Earnings Transcript for TLK - Q4 Fiscal Year 2023

Operator: Good day, and thank you for standing by. Welcome to Telkom Full Year 2023 Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. It is now my pleasure to hand you over to Telkom SVP, Corporate Communications and Investor Relations, Pak Ahmad Reza. Please go ahead, Pak.

Ahmad Reza: Thank you. Ladies and gentlemen, welcome to Telkom Indonesia conference call for the audited results of full year 2023. There will be an overview from our CEO and followed by the Q&A after the session. Before we start, let me remind you that today's call and the responses to questions may contain forward-looking statements within the meaning of the safe harbor. Actual result could differ materially from projections or estimation and may involve risks and uncertainties that may cause actual results to be different from what we discussed today. Ladies and gentlemen, it's my pleasure now to introduce Telkom's Board of Directors who are joining us today. First is Mr. Ririek Adriansyah, as the President, Director and CEO; Mr. Heri Supriadi, as Finance and Risk Managing Director; Mrs. Venusiana, as Enterprise and Business Service Director; Mr. Bogi Witjaksono, as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, as Strategic Portfolio Director; Mr. Honesti Basyir, as the Group Business Development Director; Mr. Herlan Wijanarko as Network and IT Solution Director; Mr. Muhamad Fajrin Rasyid as Digital Business Director; Mr. Afriwandi as Human Capital Management Director. Also we present the Board of Director of Telkomsel, Mr. Nugroho, as the President, Director; Mr. Mohamad Ramzy as Finance and Risk Management Director; Mr. Derrick Heng as Marketing Director; Mr. Adiwinahyu Basuki Sigit as Sales Director. And now I hand over the call to our CEO, Mr. Ririek Adriansyah, for his overview. Please go ahead.

