Telkom expected to outperform the local bourse

Telkom expected to outperform the local bourse

JAKARTA (JP): PT Telekomunikasi Indonesia (PT Telkom) shares received a cold response during the company's initial public offering last year, but are now expected to outperform the Indonesian stock market.

Global investment bank Lehman Brothers predicted yesterday that PT Telkom will do well on the back of strong projected growth, which has come as a result of low land/line penetration rates.

"We give PT Telkom a 2-Outperform rating," said Gautam Kapoor, a telecommunications analyst at Lehman Brothers. "At current price levels, the company represents an attractive opportunity when compared to other fixed-line companies in Asia in terms of operating cash flow margins," he said in Lehman's latest report.

PT Telkom, the dominant provider of domestic telecommunications services, unexpectedly reduced the prices of its shares on overseas and domestic markets during its initial public offering (IPO) in November due to a cold response from investors.

The company, which is now listed on the Jakarta, New York and London stock exchanges, also scaled down its offshore flotation by 57 percent during the initial listings.

Lehman Brothers said that since its listing, the price of Telkom shares has risen about 77 percent over its IPO price. The company has outperformed the Jakarta Composite Index by 52 percentage points.

Local analysts, however, said that the significant increase in the price of Telkom shares was partly due to restrictions on the sale of Telkom shares held by state-owned pension funds.

The restriction was questioned by House members during a recent hearing between Minister of Finance Mar'ie Muhammad and the House commission on trade, finance and banking.

Djimanto of the Indonesian Democratic Party said that the restriction imposed on state-owned pension funds is unfair.

"The increase in the price of Telkom shares is useless because the state-owned pension funds cannot benefit from the higher price," he said during the hearing.

Minister of Finance Mar'ie Muhammad acknowledged that the state-owned pension funds have been told to hold on to their Telkom shares for at least two years.

However, he said that the measure is essential to protect the more than 3,000 individual investors that have bought Telkom stock.

Kapoor said Telkom is likely to post a compound Earning Per Share (EPS) growth rate of 24 percent per year from 1995 to 1998.

He said that unlike other Asian publicly listed fixed-line companies, Telkom has yet to reach its peak margins.

"We expect the company to achieve a 42 percent operating profit margin in 1996, up from 33 percent in 1995," he said. (hen)