4Q25 Earnings Below Expectations, 2026 Earnings Under Pressure, Maintain Neutral Rating

Overview

Telkom Indonesia reported 4Q25 earnings, with Group EBITDA at IDR17.85 trillion, down 2% QoQ and 3% YoY, slightly below J.P. Morgan's expectations but significantly ~5% below street consensus. The report highlights intense competition in IndiHome's fixed-line business, with ARPU declining sharply and wireless data revenue growth lagging competitors, indicating market share pressure. Additionally, the company implemented accounting policy changes, shortening the useful life of fixed-line wiring assets, accelerating depreciation, with an FY25 earnings impact of ~IDR5 trillion, expected to persist until 2028. Given weak 4Q25 results and a dim 2026 earnings outlook, J.P. Morgan maintains a Neutral rating on Telkom.

Core views

Earnings Pressure and Intensified Competition: 4Q25 EBITDA fell 3% YoY to IDR17.85 trillion, primarily due to severe competitive pressure in IndiHome's fixed-line business. IndiHome ARPU declined 3% QoQ and 14% YoY to IDR204k, with revenue down 1% QoQ and 5% YoY; wireless data revenue grew only 5% QoQ, trailing ISAT's 8% growth, indicating market share loss in broadband. Positive Signals and Balancing Factors: Mobile business (Telkomsel) showed improvement. 4Q25 mobile ARPU was IDR45k, up 4% QoQ and 2% YoY, with December exit ARPU reaching IDR47.4k, confirming industry-wide price recovery. Management confirmed maintaining FY25 dividend at IDR212/share, implying a 7% yield at current prices, providing short-term valuation support despite declining reported earnings. Accounting Changes and Earnings Drag: Telkom adjusted accounting policies for fixed-line wiring assets, reducing useful life from 25 years to 5-10 years. This change led to FY23/FY24 net fixed asset reductions of IDR8.7 trillion/IDR10.2 trillion, eroding earnings by 5%-6% over two years. FY25 earnings impact is ~IDR5 trillion. While accelerated depreciation does not affect cash flow, J.P. Morgan notes that if asset useful lives are indeed shorter, maintenance capex should rise in subsequent years to maintain economic output. This impact is expected to fully dissipate by 2028. Outlook and Guidance: Telkom guides for modest 1%-3% earnings growth in FY26, with higher depreciation expenses continuing to suppress earnings. The telecom market faces slow growth and intense competition, testing Telkom's leadership advantages—integrated operations, mobile broadband leadership, and nationwide fixed-line coverage—against market share pressures.

Analysis framework

J.P. Morgan employs an earnings-driven evaluation framework, focusing on EBITDA, margins, and key business segment performance. YoY and QoQ comparisons assess Telkom's competitive position relative to peers: benchmarking data revenue growth against ISAT and EXCL to identify market share loss; analyzing ARPU dynamics to gauge pricing power and market competition intensity; quantifying accounting changes to evaluate their true impact on core profitability and cash flow. Given near-term earnings pressure, medium-term competitive risks, and a high valuation discount (15% below five-year average), J.P. Morgan applies a 12x forward P/E valuation, arriving at a Rp3,000 target price and maintaining a Neutral rating. This approach reflects the limited growth but stable dividend profile typical of mature telecom operators.

Methodology notes

• Valuation MethodPE/PEG valuation

  Using 12x forward P/E as the primary valuation anchor, discounted 15% below the five-year historical average

  In a high-interest-rate environment with lower ROIC, the relative discount reflects higher risk premiums and slowing growth. This is a standard pricing method for mature sectors like telecom, where P/E multiples correlate closely with industry growth and capital returns.

• Industry Analysis FrameworkSupply-demand framework

  Telecom industry competition analysis focuses on supply—multiple operators vying for limited users and traffic, with oversupply leading to price wars and margin pressure

  In such mature markets, demand growth is constrained (high user penetration), and competitor count/capacity determines profitability. Despite network advantages, Telkom faces pressure from overall oversupply and price competition.