Ririek Adriansyah: Thank you, Reza. Good afternoon, ladies and gentlemen. Welcome to our conference call for the updated full year of 2023 result. We appreciate your participation in this call. The competition in telecommunication business in Indonesia during 2023 showed improvement and consolidation among mobile telco players and moved towards positive NBLs. As mobile and fixed broadband are still our revenue contributors, the more rational pricing vehicle in 2023 was also reflected in our financial performance by still growing both in revenue and net income. Moving along to year 2024, the political tension in Indonesia is expected to be less in the second quarter of 2024. This situation will be the catalyst of telco industry to grow more aggressively and also an opportunity for Telkom to increase its financial. Telkom Group is consistently implementing fixed mobile convergence and in the meantime, preparing data center modernization and InfraCo value creation to take the policy in 2024. After the spin-off, IndiHome to Telkomsel known as FMC initiative. Telkomsel has been performing quite well in synergizing the mobile and fixed broadband products through some brilliant initiatives such as effective cross-selling, customer value maximization through pricing, product revision and substitution, as well as also action in CapEx and OpEx disbursement. This could be seen from the mobile customer subscriber take-up, acceleration in fixed broadband customer growth and enhanced customer loyalty. On the data center monetization, we are in the process of assisting and finding the best potential partner that could bring energy and capital. As of first quarter of 2024, PT Telkom Data Ekosistem has successfully become the only entity that Manage Telkom Group data center business after several assets transfers from other business units and subsidiaries. On the whole year of 2023, [indiscernible] financial, it's so that Telkom Group revenue grew by 1.3% year-on-year to IDR 149.2 trillion with the EBITDA at IDR 77.6 trillion and EBITDA margin of 52%, decreased solely from the previous year due to the allocation of capital cost and electricity expenses. Net income grew by 18.3% year-on-year to IDR 24.6 trillion due to acceleration [indiscernible] and less mark-to-market affected by go to in 2023. In the full year of 2023, Telkomsel recorded positive consolidated revenue growth as compared to previous year with a good profitability levels supported by growth of digital business, both in mobile and fixed broadband. The results could be seen that Telkomsel mobile and fixed broadband revenue increased by 15% year-on-year to IDR 102.4 trillion, consists of 13.23% in fixed broadband and IDR 59.1 trillion from mobile business. Digital business revenue of Telkom -- of Telkomsel grew by 7.6% year-on-year to IDR 28.5 trillion, and becoming the most significant project to take up top line while legacy business for SMS in 2023 at 10.7% in recent [indiscernible], a sharp decline from the previous year at minus 33.8%. Of the few that legacy business will continue to taper off the growth of our mobile business revenue will be more significant. Digital business segment recorded positive [indiscernible] bonus and increased its contribution to total 88.0% from 81.9% last year, driven by healthy growth of data and business services, sort of future growth. We are committed to deliver a diversified portfolio services and innovative products, including digital lifestyle, [indiscernible] advertising and retail enterprise and sourcing IoT business. Telkomsel has successfully increased the mobile customer base at 159.3 million in 2023 as compared to 156.8 million in previous year with improved productivity and quality of customers. With different dominance in mobile competition, Telkomsel increased its capacity and quality in ex-Java, while Telkomsel Lite and value product. Its capacity and quality Telkomsel Lite's strategy to gain back Telkomsel dominancy in Java area, where value is positioned to retain youth customers and encourage them to use the number of consistently until they become productive and spend more budget to utilize the numbers. A total injection of retail-fixed broken business by managing IndiHome. Telkom continue to take the advertise of synergical impact on the contracts, mobile and fixed broadband product. In last 1 month, after the legal day 1 started 1st of July 2023, we launched a new product called Telkomsel One as a commitment in continuing the business of MC initiative, which will further encourage equal distribution of digital connectivity and wide selection of customer-centric packages and multiscreen approach initiatives through content optimization. Under Telkomsel, it has successfully accelerated new additional customer of IndiHome B2C in the form of 425,000 with ARPU of 253,000. We are committed to continuously improve our services and order customer base while maintaining high standards of quality and value that our customer expects. We really care to customer [indiscernible] and hope to find customer stickiness to our services. In full year of 2023, Wholesale and International Business segment contributed to revenue growth and IDR 16.9 trillion or grew by 9.6%. [indiscernible] growth mostly come from the International and Wholesale prices from Telin [indiscernible] Telkom acquisition [indiscernible] the growing data center business of Telkom start to contribute higher revenue and gross even though demand is relatively small to our consolidated revenue. As of full year 2023, data center and core business booked IDR 1.9 trillion of revenue, grew by 13.8% year-on-year. So order accelerated from that ecosystem with an ultra DC as the brand, we have clarity of data center, including hyperscale center, enterprise data center and as data center, of which [indiscernible] its own markets again. As of December 2023, we have a total of 22 data center facilities, domestic and pipe overseas, the spread of our 4 countries, namely Indonesia, Singapore, Hong Kong and Timor Leste. Our data center consists of, an IT load capacity of 42 megawatts with an office total acquisition level of 30%. In order to expand more aggressively on the DC business, we plan to do both organic and inorganic capabilities. We are also starting to unlock the DC capacity by looking for partner preferred global data center improving capacity and utilization. We already prepared some action including operating business and attracting financial adviser and hope to update the analog data center business this year so that our expansion in data center business could be growing more rapidly. In our Intraco initiative, at the end of 2023, we have established [indiscernible] Indonesia that later on will be the only subsidiary of Telkom to organize and manage infrastructure facility business. The company will be dedicated to create additional ways to enhance [indiscernible] utilization, capital and action and optimization [indiscernible] investment service offerings and improve operational efficiency and strategic partnership creation. [indiscernible] as many service companies for Telkom fiber asset with a specific focus on optimizing the utilization through the provision of wholesale home services for wholesale B2B. Later on, step by step Telkom will transfer its fiber asset to the company so that it can cater both internal and external demand for connectivity. During 2023, our [indiscernible] has successfully added 2,596 towers and 5,403. We started a different tenancy ratio to 1.51 compared to 1.47 in 2022. It also keeps its dominancy as the largest telco provider in Southeast Asia. In addition, Telkom enjoys our [indiscernible] as around 58% of towers are located in ex Japan, while the remaining 42% are located in Japan. With this unique proposition with Telkom India, equal revenue growth opportunity to support Telkom Group B2B and B2C business. In term of revenue, in full year '23, [indiscernible] recorded revenue of IDR 8.6 trillion or grew by 11.2% year-on-year, driven by tower leasing revenue. EBITDA and net income grew by 12.7% and 12.6% year-on-year, respectively, with the EBITDA margin expanded to 80.5% or increased by 1 [indiscernible] year-on-year and net income attributable to 23.4% or increased by 0.3 percentage points year-on-year. Total [indiscernible] so currently becoming our prospective revenue engine growth and part of our strategy to strengthen product portfolio to become a digital industrial company. With other adjusted dividend growth and as fiber optics by adding 15,880 kilometers throughout 2023, resulting in a total network line of 32,521 kilometers. With the full year of 2023 and the project recorded IDR 18.2 trillion in revenue with B2B digital service and enterprise connectivity solution as the biggest contributors. We see our capability in cloud business, including to build a partnership with a global technology player. Following the spinoff of IndiHome to Telkomsel, Enterprise segment launched a new umbrella brand namely Indibiz in the third quarter of 2023 to focus on securing SMEs market. Indibiz provides connectivity solution as well as digital platform and categorize the service into Indibiz for [indiscernible], Indibiz for multi-finance, Indibiz for school and Indibiz for hotels supported by regional resources for B2B digital IDs at this business. On government and enterprise markets, we offer solutions at the government digital solution in broadband platform office, business and industry [indiscernible] solution. We're also offering B2B connectivity products to support our various product solution. That is the ending of my remarks, and thank you for the kind attention. .

