Good day, and thank you for standing by. Welcome to the Telkom Earnings Call of First Quarter of 2022 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Andi Setiawan, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Desmond. Ladies and gentlemen, welcome to PT Telkom Indonesia Conference Call for the First Quarter of 2022 Results. There will be an overview from our CEO, followed by a Q&A session. Before we start, let me remind you that today's call and responses to questions may contain forward-looking statements within the meaning of safe harbor. Actual results may differ materially from projections or estimates and may involve risks and uncertainties that may cause actual results to differ from what we discuss today. Ladies and gentlemen, it's my pleasure to introduce Telkom's Board of Directors who are joining with us today: Mr. Ririek Adriansyah, President Director and CEO; Mr. Heri Supriadi as Finance and Risk Management Director; Mr. Edi Witjara as Enterprise and Business Service Director; Ms. FM Venusiana as Consumer Service Director; Mr. Budi Setyawan Wijaya as Strategic Portfolio Director; and Mr. Muhamad Fajrin Rasyid as Digital Business Director. Also present are the Board of Directors of Telkomsel: Mr. Hendri Mulya Syam as President Director; Mr. Mohamad Ramzy as Finance and Risk Management Director; and Mr. Derrick Heng as Marketing Director. I will now hand over the call to our CEO, Mr. Ririek Adriansyah for his overview. Please, Ririek.

Thank you, Andi. Good evening, ladies and gentlemen. Welcome to our conference call for the first quarter of 2022 results. We appreciate your participation in this call. Before we start, please allow us to wish you a very happy Eid Mubarak to all of you who celebrated this holy festival. In order to currently continue telecommunication network and services while enhancing customer satisfaction during holy Ramadhan and Eid holidays, Telkom assigned a task force monitored by management. Ladies and gentlemen, in the first quarter of 2022 Telkom interim growth in revenue, EBITDA and net income, which increased by 3.7%, 3.1% and 1.7% year-on-year, respectively. Slower growth of bottom line profitability was mainly contributed by unrealized loss from investment in GoTo. IndiHome’s contribution to Telkom’s consolidated revenue has steadily increased. During first quarter '22, IndiHome’s contribution was 19.5%, up from 18.7% in the same period last year. With the additional intake of 136,000 new customers, IndiHome has successfully maintained EBITDA margin at around 50%. On the Mobile side, amidst continued competition, Telkomsel has maintained modest revenue growth of 0.2%, while earning whole EBITDA margin of 27.7%. Telkomsel continues to establish a legal ecosystem to pursue lucrative growth in beyond-connectivity mobile business. Growing digital business revenue has steadily offset declines in legacy product revenue. Diesel business revenue almost 80% of the total revenue in first quarter of '22. Enterprise business saw positive growth as the profit in Indonesia has less contagious. This brings positive effect to the economy [indiscernible]. On the enterprise business, with COVID-19 subsiding has led to increased business activities. This segment also saw positive growth by recording a slight revenue increase of 1.9%. Enterprise business growth is from B2B IT services and Enterprise Digital Solution. On Wholesale and International Business, the ever-growing tower business and international wholesale price were the largest contributors to this stunning revenue performance by importing 16% growth year-on-year. Our strategy to increase competitiveness and sustainability amongst competition known as 5 Bold Moves, continued to intensify its effect by reinforcing significant business cooperation and consolidation, both internally and externally. In order to cater fast opportunity for business-to-business at this service, Telkom already conducted subsidiary alignment by raising the status of PT. Sigma Citra Caraka, or TelkomSigma, to be direct subsidiary of Telkom. This strategic alignment enables the Telkom Group to concentrate on B2B IT Services under “One Roof”. Just recently, in April '22, Telkom and Microsoft signed a Strategic Partnership Agreement that aims to accelerate Indonesia’s national digitalization, strengthened the country's intelligent, infrastructure and enable the internal digital transformation of the Telkom Group to become the first choices of the digital telco. This is one of the infrastructure initiatives to establish strategic purposes with several global tech companies that would have a positive impact on Telkom business development, especially in the digital platform and digital services domains. That is the end of my remark, and thank you for your kind attention.

Thank you, Ririek. We will now begin the Q&A session. When relating your questions, please speak clearly and state your name and company. Operator, may we have the first question, please?

[Operator Instructions] First question comes from the line of Piyush Choudhary of HSBC.

A few queries. Firstly, on your fixed mobile convergence product, can you update us if there is any time line for the launch? And what are the possible kind of options you're exploring? Secondly, on Telkomsel or on the mobile side, do you think there could be a possibility of further tariff hikes during 2022 with ongoing industry consolidation? And thirdly, on the dividend, when company thinks about a dividend payout ratio, is it based on reported profits or normalized profits.

