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Technology Stocks : INDONESIA'S PT TELECOM(TLK)
TLK 20.67+0.9%3:59 PM EST
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To: Susan Saline who wrote (715)6/17/1998 9:55:00 PM
From: Solon1 Recommendation  Read Replies (1) of 947
 
Susan

Tom is right for a combination of reasons which have arisen in the months since TLK last traded at USD 30 per ADR, namely:

1. The cost of infrastructure provision (paid in USD) has dramatically risen in IDR;
2. Access charges have been maintained at incredibly low levels by government fiat, leading to actual losses on all international interconnect;
3. Spiralling inflation has led to a massive contraction in demand for Telkom's normally profitable SLJJ (long-distance) services;
4. The regional operators (KSOs) are all utterly non-viable, and therefore Telkom's long range rollout plans have ground to a halt; and
5. USD-denominated network assets are unable to support a valuation based on Net Tangible Assets, since their re-export is restricted. IDR-denominated breakup value is a negligible fraction of book value.

Despite all of the above, if Telkom's valuation were to stay the same in IDR terms as at the $30 valuation, it would now be valued at USD 4.20 (USD 30 * 2340/16700) due to exchange rate variations alone. At the current price - and taking the above factors into consideration - Telkom is clearly massively overvalued.

To quote Bali Securities from the front page of the Jakarta Post this morning: "If you take Telkom and Indosat out of the market, you will see the real picture of our market. It is so gloomy".
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