10 May 2022 (closed)
Jakarta Composite Index (6,819.79) -89.96 -1.30%
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PT Telekomunikasi Indonesia (NYSE: TLK) is engaged in telecommunications, information technology, and media businesses worldwide. In its latest figures, the company reported earnings of USD $2 billion along with revenues of USD $7 billion in full-year 2015. The results reflect a profit margin of 16.32 percent and an operating margin of 35.17 percent, ensuring an earnings-per-share of USD $2.80.
The company posted revenue growth of 14.62 percent and net income growth of 46.96 percent in the quarter ending in June 2016, which helped TLK stock to move from USD $44.63 in early January to USD $69.29 in August. The stock currently showing a rise of 36 percent on YTD basis but the main question for investors going forward will be whether or not there is sufficient momentum left to continue driving gains into the final parts of this year.
Chart View: TLK (YTD Performance)
It should be understood that since Indonesia is made up of several islands, there are several factors that act in limiting potential for landline growth. Because of this, the company is going through a major demand shift toward mobile telecommunication that are designed to avoid incurring losses in fixed-line networks. The company is also witnessing a surge in landline demand due to increased needs for broadband connectivity. This bodes well for stock prices and this has helped inspire the massive bull run that has posted so far this year.
On the negative side, we can see that fund ownership in TLK is declining, according to market reports released by Fintel.io. Here, we can add the fact that Indonesia’s telecom market is experiencing increased competition, which is something that could limit earnings potential in coming quarters. Overall, Telekomunikasi Indonesia is well-positioned to provide access in underserved areas, creating a significant opportunity for growth.
The company has been able to maintain a strong balance sheet stable brand perception amongst Indonesian consumers. Some analysts estimate that the company is will post double-digit growth in coming years and that is something that has been reflected the stock prices.
This backdrop helps to explain why Citigroup has upgraded the stock to a buy (from neutral). The company’s ADR has also been upgraded recently from reduce to buy by HSBC Securities, so we are seeing some alternative views for how the stock is likely to perform over the next few months. TLK is currently trading at a 21.63 price-to-earnings ratio, and a one-year forward P/E of 17.46. This indicates that there is still potential upside left in the stock before the end of the year.
Read more: Company Profile of Telekomunikasi Indonesia
This column was written by Richard Cox, university teacher in international trade and finance, focusing on lessons in macroeconomics and price behavior in equity markets.