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)