TLKM - Seeing opportunities for growth in its data center business

TLKM - Seeing opportunities for growth in its data center business Telkom Indonesia (TLKM) is seeking strategic partners for its data center subsidiary PT Telkom Data Ekosistem (TDE), also known as NeutraDC. The company is currently in discussions with several potential partners and is also looking for an advisor to help with the process. TLKM is aiming to have a strategic partner in place by the end of 2024 at the latest. TLKM is already in talks with several large players in data center industry, but has not yet disclosed any names. NeutraDC's data center under construction in Batam is expected to be operational in 2Q24. The project is being developed in partnership with Singtel and PT Medco Power. Total investment for the project is IDR1.4 tn over the next five years. NeutraDC is developing the hyperscale data center with a long-term perspective, ensuring it meets customer needs for the next 20 years. (Source: Kontan) Comment : We believe there is solid demand for data center services in Indonesia, particularly for AI applications. Management revealed, 70% of total capacity of its hyperscale data center will be used for AI. In 1Q24, TLKM's largest consolidated revenue contributors are still Telkomsel with around 76% and IndiHome 18%. The standalone data center and cloud business contributed 1%. We view the rapid adoption of technology in this country will increase the need for data storage and cloud services, which is expected to increase to TLKM's consolidated revenue contribution. Reiterate BUY, TP IDR4,000/share (-1.0sd 7yrs hist. mean EV/EBITDA of 4.9x).