Company update:
Link Net (LINK IJ, BUY, TP: IDR6,100),
Ready To Run
Link Net (LINK IJ, BUY, TP: IDR6,100),
Ready To Run
Despite its
operational performance facing short-term headwinds from new entrants like
Telkom IndiHome and MNC Play Media, we remain positive on Link Net, given:
1. Its expansion into a new city (Malang)
from July, plus Medan and Batam (3Q16);
2. New re-marketing strategy and improved
product quality.
Maintain BUY with a
higher IDR6,100 TP (from IDR5,500, 26% upside) after rolling forward our
valuation base to 2017.
¨
Malang
expansion first, more to come. In July, Link Net launched its broadband and
cable services in Malang (East Java). Since then, the company has rolled out
40,000 homes passed vs the target market of 120,000-150,000. The expansion will
not stop there. In September, it plans to roll out its services in Medan and
Batam. We view this strategy to focus on high GDP cities as advantageous, as
the improved customer profile will lead to additional subscriber growth and
lower churn rate.
¨
Maintain
additional subscribers forecast... We maintain our forecast for additional
subscribers of 162,000, 175,000 and 185,000 in FY16-18 respectively, as we
believe Link Net will maintain its additional subscribers target on the back of
a new re-marketing plan and expansion into new cities.
¨
…but
cut ARPU growth. However,
we factor in fierce competition from other players by lowering our ARPU growth
in FY17-18 to 0.2%/2.3% (from 3.3%/2.9%) respectively. In our view, Link Net
has a better customer profile and loyalty when compared to its competitors,
given its presence in high GDP cities.
¨
We
therefore maintain our FY17-18 churn rate of 2.2%/2% respectively. We also
expect penetration rates to improve to 30% by end-2017 (2016: 27%).
¨
Maintain
BUY, with a higher TP of IDR6,100 (from IDR5,500). We maintain our BUY
call with a higher DCF-based IDR6,100 TP after we roll over our valuation base.
Our TP implies 16x/13x FY17-18 P/E’s respectively. Risks to our call include
lower ARPU and increased competition.
¨
2Q16
results in line with our expectations. Link Net reported 2Q16 earnings of IDR209bn
(+24% YoY), bringing 1H16 earnings to IDR396.8bn (in line with our/consensus
estimates of 51%/49% respectively). Revenue rose 13% YoY, driven by higher
contribution from broadband business.
¨
Improved
penetration rates. There
was a healthy pick up for broadband in 2Q16 with 21,000 new subscribers (1Q16:
15,000), whilst cable TV new subscribers increased to 23,000 (1Q16: 17,000).
¨
With the
slowdown in home passed expansion, penetration rates improved in 2Q16 to 28.3%
(1Q16: 27.6%). We expect even better penetration rates in 2H16 on the back of a
new re-marketing strategy and improved product quality.
David Arie Hartono
Assistant Vice
President
Research Analyst – Media,
Transportation
PT. RHB Securities
Indonesia
