Telkom Indonesia (Persero) Tbk PT (TLK) 2020 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Telkom's Full Year of 2020 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 first speaker today, Mr. Andi Setiawan. Please go ahead.

Thank you, [Rachel]. Ladies and gentlemen, welcome to PT Telkom Indonesia conference call for the full year of 2020 results. We released our full year of 2020 results on the 29th of April 2021, and the reports are available on our website, www.telkom.co.id. Today's presentation is available on the webcast and an audio recording will be provided after the call for the next 7 days. There will be an overview from our CEO. And after that, all participants are given an opportunity to participate in the Q&A session.

Before we start, let me remind you that today's call and the response to 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. This may involve risks and uncertainties that may cause actual results to differ substantially from what we discussed. Telkom Indonesia does not guarantee to any actions, which may have been taken in reliance of 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 Director; Mr. Herlan Wijanarko as Network and IT Solution Director; Mr. Dian Rachmawan as Wholesale and International Service Director; Mr. Edi Witjara as Enterprise and Business Service Director; Ms. Venusiana as Consumer Office Director; Mr. Budi Setyawan Wijaya as Strategic Portfolio Director; Mr. Muhamad Fajrin Rasyid as Digital Business Director; and Mr. Afriwandi as Human Capital Management Director.

Also present are the Board of Directors of Telkomsel: Mr. Setyanto Hantoro as President Director; Mr. Leonardus Wahyu Wasono as Finance Director; Mr. Wong Soon Nam as Planning and Transformation Director; and Ms. Rachel Goh as Marketing Director.

I now hand over the call to our CEO, Mr. Ririek Adriansyah for his overview. Please, Pak Ririek.

Thank you, Andi. Good afternoon, ladies and gentlemen. Welcome to our conference call for the full year of 2020 results. We really appreciate your participation in this call. I'm not (inaudible) for business environment due to prolonged COVID-19 pandemic. Telkom has successfully managed business and financial performance. We recorded IDR 136.5 trillion in consolidated revenue, increased 0.7% from previous year. Our EBITDA grew by 11.2%, with EBITDA margin increased from 47.8% to 52.8%.

While at the bottom line, net income increased by 11.5% to IDR 20.8 trillion with a better net income margin at 15.2% from 13.8% last year. IndiHome continued to become the engine of growth, as it contributed IDR 22.2 trillion, grew by 21.2% with 40% to consolidated revenue increased to 16% from 14% last year.

Moreover, EBITDA margin of IndiHome reached 38.9%, a significant increase from 33.9% last year. IndiHome revenue growth was a result of increasing subscribers coupled with improving ARPU. Total subscribers grew by 14.5% to reach 8 million while ARPU in fourth quarter improved to IDR 262,000 compared to IDR 253,000 in the previous quarter. Increasing ARPU was largely helped by revenue from add-on that grew by 27.8% and contributed to around 14.7% to IndiHome revenue compared to 13.6% in the same period last year.

Ladies and gentlemen, for the Enterprise segment, although it declined by 5.2% year-on-year, it saw significant improvement during the year, which was mainly due to the success of the new strategy to reduce low-margin business and focus on more profitable products along with various efforts to get quality revenues. Enterprise segment will continue to strengthen the fundamental with focus on connectivity, data center and cloud. And application services that blended into various enterprise solutions. With a much solid fundamental, we expect Enterprise segment to become our next engine of growth in the foreseeable future.

Ladies and gentlemen, in the year of 2020, wholesale and International Business segment successfully performed with revenue grew by 27.3% year-on-year to IDR 13.5 trillion. The growth was basically generated from domestic business such as tower business due to inorganic activities and increasing A2P SMS due to the pandemic, while the international business also have shown good performance driven by overseas wholesale voice, data series and digital business. Whereas data center contributes to a promising growth for both domestic and international markets.

Ladies and gentlemen, our mobile business still faces intense competition and continued declining Legacy due to transition from voice and SMS to data. As a result, the company revenue declined by 4.4% year-on-year, mainly driven by some decrease in voice and SMS. On the other hand, Digital Business revenue increased by 7% to IDR 62.3 trillion and significantly increased its contribution to 71.6% of Telkomsel revenues compared to 63.9% last year.

