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Moody’s affirms Telkomsel’s Baa1 ratings


Hong Kong — Moody’s Investors Service has affirmed the Baa1 issuer rating for Telekomunikasi Selular (P.T.) (Telkomsel). The outlook remains stable.


“Telkomsel’s Baa1 rating continues to reflect the company’s established position as Indonesia’s largest wireless telecommunications operator with around 45% subscriber market share. It also incorporates Telkomsel’s strong financial metrics, robust balance sheet, and strong liquidity,” says Annalisa DiChiara, a Moody’s Vice President and Senior Credit Officer.

“At the same time, the rating is constrained by the competitive, but stabilizing, operating environment, and the large capital expenditure and shareholder payments which temper free cash flow generation,” adds DiChiara, also Moody’s Lead Analyst for Telkomsel.

For the nine months ended September 2016,Telkomsel has maintained its strong operating performance with revenue growth of 14.4% year-on-year (YoY) to IDR63.6 trillion, led by strong growth in data services.

During this period, total subscribers grew 10.2% YoY to 163.7 million, while blended average revenue per user (ARPU) rose 7.4% to IDR45,000 due to the increase in data consumption and the continued success of the company’s cluster-based pricing strategy.

Moody’s expects Indonesian mobile sector revenue to grow a healthy 8%-9% over the next two years, on the back of 15%-20% growth in data revenue, because of the strong demand for 3G/4G LTE services and the proliferation of affordable smartphones.

“Telkomsel will benefit from overall industry growth due to its strong market position and improving data network. There is also potential for further growth in data revenues, as only around 47% of Telkomsel’s subscribers use 3G or 4G compatible handsets, and we expect this proportion to increase with the availability of cheaper smartphones,” adds DiChiara.

Moody’s expects Telkomsel to maintain capex/revenue of approximately 18%-20% over the next two years, as the company continues to enhance its network quality and coverage to keep up with the growing demand for data, and maintain its leading market position.

“Despite competitive pressures and sizeable capital expenditure, Telkomsel’s credit metrics remain strong relative to the company’s Baa1 rating when compared to similarly rated peers. In particular, leverage — as measured by adjusted debt/EBITDA — was only 0.3x as of September 2016,” says DiChiara.

For the nine months ended September 2016, Telkomsel paid ordinary dividends of IDR19.4 trillion, a 15% increase YoY. Although its dividend payouts have limited the extent of free cash flow generation, absent any significant deviations from its existing policy, Moody’s does not see them as materially impairing the company’s credit profile.

Telkomsel’s Baa1 rating is constrained by a two-notch differential between the issuer’s rating and the Indonesian sovereign’s Baa3 rating. As Telkomsel is predominantly a domestic entity, with substantially all of its revenues derived from, and assets based in Indonesia, its fundamental creditworthiness needs to closely reflect the potential risks that it shares with the sovereign.

The stable outlook reflects our expectation that Telkomsel will maintain its dominant market position and conservative financial profile.

Upward rating pressure is unlikely, given that the rating is constrained by the competitive nature of the operating environment, as well as the risk of indirect intervention from the Government of Indonesia (Baa3 stable). Such action could, indirectly through Telekomunikasi Indonesia (P.T.) (Telkom, Baa1 stable), alter the company’s financial and shareholder remuneration policies in the event of stress.

Telkomsel’s credit metrics are strong for its rating level, and downward pressure is unlikely, absent a precipitous change in its operating profile, or a material increase in dividend payments. However, negative action on the Government of Indonesia’s rating could pressure Telkomsel’s rating.

The principal methodology used in this rating was Global Telecommunications Industry published in December 2010. Please see the Rating Methodologies page on for a copy of this methodology.

Telekomunikasi Selular (P.T.) (Telkomsel), headquartered in Jakarta, is the largest wireless telecommunications company in Indonesia.


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Source: The Insiderstories
Moody’s affirms Telkomsel’s Baa1 ratings

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