INDONESIA'S PT TELECOM(TLK) Message Board

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Technology Stocks : INDONESIA'S PT TELECOM(TLK)

TLK 20.70

+0.1%

9:38 AM EST

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To: Sam Citron who wrote (408)	2/24/1998 4:12:00 AM
From: tom	Read Replies (1) of 947

My argument goes as follows... Even before the economic crisis in Indo, only 10-20m people in Indo would have been able to afford a phone line in the next five years (If you have info that suggests otherwise then I'm all ears). Following the crisis the size of their potential market will have been reduced further. This means that the effective penetration rate is 15-30% and rising. Either TLK increases tariffs thus making its service even more unaffordable or it maintains them in order to increase penetration which means profitability per line will suffer. Either way TLK loses. I agree that over a 20 year time-period Indo will need more phone lines but that doesn't mean that TLK is going to make a return in excess of its cost of capital running those lines. TLK have scaled back their lines in service forecasts as they know the demand isn't there. Also TLK is one of the most expensive Telcos in the region (on P/E, EV/EBITDA + it has a D/E ratio of 80% - much higher than most in the region) It looks reasonable value on a replacement cost valuation but that ignores the fact that you wouldn't build out a network in Indo at the current level of the Rupiah. The risk reward trade off is all wrong and that's before you consider the fact that Indo is bankrupt and about to descend into a a "Marcos-like" era of political and social turbulence. TLK won't go under ( but it won't make any money either. I haven't even mentioned the fact that they have had to write off 50% of their cellular subscribers either. PS. Indo is targeting an Oil price of $17 in its budget - where is it now? PLN, the electricity company, has admitted that it will not be able to service its debts - ie it's defaulting.

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