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Technology Stocks : INDONESIA'S PT TELECOM(TLK)
TLK 21.09+1.8%10:17 AM EST
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To: pass pass who wrote (478)4/3/1998 9:41:00 AM
From: tom  Read Replies (1) of 947
 
A few points worth noting about TLK

- In Rupiah terms, the stock has performed very well and it is not far off its all time highs. Given that its revenue is in Rupiah this seems a good way to look at it. Beware of replacement cost arguments. Even though it is trading at a (small) discount to replacement cost it would not be economics to build out a network at the current exchange rate.
- The stock is on a P/E on 1999 earnings of 18x but the visibility of earnings is virtually zero.
- 1998 Dividend yield around 0.6%
- Inflation in Indonesia will be 50-100% in 1998 and TLK will not be allowed to raise tariffs enough to fully compensate for the contraction in margins (They got a 15% tariff hike as of 1 April 98 but probably wont get much more)
- Their subsidiaries are doing very badly. For example, their cellular subsidiaries have had to disconnect 50% of their subscribers for non-payment of bills.
- The regional operators (KSOs) which are foreign JVs are almost all bankrupt. They cannot make a positive return on investment with the Rupiah at the current level.
- Fixed lines are already oversupplied in Indonesia given the income levels and it is likely that TLK will not add any new lines during 1998

There are many more negative points but I think you get the picture.

But.........

TLK will survive this downturn and it does have a monopoly. However, the market is pricing the stock as if everything will be OK in 1999. It won't be.
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