Telekomunikasi Indonesia (NYSE:TLK), also known as Telkom Indonesia, the largest telecommunications company in Indonesia, dragged its feet on filing a fourth-quarter report for fiscal year 2018. When it finally appeared on April 30, a first-quarter report followed just three days later. Let's have a look at both of these earnings reports, one after the other.

The raw numbers: Telkom Indonesia's fourth-quarter results

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$2.14 billion

$2.31 billion

(7.5%)

Net income

$257 million

$308 million

(17%)

GAAP earnings per ADS (diluted)

$0.26

$0.31

(17%)

Data source: Telkom Indonesia. One American Depositary Share, or ADS, is the equivalent of 100 series B shares of Telkom Indonesia on the Jakarta stock exchange. GAAP = generally accepted accounting principles.

Telkom's first-quarter results

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$2.47 billion

$2.38 billion

3.5%

Net income

$441 million

$422 million

4.3%

GAAP earnings per ADS (diluted)

$0.44

$0.43

4.3%

Data source: Telkom Indonesia, as above.

What happened with Telkom Indonesia in these quarters?

  • The company reports its results in Indonesian Rupiah, not U.S. dollars. The Rupiah strengthened by 4.8% against the dollar between the fourth quarters of 2017 and 2018, giving Telkom a currency headwind when it comes to year-over-year comparisons in dollar terms. Measured in Rupiah, revenues rose 1.1% year over year.
  • For the first quarter, the currency-exchange trends worked out to a 4.1% stronger Rupiah-per-dollar rate. Measuring the revenue growth rates in Rupiah instead of dollars, Telkom scored a 7.7% year-over-year increase.
  • The fourth-quarter report was late due to an unusually complex conversion between Indonesian and international financial reporting standards (IFRS). The company filed a request for a deadline extension with the SEC, explaining that its financial staff and external auditors needed to complete their analyses before compiling a final report. The full report was completed four days later.
  • The Telkomsel phone network now serves 168.6 million subscribers. That's a 5.7 million increase from the end of the fourth quarter, which was a low point in the company's recent history. In 2018 as a whole, the subscriber count fell 17%, to 163 million accounts.
  • As Telkom's wireless customers latch on to smartphones with high-speed broadband plans, the company's revenue mix is shifting dramatically. In the first quarter, data service revenues rose 30% year over year to represent 34% of Telkom's total revenues. A year earlier, the data portion of total revenues stood at 31%.
  • Like the rest of the world, Indonesia's newfound love of data-driven communications has a downside for the network operator. Telkom's ordinary voice service revenues fell 19% year over year and SMS messages collected 27% lower sales.
Photo of Indonesian capital Jakarta at night, highlighting bright lights and bustling traffic.

Image source: Getty Images.

What management had to say

In Telkom's first-quarter earnings call, CEO Alex Sinaga explained how the mobile network market is evolving in Indonesia, with Telkom playing a leading role in the new sector landscape. Sinaga said:

2018 was a challenging year for telecom players in Indonesia, due to the legacy business that we decline faster than expected and intensive price war of mobile data, during prepaid SIM card registration period, since operators offer very low data prices to retain our customer base. To navigate out of this situation, Telkomsel took the initiative to increase the data price, such that Telkomsel market sale was not affected. As a result, Telkomsel revenue only declined by 4.3% year-on-year, [in a year] that has seen the big 3 operators revenue decline by 7.4%.

Looking ahead

This company doesn't provide detailed financial guidance, but management offered some color commentary on the road ahead.

The Telkom group should grow Rupiah-denominated sales by mid- to high-single-digit percentages in fiscal year 2019. The company is aiming for a growth rate slightly ahead of the Indonesian mobile industry's. EBITDA and net income margins will continue to decline, continuing a difficult trendline from the past two years. However, the pace of margin shrinkage should slow down a bit as Telkomsel enjoys stronger margins in data services.