Digital Business revenue growth was driven by data traffic that increased by 43.8%. The company will continue to focus on providing the best customer experience rather than promoting unreasonable pricing to support industry healthiness. Therefore, we keep enhancing our network by adding 277,000 4G LTE BTSs during the year. We recently obtained 20 megahertz spectrum in 2.3 gigahertz that strengthened our spectrum holding position, including voice to prepare 5G technology.

In parallel, we also try to find strategic partnership or collaboration with digital player champion to help accelerate digital transformation. However, the 5G business has helped us run the company resiliently when one segment is missing the (inaudible) times. The strong performance of fixed line business has successfully compensated our mobile business that was pressured by competition and Legacy decline.

In the past 5 years, we have seen revenue portion from fixed business increase from 28% to 39%. While its net income contribution significantly increased from around 5% to 22% in 2020.

Ladies and gentlemen, to conclude my remarks, let me share our main guidance for the year of 2021. One, we expect consolidated revenue to improve by around mid-single digits; two, EBITDA margin is expected to be relatively stable; three, capital expenditure for the group is expected at around 25% of revenues. That's ending my remarks. Thank you.

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

(Operator Instructions) Your first question is from Piyush Choudhary of HSBC.

Congrats for the results. 2 questions. Firstly, on mobile, can you talk about the competitive dynamics in the industry and outlook for 2021? And has Telkomsel achieved its desired objective after the rollout of unlimited plans last year? Secondly, as you mentioned that you have acquired 20 megahertz in 2.3, can you share the likely network rollout plans? And when do you intend to start offering 5G services using 2.3?

Piyush, Rachel Hui Goh here. I'll address your question on the competition landscape. So as you pointed out, the last 6 months of 2020, our product and pricing strategy was intended as a positive corrections needed to put discipline into the type of industry pricing practices back then. It was necessary for Telkomsel to protect our relative market position. And now, we have achieved those objectives in those 6 to 9 months of strategy.

However, as the market leader, we need to always stay focused on driving sustainable growth behaviors in industry. Telkomsel has already initiated price adjustments on the back of macroeconomic recovery. We see supportive fiscal stimulation. We see businesses and individuals adapting much better to COVID-19 with the COVID roll out. All this uplifts the prospects of the pace of economy [to the key] and we see this as a positive outlook. And with this positive outlook, in all considerations, we felt that timing was right for us to review our product and pricing away from unlimited -- introducing more focus on BTL, simple and easy to understand offers for existing customers and also introducing more affordable packages in the form of more affordable, lower denominations in the areas of acquisitions.

However, Telkomsel will continue to monitor closely the behaviors of other operators to avoid and prevent price wars and to have optimum premium gaps whilst protecting relative market position. I think moving forward, looking at the other players in the market, we foresee a healthy ARPU recoveries and growth positively. I think overall, the industry is much more rational now and strives towards the sustainable growth of the whole industry. I hope that answers.

Yes. This is Setyanto from Telkomsel. Regarding your question about network rollout plan with regard to the 2,300 megahertz that we won from the auction a few weeks ago. So by having this additional 20 megahertz in 2,300, now Telkomsel hold being 50 megahertz in 2,300 and it will strengthen our network position in the market. So we will use it both for strengthening our 4G leadership and also preparing for 5G implementation in Indonesia as soon as possible. So as a company -- as a leading digital company, we want to be -- remain as the leader in the technology. So we will use -- maximize the usage of this new spectrum to strengthen both 4G and 5G.

Sure. But is there any time line when you're looking to launch 5G services?

We will launch it this year. We have some plan. I cannot reveal it exactly now, but in upcoming few months, we will see the launch of the 5G.

The next question comes from the line of Arthur Pineda from Citigroup.

Two questions, please. First, can you get a better understanding of the growth of Telkomsel into the fourth quarter? You posted a 4% Q-on-Q growth for Telkomsel as a group. But when we break down voice, that was down and data was down Q-on-Q. So it could mean that other revenues are driving this. So what is exactly classified on this side?

