have the healthy margin that we have today. So with (inaudible) we manage the growth of our course in line with revenue; the result, I think, is steady and sustainable -- I hope -- I think the margin that we have. So that's the way we see the course.

I would now like to hand the conference back to Mr. Andi Setiawan for any closing remarks. Sir, please go ahead.

Thank you, everyone, for participating in today's call, and we apologize for those (technical difficulty) did not address yet. So if you have any further questions, please don't hesitate to contact us directly. Thank you, everyone.

Thank you. That concludes the conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.