Telekomunikasi Indonesia (NYSE:TLK), also known as Telkom Indonesia, reported second-quarter results July 31. The largest telecommunications company in Indonesia posted single-digit revenue growth and 60% higher earnings, despite a 6% smaller subscriber base.

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

Metric

Q2 2019

Q2 2018

Change

Revenue

$2.42 billion

$2.30 billion

5.5%

Net Income

$341 million

$213 million

60%

GAAP Earnings per ADS (diluted)

$0.34

$0.21

60%

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.

What happened with Telkom Indonesia this quarter?

  • The company reports its results in Indonesian rupiah, not U.S. dollars. The average value of one dollar across the three months of April, May, and June of 2018 was 13,944 rupiah. One year later, a 2.2% stronger dollar was worth 14,347 rupiah. As measured in local currencies, Telkom Indonesia's sales rose 7.7%.
  • The Telkomsel wireless phone service reported 167.8 million subscribers, 6% below the year-ago quarter's reading but roughly equal to the first quarter's 168.6 million subscriber lines.
  • Sales of data services rose 24% year over year, contributing 58% of the company's total revenue. At the same time, mobile data traffic increased by 56%.
  • Voice and SMS services continued their downward trends, posting total sales 19% below the year-ago period and delivering only 24% of Telkom Indonesia's second-quarter revenue.
A bird's-eye photo of Indonesia's capital, Jakarta.

Image source: Getty Images.

What management had to say

In Telkom's second-quarter earnings call, CEO Alex Sinaga explained how tighter regulations on payment services have forced the company to lose a few million subscribers but also improved the average quality of the remaining customers.

"Revenue from tops up continue to grow positively, reflecting more sustainable and higher-quality revenue," Sinaga said. "Telkomsel will continue to comply with the regulation and expect to still see further subscriber losses. However, [this] has resulted in a better-quality customer base with a higher number of active and loyal subscribers and improved ARPU, as well as more efficiency in card-production cost. It will also have positive long-term impact and support the emergence of healthier competition in the industry. "

Looking ahead

Sinaga offered some high-level guidance for the full fiscal year.

  • Overall revenues are trending toward "mid- to high-single-digit" growth for the Telkom group as a whole. Telkomsel's growth is moving toward a milder "low to mid-single digit" growth rate. These targets are in line with the guidance given in the first-quarter earnings call.
  • The EBITDA and net income margins are expected to come in "slightly better" than their 2018 readings. For comparative purposes, last year's EBITDA margin stood at 47% of revenue while the net margin was 14%. In the first half of 2019, these profit margins clocked in at 50% and 16%, respectively.