• Company Fundamentals & Financial FrameworkEarnings Quality Analysis

  Analyzing accounting policy changes to distinguish cash flow from reported earnings, assessing true core profitability

  While accelerated depreciation is non-cash, it reflects real changes in asset useful lives. By highlighting subsequent maintenance capex needs, J.P. Morgan reveals underlying economic costs behind apparent earnings declines, helping investors understand core competitiveness and cash generation.

• Industry Analysis FrameworkVolume-Price Breakdown

  Separating subscriber growth from ARPU changes to diagnose revenue decline root causes—structural demand weakness vs. competitive pricing pressure

  IndiHome's 5% YoY revenue decline stems from 14% ARPU drop outweighing net subscriber adds, signaling worsening competition and eroded pricing power. This breakdown clearly presents industry and company competitive dynamics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Telkom Indonesia (TLKM.JK)

  Single report coverage; Indonesia telecom leader facing dual pressure from competition and accounting changes

  Strengths

  Integrated operations, mobile broadband leadership, nationwide fixed-line coverage; mobile ARPU recovery underway

  Weaknesses

  Sharp fixed-line ARPU decline (-14% YoY), market share loss (lagging data revenue growth), accounting changes suppressing earnings, rising depreciation

  Risks

  Intensifying price competition, sustained fixed-line revenue pressure, potential capex increase, earnings volatility from accounting changes

Key data

• 4Q25 Group EBITDAIDR 17.85 trillionQoQ -2%, YoY -3%; ~5% below Bloomberg consensus
• EBITDA Margin (4Q25)48.1%Down 186 bps QoQ, 66 bps YoY
• IndiHome ARPU (4Q25)IDR 204kQoQ -3%, YoY -14%; direct reflection of intensified competition
• IndiHome Revenue (4Q25)QoQ -1%, YoY -5%Subscriber growth insufficient to offset ARPU decline
• Mobile ARPU (4Q25)IDR 45kQoQ +4%, YoY +2%; December exit ARPU IDR 47.4k, showing industry price recovery
• Wireless Data Revenue Growth (4Q25)~5% QoQLags ISAT's 8%, on par with EXCL, indicating market share loss
• Accounting Policy Change ImpactFY25 earnings ~-IDR 5 trillionFixed-line wiring asset useful life reduced from 25 to 5-10 years; FY23/24 net assets down 8.7/10.2 trillion; impact to fade by 2028
• FY25 Dividend AmountRp 212/shareManagement maintains payout; ~7% yield at current price
• FY26 Earnings Growth Guidance1%-3%Modest growth; higher depreciation to continue suppressing earnings
• Target Price (Dec-26)Rp 3,000Based on 12x forward P/E, 15% below five-year average
• Current Price (12 May 26)Rp 2,950Implies ~1.7% upside to target

Impact & implications

Telkom's weak earnings and heightened competition reflect structural challenges in Indonesia's telecom market. Intense fixed-line competition has driven sharp IndiHome ARPU declines, unlikely to recover soon; accounting changes further depress reported earnings, with limited cash flow impact but implying rising capex pressure. Positively, mobile ARPU improvement validates early industry price recovery, while a 7% dividend yield offers cash returns; Telkom's network coverage and integration advantages aid market share defense. Medium-term prospects hinge on fixed-line price stabilization, potential market consolidation, or regulatory easing. J.P. Morgan's Neutral rating balances opportunities and risks, with shareholder returns depending on management's ability to navigate pricing competition and cost control.

Risks

• Data price competition could further depress growth and margins; J.P. Morgan already expects elevated medium-term capex, but yield compression poses additional downside
• IndiHome fixed-line revenue decline exceeding expectations, hampered by aggressive competitor tactics or stalled industry consolidation
• Regulatory changes affecting pricing and market access
• Rising emerging market risk premiums pressuring Indonesian telecom valuations
• Traditional business (e.g., fixed-line) revenue declines exceeding forecasts

What to watch

• IndiHome ARPU and subscriber growth trends, especially relative to competitors
• 2026 actual earnings growth vs. 1%-3% guidance; true impact of accounting changes in subsequent years
• Sustainability of mobile ARPU recovery and ability to offset fixed-line declines
• True impact of capex and depreciation changes on free cash flow
• Potential opportunities from industry consolidation or regulatory shifts