TLK

Business Context and Reporting Period

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

Reporting Period: First Quarter 2009 (Ended March 31, 2009)

Filing Date: May 13, 2009

Context: Telkom is Indonesia's largest telecommunications provider, operating fixed-line, cellular (Telkomsel), and broadband services. The company is majority-owned by the Government of Indonesia (51.2%). The report highlights a strategic shift to "strengthen Legacy business and aggressively grow New Wave business" (data, internet, IT services) amidst a changing consumer landscape favoring mobile over fixed-line voice.

Key Financial Metrics

Note: All figures in Rupiah billions unless otherwise noted. Net Income decline was significantly impacted by foreign exchange losses of Rp 212 billion.

Material Changes vs. Prior Period

• Subscriber Growth: Significant growth in mobile and fixed-wireless segments. Flexi (fixed wireless) subscribers grew 99.4% to 13.4 million; Cellular subscribers grew 40.5% to 72.1 million; Speedy (ADSL) subscribers grew 144.8% to 716,000.
• Revenue Mix Shift: Legacy revenue (wireline, cellular voice, SMS) declined 6.2% due to lifestyle changes favoring mobile-to-mobile calls and SMS tariff reductions. Conversely, "New Wave" revenue (data, internet, IT) surged 74.4%, increasing its contribution to total revenue from 5.0% to 9.0%.
• Expense Pressure: Operating expenses rose 10.9%, driven by a 31.2% increase in Operations & Maintenance (due to network expansion) and an 18.6% increase in depreciation. Personnel expenses decreased 15.2% due to one-time benefits paid in the prior year.
• Balance Sheet: Total assets increased 11.6% due to capital expenditures (Capex) for network infrastructure. Current liabilities jumped 44.3% due to higher trade payables and current maturities of long-term debt.
• Debt Profile: The portion of debt denominated in US Dollars decreased from 31.3% to 22.0% of the total debt portfolio, reducing currency exposure.

Guidance, Outlook, and Risks

• Strategy: Management is executing a dual strategy: maintaining the "Legacy" business while aggressively expanding "New Wave" services (broadband, enterprise data, IT services) to offset declining voice revenues.
• Investment: Q1 2009 Capex was Rp 1,431 billion for Telkom and Rp 1,517 billion for Telkomsel, focusing on adding 928 new BTS (including 3G) to support subscriber growth.
• Tax Contingency: Management believes the company qualifies for a 5% corporate income tax reduction under Indonesian law but has not recognized this benefit (approx. Rp 73 billion) in Q1 2009 for conservative reasons. An assessment will be conducted in Q2 2009.
• Strategic Partnerships: Signed an agreement with Orange Business Services to provide advanced network services to enterprises. Awarded a contract to ISS-Reshetnev to build the Telkom-3 satellite (launch expected August 2011).
• Risks: Continued pressure on cellular and SMS tariffs; foreign exchange volatility (though hedging strategies are in place); and the transition of consumer behavior from fixed-line to mobile services.

Investor Verification Checklist

• FX Impact: Verify the magnitude of the Rp 212 billion foreign exchange loss and its specific drivers given the Rupiah's volatility.
• ARPU Trends: Monitor the significant decline in Average Revenue Per User (ARPU) across Flexi (-46.5%) and Telkomsel (-29.9%) to assess if volume growth is offsetting price erosion.
• Capex Efficiency: Review the return on the heavy capital expenditure (Rp 2.9 trillion combined Q1 Capex) required to maintain network capacity and subscriber growth.
• Tax Benefit Recognition: Confirm in the Q2 2009 filing whether the 5% corporate tax reduction is recognized, which would materially impact net income.
• Debt Maturity: Analyze the 44.3% increase in current liabilities to ensure liquidity is sufficient to meet near-term debt maturities.