JAKARTA - Fitch Ratings says in a Special Report that the credit profiles of Indonesia’s top three telcos - PT Telekomunikasi Indonesia Tbk (Telkom, BBB-/Stable), PT Indosat Tbk (BBB/Stable) and PT XL Axiata Tbk (BBB/Stable) - will remain largely intact, supported by rational competition, steady earnings growth and stable capex.
Their exposure to forex volatility is also likely to fall, following significant US dollar deleveraging in 2016 by Indosat and XL. Fitch expects industry revenue to grow by the mid-single-digit percentage in 2017-2018, driven by mobile data services.
The average operating EBITDAR margin for the top-three telcos is likely to narrow by about 100bp each year, as a changing revenue mix and over-the-top substitution offsets pricing discipline. However, debt cuts at Indosat and XL - and the subsequent lower interest costs - should drive meaningful improvement at the net profit level.
Average capex/revenue of the three major telcos is likely to be around 25%-28% (2015: 22%) due to the progressive roll out of long-term evolution (LTE) network in major cities. However, capex may be higher than our forecasts if there is an auction for the 2100MHz and 2300MHz frequency bands in late 2016.
A faster-than-expected industry consolidation leading to higher data tariffs, and which results in better profitability for the top three telcos, could lead to a positive rating outlook on the sector. However, significant debt-funded M&A or higher-than-expected dividends could turn the outlook on the sector to negative.
Link to Fitch Ratings’ Report: 2017 Outlook: Indonesia Telecommunications here
(*)