Indonesia telcos striking a long-term revenue path

Brisk wireless data growth seems like it will continue steadily, says Barclays.

Her'e's more from Barclays Research:

Our recent visits with the Indonesian telecom services companies and other participants in the telecom ecosystem have us reiterating our bullish view. We have four key takeaways: 1) wireless data revenue growth appears sustainable in the long term – improving coverage with every passing quarter is helping; 2) voice revenue growth is likely to surprise on the upside given the improved competitive dynamics; 3) SMS interconnect (effective in June) will likely have only a limited impact for the listcos on an absolute basis but should come with a margin hit; and 4) capex acceleration appears a distinct possibility – as long as this drives higher revenue and sustains returns on capital, we are not concerned. We reiterate our Overweight rating on PT Telkom and XL Axiata and retain our Equal Weight rating on PT Indosat.

PT Telkom – key takeaways: 1) Sound revenue growth should drive upside to our earnings estimates but we await the 3Q12 results to re-examine our forecasts; 2) we expect the acceleration in "transform" initiatives to leave capex risk to the upside; 3) the bankruptcy case does not impede "business as usual" at Telkomsel but will likely take time (per Indonesia law and processes) to be resolved; and 4) commitment to a 65% (minimum) payout drives a 4.5% yield, on our estimates.

XL Axiata – key takeaways: 1) Operational trends appear to be in line with our expectations but SMS interconnect recognition is likely to hit margins in 3Q12; 2) capex acceleration appears likely; as long as additional revenue and EBITDA growth and return on capital are not materially compromised, we believe investors should not worry; and 3) remaining Etisalat stake is considered part of free float (now at 33.4%); if the free float reaches 40% it would drive lower taxes under Indonesian law and could suggest potential upside to our estimates.

PT Indosat – key takeaways: 1) Management aims to execute rapidly to deploy 3G on 900MHz; rollout target details to come; 2) 3Q12 results should reflect impact of tower sales to Tower Bersama; operational impact is in our estimates but not the one-time gain likely to be recognised in results; and 3) company is hopeful of regaining revenue momentum; clearer signs in this regard could be a potential rerating catalyst for the stock.