Second question I had is with regard to the outlook for 2021. Are you able to flesh out your mid-single-digit growth guidance across the business lines between fixed, mobile and enterprise?

Okay. Arthur, Heri speaking here. Let me try to answer your second question on the guideline for 2021. Basically, we have diversified portfolio, of course, from IndiHome going to continue to grow. And I think in the Enterprise, we take the current COVID situation today, which we don't really know where it's going to be (inaudible) benign. I think that provide us with, let's say, low single-digit growth, but our focus is to have more quality, I think, in terms of the customer portfolio and also profitability in this area.

And then in the cellular, we see there's still, I think, pressure in the industry until the consolidation really happens. So we put it more, I think, conservative figures. This industry also going to be, I think, low single-digit growth in the mobile as well. So while having that combination, I think we come to the -- overall as my CEO previously mentioned that we're going to have a low- to mid-single-digit growth in revenue in our company. That's, I think, a brief explanation to your second question.

Yes. For number one question, actually, the impact for Q4 actually coming from the implementation of the PSAK 72, which is related with IFRS 15. So we do the normalized with the recap of the Legacy revenue. Until if we have the similar comparison, it should be supposed to be -- this is based on -- the last accounting recap is going to be normalize, 5.6%. And then if you look at the digital revenue, if it is also normalized, it's going to be increased by 7.3% instead of decreasing 7.1% related with the Digital Business revenue. Thank you.

Okay. So the difference is mainly because of accounting changes, not because of the value-added services being booked?

So actually because the -- under the IFRS 15, we have to reclassify related with the discount usage. So in the last -- quarter 4, we did the reclassification and proportionate allocate for the Legacy revenue and Digital Business revenue. Thank you.

Your next question comes from the line of Choong Chen Foong of CIMB.

This is Foong from CIMB. Three questions from me. Firstly, on IndiHome, can you talk a bit about competition in this space? And do you see that as potentially posing some risk to your ARPU and also your subscriber targets for 2021? That's the first question.

Secondly, for the Enterprise business, you mentioned there are still some uncertainties with regards to the impact from COVID-19 and all that. But I wanted to find out do you expect the Enterprise business to be still loss-making this year? Or do you see a turnaround?

And my third question with regards to Telkomsel. How do you see OpEx trending this year, excluding depreciation? Yes, those are my 3 questions.

Okay. Thank you, Mr. Foong. Let me start to answer your question on the IndiHome competitive landscape. Today, even in the, I think, the same trend that we have with our competitor, we don't see kind of very aggressive movement from our competitors. So the competition is quite preferable for us as we have, I think, end-to-end drivers that are much stronger compared to our competitors.

On the other hand, with regard to this, actually, regarding the, I think, ARPU correction, we don't see that in this moment because as the digitalization coming with, I think, higher speed right now and also more people work from home and study from home, the demand becoming actually stronger.

And then many, actually, our customers asking for a higher speed of the -- IndiHome services. This, in addition to some of the, I think, content that we provide also in the IndiHome, will give us a kind of a preferable situation in terms of the ARPU trend in this year.

Okay. And then in the second question, on the Enterprise impact of this COVID. As we mentioned to you that actually, we're becoming more, I think, selective in choosing the project, in choosing our clients and also while seeing the profitability also of the business. So we said that actually this business although still quite low in terms of the profitability, it is already provide a profitability business for us.

What we do expect, as mentioned also by our CEO, this is going to be our future business. As we improve the, I think, profitability. And as I think more Enterprise need services from this one, we believe this is going to be next to the IndiHome growth in the future.

Number three, sorry. On the OpEx.

So with regard with the costs trending for this year. For 2020, we see the -- slightly decreased combination between OpEx and depreciation. And for this year 2021, the OpEx related with the revenue and some cost related with the spectrum that we get is going to be in this. And the [indiscernible] is going to be aligned with the additional investment related with our costs in the network and also the tower.

