Rating Action: Moody's affirms Telkom Indonesia's Baa1 rating; outlook remains stableGlobal Credit Research – 11 Feb 2022Singapore, February 11, 2022 — Moody's Investors Service has affirmed the Baa1 issuer and baa1 baseline credit assessment rating of Telekomunikasi Indonesia (P.T.) (Telkom).The rating outlook remains stable."The rating affirmation reflects our expectation that Telkom will maintain its market leadership, strong credit metrics and excellent liquidity," says Stephanie Cheong, a Moody's Assistant Vice President and Analyst. "We expect the company's revenue to grow modestly over the next two years, underpinned by increasing demand for data and fixed broadband."RATINGS RATIONALETelkom's rating is one notch above the rating of the sovereign and reflects its standalone credit strength without any tangible uplift from the government ownership.Telkom's Baa1 issuer rating fulfills our requirements to be one notch higher than the Baa2 sovereign rating of Indonesia and factors in the company's fundamentally stronger credit profile, supported by its established position as Indonesia's largest integrated telecommunications operator, strong financial profile, excellent liquidity, and stable access to bank and capital markets.At the same time, Telkom's rating captures its exposure to Indonesia's competitive operating environment as well as the risk of intervention from the Government of Indonesia (Baa2 stable), the latter through changes to the company's financial and shareholder return policies in a stress situation given that Telkom is a majority state-owned company.For the nine months ended September 2021, Telkom recorded revenue growth of 6.1% year-on-year (YoY) to IDR106.0 trillion. Revenue growth was driven by 8.3% YoY growth in its Data, Internet and IT Services segment, 21.9% growth in IndiHome, which more than offset the revenue decline in its traditional SMS, Fixed and Cellular Voice segment (-15.6%). Moody's expects growth in Telkom's data and fixed broadband segments to drive overall growth of mid-single digits over the next two years, supported by stronger data demand and an increasing penetration rate for fixed broadband.The rating also incorporates Telkom's investment needs to preserve its strong network quality and coverage in support of the growing demand for data. Moody's forecasts Telkom's capital spending will increase to almost 30% of total revenue over the next two years from around 25% historically, as the company expands its tower portfolio to support its fixed and mobile broadband businesses, build additional data center capacities, and improve digital connectivity. That said, Moody's expects such capital expenditure to be fully funded from Telkom's cash balance, operating cash flow and net proceeds of IDR18.8 trillion from the initial public offering (IPO) of Mitratel in November 2021.Moody's expects Telkom will continue to seek inorganic growth or investment opportunities to improve its digital capability and expand the group's portfolio. While potential acquisitions or investments could further increase Telkom's scale and improve its business diversity, they will also result in increased risk and deterioration of its credit metrics if largely funded by debt. Nonetheless, Moody's expects Telkom to maintain a prudent approach towards any acquisition or investment opportunities, such that the overall financial profile remains in line with the Baa1 rating.Despite ongoing competition in Indonesia's mobile sector and Telkom's sizeable capital expenditure, its credit metrics remain strong relative to the Baa1 rating, and when compared with similarly rated peers. Leverage, as measured by adjusted debt/EBITDA, has stayed around 1.0x for the past 10 years and retained cash flow (RCF)/debt above 35% over the same period. Moody's expects Telkom to sustain a strong financial profile with leverage maintained around 1.0x and RCF/debt above 45% over the next 12-18 months.Given that Telkom is 52.1% owned by the Indonesian government, Moody's overlay the company's underlying credit strength of baa1 with the rating agency's joint default analysis for government-related issuers. However, the rating reflects Telkom's underlying credit profile and does not benefit from any tangible uplift due to government ownership because of the lower rating of the government relative to Telkom.Telkom's Baa1 ratings are constrained at one-notch higher than the Indonesian sovereign's Baa2 rating. Given Telkom is predominantly a domestic entity, with all of its revenues derived from, and assets based in Indonesia, its fundamental creditworthiness closely reflects the potential risks that it shares with the sovereign.The outlook is stable, reflecting Moody's expectation that Telkom will maintain its dominant market position and conservative financial profile.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSTelkom's credit metrics are strong for the rating level, and downward pressure is unlikely in the absence of a material and significant change in its operating profile. However, a negative action on the Government of Indonesia's rating could pressure Telkom's rating. Given the close links with the Government of Indonesia, the company is unlikely to be rated more than one notch above the sovereign.The methodologies used in these ratings were Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.52.1% owned by the Government of Indonesia, Telekomunikasi Indonesia (P.T.) (Telkom) is the largest integrated telecommunications company in the country. The company generated consolidated revenue of IDR142.6 trillion (approximately $10 billion) for the 12 months ended 30 September 2021.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Stephanie Cheong Asst Vice President – Analyst Corporate Finance Group Moody's Investors Service Singapore Pte. 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