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Technology Stocks : INDONESIA'S PT TELECOM(TLK) -- Ignore unavailable to you. Want to Upgrade?

To: Susan Saline who wrote (715)	6/17/1998 9:55:00 PM
From: Solon	1 Recommendation Read Replies (1) \| Respond to 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".

To: Susan Saline who wrote (715)	6/18/1998 3:47:00 AM
From: tom	Respond to of 947

Solon has given a very good explanation already but just to add my contribution I understand that buying TLK is a way of playing a strengthening Rupiah but that is about it. As its earnings are in Rupiah and the share price is unchanged in Rupiah terms its valuation is the same now as it was at US$30 (in fact its valuation has gone up as the earnings have fallen). All that has happened, as Solon says, is the Rupiah has fallen which makes TLK cheaper of US$ terms because of the translation effect. I must stress that my negative view on TLK is a fundamental, long term view. TLK will provide lots of volatility and trading opportunities. It's just that relative to other Indonesian and Asian stocks it is very overvalued