So it means the trending for OpEx, the some cost related with revenue is going to be investment related with the additional of our network. But from cost related with the digitalization related with how we end up with the impact of the COVID is going to be decreasing. So we also do the managing of the cost related with our network because currently, we have the program to simplify our network based on assessing our activities. So perhaps with those kind of activity, the OpEx, the relative of the network can be managed and we have also scaling in terms of the network capacity. And then we also have the benefit of the some leaseback towers that we are not currently selling the power because the leaseback tower have slightly -- way much compared with the market. So it means the cost still can be manageable. And if it is increase, it's going to be aligned with our revenue and our group network revenue.

Next question comes from the line of Kresna Hutabarat of Mandiri.

I have 3 questions actually, so just bear with me. My first question is to Telkomsel. Can we get some update on Telkomsel's capital allocation strategy over the next 2 to 3 years? We can see that Telkomsel has monetized its brick-and-mortar assets, such as towers, and at the same time, invested more heavily into tech platforms, such as investments in Gojek, LinkAja, and TMI and so on. So as Telkomsel recalibrates its asset structure, can you get some color as to how much of Telkomsel's business will actually be towards the digital mobile? And perhaps any guidance on the retail CapEx budget for the next 2 to 3 years? And what sort of ROIC and enterprise valuation impact that Telkomsel is to achieve?

Second question is to Telkom management as well, similar to the question to Telkomsel. When it comes to digital investments, we understand that some digital investments may not yield as high cash returns as traditional Telkom businesses in the near term. So how should we balance the need to maintain steady cash returns at Telkom level with the need to fulfill Telkom's digital telco strategy and leadership going forward. Just 2 questions.

Okay. So I think from the capital, we have the plan to maintain the percentage of our revenue. It's going to be around 14% to 15%, aligned with the percentage of our revenues. So it means the capital is going to be slightly aligned with our -- selectly -- decrease in line with our revenue contribution during -- from the next 2 and 3 years. And then related with the digital investment, I think Pak Soon Nam can help answer the question, please.

Yes. Thank you very much for the question. And clearly, I think we continue to look for good and strategic opportunity to invest in growth potential. And I think you highlighted about our investment in Gojek. Yes, we have done our first investment. And so if I may, it has been a good opportunity for us. And in the early day, we have seen good traction among the 2 companies. We see synergy that we can derive. So moving forward, if we continue to have opportunity like that, we will definitely look at the investment carefully.

At the same time, beyond inorganic, we are also actively looking at organic growth for digital. We have, over the years, built up a lot of digital asset, so this will be yet another focus that we will take with regard to digital investments. [Pak Setyanto,] you have anything to add on to that.

Yes. Thank you, Pak Soon Nam and Pak Kresna from Mandiri, yes. As an additional information from what Pak Heri and Pak Soon Nam mentioned, so as you can see, we are transforming ourselves from telco to become a digital telco. And we show it in terms of how we allocate our capital to invest on the digital. Of course, we hope that by doing this, we will be able to cope with the recent development of the digital world and stay relevant to become more and more close to our customer. And yes, we hope that our overall movement on digital initiative will have a positive impact on our valuation multiple later on. That's overall strategy of Telkomsel.

Your next question comes from the line of Niko Margaronis of BRI Danareksa.

Congratulations, I think, for the good fourth quarter. Three questions, but I think they're straightforward. First of all, you mentioned about EBITDA margins guidance for 2021 to be stable. Can you break it down by business pillar, mobile IndiHome and Enterprise business? That's my first question.

Secondly, how should we think about PSAK 72 in terms of data revenue? That should mean that going forward, there will be some revenue -- some data revenue being allocated under Legacy revenue. Is that a fair understanding? That's number two.

And number three, in terms of your 5G rollouts, and you mentioned that would be within 2021. Is that going to be for retail segment? Or would it be selective rollouts? How do you plan in doing this? Are you going to be initially focusing on the business segments?

