AN INITIAL public offering (IPO) of Telekomunikasi Indonesia's (Telkom) data centre (DC) unit Sigma could excite the market more about the Indonesian telecommunications conglomerate, said CGS-CIMB in a report issued Monday (Mar 7).

Referring to remarks made by deputy minister of state-owned enterprises Kartika Wirjoatmodjo on Feb 9 that Sigma is headed for a potential IPO in 2023, CGS-CIMB has valued the DC unit at a market capitalisation of 33 trillion rupiah (S$3.13 billion), or 332 rupiah per Telkom share, by early-2023.

This assumes a FY2025 EV/Ebitda (enterprise value/earnings before interest, taxes, depreciation and amortisation) ratio of 25 times, and places Sigma at a premium over the 21.1 times 1-year forward average for global DC stocks.

CGS-CIMB attributes this valuation to Indonesia's relatively stronger DC growth outlook, in the research house's view. It has also applied a discount using Telkom's weighted average cost of capital of 11.4 per cent.

Overall, the research house estimates Telkom's DC capacity will nearly triple upon completion of all 3 phases of construction for its hyperscale DC in Cikarang by early-2022.

This may see Sigma's revenue rising to 4.1 trillion rupiah in FY2025 from 1.5 trillion rupiah in FY2021, with a FY2025 Ebitda of 1.6 trillion rupiah.

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CGS-CIMB has raised its price target on Telkom to 4,850 rupiah from 4,250 rupiah previously after adjusting for higher core earnings per share forecasts from FY2021 to FY2023, and to account for fair value accretion from the group's data tower unit, Mitratel.

Revenue for Telkom is expected to resume year on year growth of 2 to 3 per cent in FY2022 to FY2023, on the back of better data monetisation on easing competition as well as lesser drag from the sharp decline in legacy services.

Contributions from the group's enterprise and IndiHome segments are forecast to form 35 to 37 per cent of revenue over FY2022 to FY2023, up 21 per cent from that of FY2017.

Assuming stable depreciation and declining net interest cost, the research house is expecting Telkom's core net profit to rise year on year by 13.7 per cent in FY2021, 15.5 per cent in FY2022 and 7.5 per cent in FY2023 - translating to a compound annual growth rate of 12.2 per cent over the 3-year period.

"On steady Ebitda margin, we see Telkom's Ebitda growing 2.9 per cent in FY2022 and 1.9 per cent in FY2023," added its analysts.

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