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Elevating the Future

Indonesia's digital landscape is reshaping how people and businesses engage with the internet, and several key trends are driving the nation's digital growth.

To put things into perspective, consider that in 2019, approximately 54% of Indonesia's population were using the internet. Fast forward to 2026, and that percentage is projected to rise to 63%.

The increasing demand for higher video quality, augmented and virtual reality experiences, smart devices such as thermostats and fitness trackers, is accompanied by a growing need for cloud services and the Internet of Things (IoT).

This transformative shift, often referred to as "digital transformation," is indeed a catalyst for the expansion of the digital economy.

It signifies that businesses are leveraging technology to enhance their operations and services.

Notably, Indonesia is outpacing other Southeast Asian countries in terms of digital economy growth, boasting an impressive 5-year CAGR of 21.8%.

Jakarta's data center market, in particular, is projected to nearly triple in size, reaching $625 mn by 2025.

This expansion is predominantly driven by the presence and growth of hyperscale cloud platforms.

The robust demand for cloud infrastructure can be attributed to the rising smartphone penetration rate, the flourishing e-commerce industry, and the surge in over-the-top (OTT) services.

Source: Company, Sucor Research

Having attended TLKM’s annual Investor Gathering last week, I’m here to share a few key insights from the event.

To begin, TLKM reaffirmed its commitment to growth in B2B digital IT services, data centers, and enterprise digital solutions through its 5 Bold Moves Strategy.

This expansion will be achieved through a combination of organic growth and strategic acquisitions.

Strategic direction aligns with the broader industry trend observed in mature MNOs like Telefonica, Singtel, and Telus.

In addition, TLKM and its subsidiaries are on a determined path to bolster their B2B operations as they actively seek strategic partnerships with global tech giants and are open to M&A opportunities.

As a part of TLKM's 5 Bold Moves strategy, the company is focusing on network infrastructure, with notable entities being Mitratel (MTEL) and InfraCo-Fiber.

MTEL has recently completed its IPO and is now the biggest and fastest growing independent tower operator in Indonesia.

MTEL is entering Fiber to the Tower (FTTT) business as a strong emerging player with 27k km (+63.9% from FY22) having been deployed & owned.

With a 13k km target of fiber optic deployment for FY23, and holding the largest market presence of 58% in ex-Java area, MTEL is well-positioned to satisfy increased capacity demand going forward.

On the other hand, InfraCo-Fiber is in the process of establishing its legal entity, and will later focus on Fiber to the Home (FTTH) business.

Furthermore, TLKM currently operates a total of 30 data centers, with 25 located domestically and 5 internationally. By the end of 2023, the cumulative IT load capacity across these centers will reach 46MW.

Looking ahead, TLKM has laid out an ambitious market plan for 2024-2030, including expanding their capacity (both domestically and internationally) with the aim of achieving a total IT load capacity of 409MW by 2030.

The ultimate goal is to capture 40% of the market share by 2030.

In 1H23, TLKM saw a marginal 2% yoy revenue growth. Unfortunately, this increase did not lead to higher operating profit or EBITDA.

TLKM attributed this to elevated operating expenses, which were primarily incurred due to strategic investments in the rollout of FMC services.

We maintain our BUY recommendation for TLKM, with DCF-based TP of Rp5,200 per share.

While TLKM's short-term growth might appear to be leveling off, several catalysts including the realization of value from infrastructure and data center assets, the effect of Fixed-Mobile Convergence (FMC) initiatives are believed to be positive momentum for the company.

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