Thank you, Pak Niko, for your question. I will take the first question. On the EBITDA margin guideline, as mentioned by our CEO, we are going to have a kind of stable EBITDA margin. I cannot -- unfortunately, I cannot provide you too much detail in the parent company on the EBITDA margin for the business pillar. But overall, I think as -- what we result in 2020 this year, of course, the next highest EBITDA margin coming from IndiHome, that was highest one coming from Telkomsel and then from Wholesale. And as we previously mentioned, we are in the -- under process of, I think, improving the Enterprise. Enterprise will be the smallest one. Why we cannot provide you so much detail on this one? A lot of actually common asset included in this, I think, accounting treatment to really understand the cost allocation here. I think that's, I think, a brief color to you, Pak.

Number 2, related with the PSAK 72. Actually for the quarter 4, we implement the PSAK 72. So some discount previously allocated in the Legacy, currently, we review and then we proportionate (inaudible) the data. So this is actually the one thought that we are aligned with the PSAK 72 the accounting rule. And then going forward, it's going to be consistent for us to allocate the discount usage by under proportionate usage. So the data -- the usage -- the discount usage from data is going to be allocated proportionate to the data and the Legacy is going to be consistent allocated for the Legacy. So I think for this year, it's going to be consistent. We implement PSAK 72. So the impact from the data is not going to happen like in quarter 4. Thank you.

The 5G?

Yes I think he stopped. Let me answer it. Okay. Pak Niko, for the 5G, 5G is a bit different with 4G. 4G is for mass usage. This year for Telkomsel 5G will be -- we will implement it selectively, not as a mass rollout of network all over Indonesia. It will be selective in certain area and certain condition. And it will be both for B2B and B2C. So as a leader in the technology implementation, Telkomsel will always put the good service and leading service to its customer both for consumer and B2B market.

We have another question from the line of Piyush Choudhary of HSBC.

I've 3 more questions. Firstly, on IndiHome, can you share what is the current homes passed and ports as of fiscal '20? And what are the network rollout objectives and subs addition target for 2021?

Secondly, you mentioned about synergy benefits with Gojek. Can you give us some examples of how you are able to derive such benefits? And thirdly, on Mitratel, what is the expectation for organic tower and tenancy growth for 2021?

Okay. For number one, for the homes passed as of 2020. Actually for the homes passed in '20 for the IndiHome is about IDR 20.7 million. And for the ports itself is IDR 12.7 million. And...

Sorry, it's not very clear, the voice.

The homes passed in the 2020, it's about IDR 20.7 million that is homes passed that's ready for the IndiHome and for the ports itself, it's about IDR 12.7 million. And the target customers in the 2021. Actually, we -- there is still a potential (inaudible) connectivity for the household. But in the 2021, we will more selective for this. And we believe we still can add another 1 million subscriber IndiHome. And with some potential additional coming from the fixed wireless access for the new customers, especially for the area that we have no ready with the infrastructure for IndiHome.

Pak Piyush, let me add some, I think, some color from (inaudible). Basically, what (inaudible) mentioned is we expect to have this year now about 1 million of the IndiHome, I think, regular lines. And also in addition to that, we also do expect we can have fixed wireless access around 500,000. So this is going to bring us to around 1.5 million additional I think for broadband in our portfolio.

Piyush, this is Setyanto from Telkomsel. With regard to your question about synergy benefit from Telkomsel Gojek investment. So during our first investment, we have several, if I'm not mistaken, 10 strategy synergy initiatives that we will plan to implement during the collaboration. And until the first 3 months, we already launched 5 collaboration programs. And so far, the result of the collaboration programs synergy value that derive from that collaboration program is above what we expect. We can name it. One of it is we create special packet for driver -- Gojek driver. Special Telkomsel packet -- data packet for Gojek driver, we call it Paket Swadaya.

And then we also exchange our MyAds and GoBiz integration where our merchant and -- Gojek merchant and Telkomsel outlet can use their advertising together. Basically, Gojek merchant can use Telkomsel digital advertising, things like that. And so far, we see that the collaboration going forward with Gojek is going better and better. And we hope that the synergy value that we plan will achieve more than 100% this year.

