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Technology Stocks : INDONESIA'S PT TELECOM(TLK)
TLK 20.93-0.9%Nov 21 9:30 AM EST
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To: Jyoti sharma who wrote (218)2/3/1998 1:37:00 PM
From: tom  Read Replies (2) of 947
 
1. Even if you value PT Telkom on peak earnings of 200 Rps per share then it still trades on 25x.

2. Penetration is very low but what proportion of the total population of 200m will need a phone in the next 10 years? If you look at the proportion of Indonesians who can actually afford a phone then it is less than 10-20m. With 5m lines already installed at the end of 1997 then this is a fairly high effective penetration rate. Everyone knows that Indonesia will, one day, need lots more phones but that doesn't mean you have to subsidize them putting those phones in.

3. Unless the tariffs are raised to account for the increased cost of capital equipment then PT Telkom should trade at a big discount to replacement cost because no one would build it in the first place as the returns would not cover the cost of capital. Replacement cost is only 1 side of the equation.

4. If they do raise tariffs to allow the KSO's to continue investing then this worsens the affordability and effective penetration calculations. At the moment it is not worth the KSOs investing with the return on capital so low.

5. How do you think the KSO negotiations will affect Telkom? I can't think that Telkom will win.

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