Okay. I think I'm going to ask Derrick to address the first 2 questions. And then I come to the third question, Piyush, on the dividend. I think as you already addressed here, we do expect the dividend going to be paid based on the normalized profit as you be aware on this one, the unrealized profit can [indiscernible] I think unrealized loss as we experienced in the first quarter because we do it mark-to-market for our investment in GoTo. So that's going to be a base for us. In addition, we also have dividend what we see our policy we need to provide, I think, a good dividend to the shareholders, which is comparative compared to other telco. And when we decide, for example, to have different figure of dividend, it is supposed to be a kind of investment emphasis purpose. I mean we're going to do as already mentioned here 5 Bold Moves that require us a lot of our investment, but it is going to be provide us the base for future sustainability of the company. In return, I'm going to give, I think, a value to the shareholders. That's about dividend for this, I hope I can address your question.

Yes. Allow me to continue. So for the first question on the fixed wire mobile conversion, Currently, we are looking at how from an FMC perspective, we want to be relevant to our customers. So we are validating with focus groups, the options of relevant offers. What we want to ensure is we want to have a meaningful package that we will allow customers to enjoy our offerings both at home and on the move. First, when you ask about time line is something that we are still calibrating, but at end of the day, we want to be meaningful and relevant to our customers. So that's your first question on fixed mobile conversions. Maybe just to add some color to some of our feedback from customers. They wanted to enjoy both at home and on the move. They also appreciate control over the price offering that we offer as a [ friendly ]. So these are some of the options that we are exploring. So that's for question number one. For your question number two, currently, we are still faced a very intense competition from the various operators in the market, both [ Jakarta ] as well as outskirts of Central Jakarta. Our agenda is to make sure that we drive a healthier state of business for the industry. And when we say the healthier state, we believe there is room for right pricing, but at the end of the day, we want to be driving relevant customized and personalized offers especially targeting at a high-value customer segment. So this is how we want to make sure that we will drive relevant offers, affordable packages that contextualized to their requirements as well as to sustain profitability and driving healthier state of industry behavior.

The next question comes from the line of Choong Chen Foong of CGS-CIMB.

Three questions from me. Firstly, I wanted to ask about the recent signing of the strategic partnership with Microsoft. And in that announcement, I saw that Microsoft will be utilizing Telkom's data center. So can I ask whether Microsoft has committed to be an anchor tenant in the hyperscale data center? And if so, what capacity will it pick up in the [ HDC ]. So that's question number one. Number two, what is the data center revenue and also growth for Telkom in the first quarter of 2022. And my third question with regards to enterprise revenue. It is down Q-on-Q, and I understand that there is some seasonality to this revenue line. But even on a year-on-year basis, it's only up about 2%. So can you sort of provide us a bit more color as to the performance of the enterprise revenue in 1Q? And what should we sort of expect in terms of the outlook this revenue line for the remaining quarters of this year? Those are my 3 questions.

Okay. Thank you. I will answer for the core result of finance. Of course, that is part of our partnership scheme. And then we already -- we also will put some effort to serve the [indiscernible] and performance data center [indiscernible]. And then because of what we necessarily got impact after in all data center to make the data offerings in our data center.

And on the data center revenue and growth in first quarter of this year. Actually, the revenue, but the same that we recorded last year. It is because we, I think, sort of the capacity, which is coming to the second quarter this year, the hyperscale that we feel. So we do expect this beginning in the second quarter and onward, we're going to record higher revenue data center revenue that we have today. The question on the enterprise revenue done on the Q-on-Q basis, it is because in the last quarter of last year, we did record some revenue in the base of seasonality, which is quite high because we have a lot of contracts can be completed. So we have the quite high season. This quarter, mostly, I think, in the progress even in our customer base in the progress of range and calculating the demand that they have. We do expect in the following quarter we're going to have quite better revenue. What we do expect in this enterprise revenue, and this is going to be in line with the GDP growth this year. That's the situation that we have seen in the enterprise side.

Understood. Can I just follow up with the first question. Just to clarify again, because the line wasn't entirely very clear. So did I share it correctly that if Microsoft were to provide any sort of services to the enterprise or the government sector and it requires that service to be based out of a data center that they are committed to use Telekom's data center. Did I hear that correctly, sorry?

Yes. We have agreement on this with regards of resource on this matter.