On your third question, Pak Piyush, on the Mitratel. As previously mentioned, actually, we are in the preparation for having IPO for this company. So with regard to this preparation and the process, unfortunately, I cannot give you so much color on this one. The only information that we already provided previously, I think that's the maximum that we can provide with respect to the compliance of the process.

I think the tenancy, if you -- if you remember, we have around 1.65, our objective. And our plan is to have this Mitratel ready for the IPO by the end of the year, subject to the market condition. I think that's the situation that we have today.

Another question from the line of Arthur Pineda of Citigroup.

Sorry, 2 follow-up questions, please. I'm not sure if you can answer this, but can you share your thoughts on the remaining Telkomsel towers? Are there any plans for any further asset transfers over the long run?

Second question is on Telkomsel proceeds given the prior sales. Given that you do have the proceeds at hand, what are your thoughts on deploying the capital on that? Would you look to recycle it by doing dividends to shareholders i.e., which is to Telkom and Singtel? Or is it likely to be retained on the Telkomsel level?

Thank you very much for the question on the tower. This is Soon Nam from Telkomsel. Now one of the key strategy that we have is always to look at how we can optimize our capital structure and of course, also unlocking the value. So we have done so (inaudible). And your question is that, are we looking at more? So my answer is that as long as there is an opportunity for us to unlock that value, we will do so. And we will also do so according to market condition as well. So I hope that answers the question that you asked.

Yes. And on the capital that you received, is that just going to stay on Telkomsel?

The capital that we receive actually, because you see the Telkomsel balance sheet is very strong. So we -- the capital that we get from the selling of the tower is distributed to the shareholders.

Adding to Pak Soon Nam's explanation, actually, the way we see is like this. We don't reduce our investment in the tower. Basically, proceeds coming from the sale of tower from Telkomsel that's coming as dividend to telecom. We put it in the Mitratel actually. So basically, that is in practical, how we manage the cash coming from the tower selling.

Okay. So there's already been a dividend paid out on -- by Telkomsel?

Yes.

We have another question from Niko Margaronis of BRI Danareksa.

I would like to pick up on the Gojek collaboration and some news that are found in the Bloomberg terminal that you're considering of increasing your investment in Gojek. Could you provide some more color on this? And what do you expect to achieve by increasing your stake in Gojek?

Niko, Setyanto from Telkomsel here. Yes. As you may aware, we invest in Gojek, and we have the plan to continue to invest and collaborate with them. Of course, as a strategic investor, one of main purpose of investment is to get the synergy value between us and them, right? So we hope that in the upcoming future, with the recent development in Gojek, we will increase our collaboration. So we will -- both parties will derive synergy value from the synergy collaboration that will happen.

And also -- as an investment also, we also hope that we can get a capital gain from our investment. So it will be both sides. Number one is in terms of synergy value that we can derive and the second one is from the capital gain that we invest.

Right, right. If I may -- can I have a second question with regards to your -- to corporate actions. You mentioned about Mitratel deadline -- time line towards the end of the year for going IPO. I also picked up news about data center business going IPO by the Telkom group. Could you provide also some color on this?

Okay. On the data center we updated now as we got (inaudible) Jakarta basically, and it should be ready probably in the [third] quarter of this year. And we also actually, as part of the data center, we also currently have been deploying what we call as (inaudible) data center throughout the country. Now we have 22 locations, but we plan to add some more locations that were supporting the diverse data center. Yes.

So -- sorry, for the IPO, I think we have still quite some time. We plan to consolidate the data center first and then we'll look at the IPO probably sometime in early '23.

Okay. So let me confirm, late '23 you mentioned.

Yes. Early '23. So basically, we have some data centers. It is under our subsidiary telkomsigma and also in Telkom Indonesia now and parent company as well. We're going to consolidate all the data center and -- including the potential for future development, as mentioned also by Pak Ririek one in the -- still in the progressing of the hyper scale. And this also, I think, we, also potentially, will invite somebody else also who can bring technology, bring market and so on to come to Indonesia as well in the partnership later on when we -- this already, as mentioned before, we may come to the market in 2023, for example.

There are no further questions from the line at this time. This concludes today's conference call. Thank you for participating. You may now all disconnect.