TLK

Business Context and Reporting Period

Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom Indonesia)

Reporting Period: Three months ended March 31, 2020 (Unaudited)

Context: Telkom Indonesia is Indonesia's largest telecommunications provider, offering mobile, fixed-line, internet, and enterprise services. The reporting period coincides with the initial global outbreak of the COVID-19 pandemic. The financial statements reflect the adoption of new Indonesian accounting standards (PSAK 71, 72, and 73) effective January 1, 2020, impacting the presentation of financial instruments, revenue recognition, and leases.

Key Financial Metrics (in billions of IDR)

Note: Figures are in billions of Indonesian Rupiah (IDR). Q1 2019 figures are presented as originally reported; comparative analysis is impacted by new accounting standards adopted in 2020.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased by 1.9% to Rp34,194 billion, primarily driven by a decline in telephone revenues and interconnection revenues, partially offset by growth in data and internet services.
• Profitability: Operating profit declined slightly by 0.8% to Rp11,929 billion. Net profit for the period decreased by 2.4% to Rp8,301 billion.
• Cost Structure: Operation, maintenance, and telecommunication service expenses decreased significantly by 23% (from Rp10,709 billion to Rp8,252 billion), largely due to a reduction in handset sales costs and tower lease expenses. However, depreciation and amortization expenses increased by 21% (to Rp6,849 billion) due to new asset additions and accounting standard changes.
• Cash Flow: Operating cash flow improved significantly by 35% to Rp17,603 billion, driven by lower cash payments for expenses and a tax refund receipt of Rp1,816 billion.
• Balance Sheet Impact: Total assets increased by 9.4% and liabilities by 11.0%. This is largely attributable to the adoption of PSAK 73 (Leases), which recognized Right-of-Use (ROU) assets of Rp19,980 billion and corresponding lease liabilities of Rp14,918 billion.

Guidance, Outlook, and Risks

• Accounting Changes: The filing highlights significant adjustments due to the adoption of PSAK 71 (Financial Instruments), PSAK 72 (Revenue), and PSAK 73 (Leases). These changes reclassified unearned income to contract liabilities and recognized lease obligations on the balance sheet.
• Taxation Risks: The company is involved in ongoing tax disputes and assessments regarding VAT and income tax for fiscal years 2007 through 2018. While several appeals have been won (e.g., VAT on international incoming calls), some assessments remain under review or appeal, creating potential contingent liabilities.
• Foreign Exchange Risk: The company has significant exposure to foreign currency, particularly the Japanese Yen and US Dollar. A sensitivity analysis indicates that a 5% strengthening of the Yen against the Rupiah would decrease equity and profit by approximately Rp30 billion.
• Subsequent Events: Following the reporting period, the Annual General Meeting declared cash dividends of Rp11,198 billion and special dividends of Rp4,065 billion for the 2019 fiscal year. The company also announced a share buyback program with a maximum amount of Rp1,500 billion.

Investor Verification Checklist

• Revenue Quality: Verify the sustainability of the decline in traditional voice revenue versus the growth in data/internet services (Indihome and Mobile Data) to assess long-term growth drivers.
• Lease Liability Impact: Confirm the impact of the new lease standard (PSAK 73) on future interest expenses and EBITDA calculations, as operating lease payments are now capitalized.
• Tax Contingencies: Review the status of ongoing tax disputes (specifically VAT on international calls and income tax assessments) to estimate potential future cash outflows or refunds.
• Dividend Payout: Assess the impact of the declared 2019 dividends (totaling ~Rp15.2 trillion) on the company's liquidity and retained earnings in the upcoming quarters.
• Capital Expenditures: Monitor the execution of committed capital expenditures (Rp10.7 trillion) for network expansion and modernization, particularly in the context of 5G rollout and fiber optic deployment.