And also from the basically potential client that we have local here request us to have a data center in Indonesia that provide us also with the demand that can -- together with [indiscernible].

So there are 2 parts of between Telkom and Microsoft. The potential use of Microsoft for using our data center. And then the second part is providing the IT services, including some sort to address the needs of B2B and B2G segment.

Next question comes from the line of Hussaini Saifee from UBS Research.

Multiple questions from me. First is on Mobile competition. And I heard to your earlier question of Piyush that the competition remains quite intense. So I just want to understand that here you see change in intensity of competition from the month of January to April. Has the competition remain in the same case? Or we see that by April we have seen some improvement in competition? Second question is on IndiHome. So IndiHome subscriber growth, which was slower compared to last year. So I just want to understand the outlook for the IndiHome net additions, subscriber net addition target for this year? And finally, on the fixed mobile convergence. Now have you decided in structure between Telkomsel and IndiHome how it will be structured?

Yes, I'd like to answer your first question on mobile competition. Yes, it's true so we remain intent with regards to across the operators for acquisition as well as renewal packages to grab the low-end market share in the prepaid segment. However, we believe all operators are trying to start a healthier from that by -- on the right pricing with regards to both acquisitions as well as improving ARPU. So as the market leader, Telkomsel aims to really drive the sustainable and healthier state of business. Not only we have worked on product pricing, we have also drove the growth of existing customers, especially our high-value customers through hyper personalization CDN and so that making sure that we have the right denomination for the customers. We have launched [indiscernible] to address the uptake on video consumption, especially YouTube, is to drive relevance as well as competitors in the market. So from the competition movement part, what we are happy to see is our competition is also joining the full momentum of to drive a more sustainable and healthy state of business XL and especially adjusted price in the past, has also modified their price plan in terms of packages. So we see this moving forward, though it remains intense, but all the operators are driving toward a more sustainable and healthier state of business. That's my answer to your question.

So in that light, how should we see the overall industry growth, mobile industry growth for the year? Should we still expect mid-single-digit kind of growth is achievable.

From a momentum perspective, we are seeing that the economy would be -- we have a lot of optimism with regard to the economy bouncing back. First, from a COVID situation perspective, the situation is a lot more stable in Indonesia. So we'll expect more business within us. The momentum of people moving around from [ point A to point B ]. So this is what we see the opportunity moving in the months to come.

Okay, and your second question. The net additional lines slower last -- compared to last year in the IndiHome. We did so far more careful in sales activities in order to answer the lower churn rate compared to what we experienced. This provides us with a base of a healthier customer base. In addition to those, actually, we also see exceeding the second quarter, especially in this month and last month, it is quite also challenging as we experience mostly invested. So many people do a lot of, I think, tracking. So the construction also, I think the home becoming kind of challenging. But in the second half of this year, we believe we can faster the state of installation and so on. We do expect that the net additional line going to be better than last year, and then we can back to the, I think, double-digit growth for the entire 2022. Hope that answered the question from you, but from you, same?

Yes. This is very clear. Just a color on the last question. The fixed mobile convergence structure between IndiHome and Telkomsel, any update on this side?

I think as we have the MOU with Singtel as well on this 1 to address how is the best to run the fixed mobile convergence for the base of Telkomsel's both shareholders, Telkom and Singtel agreed to explore what is the best structure in running this business. We do expect the structure going to be -- the design of structure going to be finalized in 6 months from that month. So we do expect we can complete the final structure for IndiHome and Telkomsel.

Next question comes from the line of Ranjan Sharma of JPMorgan.

I have 2 questions, but let me take them one by one. Firstly, on your wireless ARPUs. I mean, you've been discussing for a while that the industry is moving in the right direction. There have been efforts to improve pricing, tariffs have been increased. But why is the ARPUs down? And this is not just telecom specific, it's for the operators as well. So would love to hear your thoughts on why ARPUs are still declining and whether you expect them to turn around? I'll stop here and then take on the second question after your answer.

Yes. From an ARPU perspective, right, maybe I'd like to recollect -- in Q1, there was still sort of headwinds and uncertainties. If you could recall, it was really a time of uncertainty, especially with the Omicron variant, together with that uncertainty of that Omicron variant. There were also restricted movement that is mandated by the government. So with that fear factor, that drove lower purchasing power, consumer spending, household consumption. And then that being at home has the WiFi offset, especially in our high-value customer segment. So that emits lower-than-expected economic recovery that drove some temper in terms of the ARPU. But what we see is with strong fundamentals for sustainable growth moving forward. We are seeing stable ARPU data traffic increase and with the right pricing, that's the momentum that we will see for months to come. As the economic situation improves, people are traveling more plus there is the stabilization of the COVID situation in Indonesia.

Great quick, quick follow-up. One of your competitors today was saying that they're also facing issues on supply chain and they are dressing some of the weakness to what's happening in Europe. Are you seeing any of that?

What you're asking the SIM card. We are talking about the thing that we're seeing currently most of the supplies we are increasing the price for the SIM card, it's around 20% -- 40% increasing from the SIM card supplier.

Sir, the voice is not clear, I apologize, but can you repeat that again, what happened to the SIM cards.

Yes. I think we are facing a problem related to the supply of the SIM cards. Most of the vendors, they are increasing the prices around 40% because the limited of chipset and so on.

Understood, yes. My last question is on the financials for the first quarter. Can you just walk us through the one-offs that you've -- or nonoperational impact on your earnings in the first quarter?

I think the nonoperational impact mostly coming from the GoTo. In addition to that one, we have the old technology on the basically hybrid between copper and fiber that now we are basically accelerate the depreciation on that one. The amount is around IDR 400 billion. That also impact there, but the bottom line, if we normalize with, I think, both sector, actually, the bottom line is supposed to grow at around 19%.

19%, you said?

Yes, plus 800 plus and plus 432 of the accelerated depreciation.

[Operator Instructions] We have new questions from the line of Arthur Pineda from Citigroup.

Two questions, please. Firstly, on the mobile side, can you clarify what's driving the softness in this momentum? You seem to be contracting faster than XL on a Q-on-Q basis? What's driving this differential? Second question I had is with regard to the data center business. You mentioned that you should start to see contributions in the second quarter. Just to clarify, what was the operational capacity in 1Q? And where does it go to in the second quarter?

Yes. Arthur, I can share more color to what I discussed earlier. I think the softness is it's a Q1 situation. Indonesia was still faced with a set of headwinds and uncertainties. We had the uncertainty of the Omicron variant and that was compounded by the government mandating with movement restrictions. So with that fear factor, it close lower purchasing power through the consumer spending, focused on household consumption. At the same time, there was WiFi offload, especially in our high-value customer segments because they are staying at home. So that softness was part of that lower-than-expected economic recovery in the landscape. So -- but moving forward, we see more rebound in terms of economic activity. The markets are open. There will be more business activity, people movement as well as traveling. So we've get a momentum in terms of healthier state of business. We will see optimism for the months to come.

I understand. Maybe if I could just phrase it a bit differently. In terms of growth, for instance, it seems like the company is actually shrinking faster versus your competitor. Is it because you're expanding into your spaces, i.e., maybe they're expanding outside of Java that's taking market share? Or is it just because the kind of consumers that you have on your books are more susceptible towards offloading traffic to WiFi? I'm just trying to understand why there is that differential in performance?

Yes. So there are various factors. First, from a makeup of our customer segment. You could see, especially in our high-value customer segment during a time of very challenged pandemic situations, where they were in lockdown situations that restricted movement. There are a lot more predisposed to enjoy WiFi at home. So this is one variable that we see. The second variable that we see from a customer mix perspective is, we have seen large customer segment base. In terms of profile, which from a mix perspective, there's the legacy business as well as digital revenue drivers. So this is what we are -- from a challenge perspective, we are trying to decelerate the decline of our legacy revenue, but at the same time, driving momentum for digital revenues. So you can see a lot of focus was to drive the right digital packages for our customers, layered with the relevant digital offerings that we have in our ecosystem, whether is it about video, whether is it about the various digital initiatives that we are pushing to the development of our customers. So that's the momentum and opportunities that we see moving forward to be more contextually relevant to our customers.

Understood. Second question is on the data center business.

Okay. Thank you, Arthur. Heri here. On the capacity of the data center in which will come in the second half, it is [ 22-megawatt ] which is, I think, ready to be a market by June. So we do expect this starting in June, we are going to see additional, I think, tenant and revenue on that one. Of course, this is going to take some time in the full installation of the, I think all the equipment needed for basically to settle all the demand that we have. But that's the capacity that soon will come to the -- for us to market.

Understood. And once you had around should correct, 43 megawatts, is that right?

The existing is 43. And then the one that just finished is 22 megawatts.

[Operator Instructions] If there are no further questions at this time. I would like to hand the call back to Andi Setiawan for closing.

Thank you, everyone, for participating in today's call, and we apologize for those whose questions could not be addressed yet. If you have any further questions, please don't hesitate to contact us. Thank you, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.