Ahmad Reza: Thank you, Pak Ririek. We will begin the Q&A. [Operator Instructions] Operator, may we have the first question, please?

Operator: [Operator Instructions] Our first question comes from the line of Kelsey Santoso from Goldman Sachs.

Kelsey Rochili Santoso: This is Kelsey from Goldman Sachs. A few questions from my side. Obviously, could you provide some color on full year '24 guidance, including your group and Telkomsel revenue growth target and EBITDA margin as well as the CapEx for this year? And then my second question is on mobile. What led the ARPU weakness in Q4? It would be great if you could give the latest update on the mobile competition? And my last question is on the cost side. We saw personnel and G&A expenses spike in Q4. So for personnel costs, is this related to any one-off at the year-end? And for G&A, in the info memo, you mentioned that it's due to transformation costs. So assume that it's referring to the FMC, how should this trend in 2024?

Heri Supriadi: Okay. Thank you, Kelsey. This is Heri. I first address your question on the guidance of full year 2024 for the group in Telkomsel. First on the group side. The revenue is expected to grow mid-single digits, and then we're going to have EBITDA around 50% to 52% of EBITDA margin. And then on the CapEx, we're going to spend around 22% to 24% of the revenue. I think, Ramzy, you can have color on the Telkomsel guideline. .

Mohamad Ramzy: Yes. Thank you, Kelsey. This is Ramzy from Telkomsel. In Telkomsel, our guidance in some of the revenue growth would be in mid- to high teens post IndiHome integration. On the EBITDA margin, around 46% to 48% as we implement asset-light approach adoption. And on the CapEx to revenue ratio, we will have around 14% to 15% revenue. .

Heri Supriadi: I think the guideline for 2024 with the company as a group and also Telkomsel. On the CapEx, the CapEx that we spent around 22% to 20% of the revenue. It will go to mobile around 40% and then fixed broadband around 25%, and the balance goes to data center and other businesses. .

Derrick Heng: Okay. Kelsey, this is Derrick from Telkomsel. I'll answer your question on mobile ARPU. So we are accelerating penetration and maintaining competitiveness by acquiring new households, particularly by addressing affordability concerns to the lower ARPU products while we want to offer high-quality services. Our focus is on profitability. So our future growth will be driven by customer productivity. We want to optimize our network. We want to drive customer loyalty and stickiness. And ultimately, that will help us to drive the ARPU uplift while maintaining our leadership position in market share. .

Heri Supriadi: Okay. The third question on the some of the costs. The cost you addressed in the personnel cost. Actually, there's some [indiscernible] of the personnel cost increase first, which is natural from time to time, we need to adjust by inflation for the basic salary. The second, on the, I think, tax policy, I mean, from government on the natural benefit that we need to apply in the context of the employee. The third is some like, I think, benefit for the loan service of the employees, that is kind of periodically whenever employee 7 years, 15 years and 20 years, we need to give some benefit as well, allowance for debt. And I think that's most of the cost of the increase in the personnel cost. And then in the G&A, GA costs, mostly, as you also already pointed out, it is coming from the transformation cost, transformation related to most of the, I think corporate action we did last year, but in the call for action. And also there, I think the way we have done this monitoring and controlling the transformation itself. This year, as we see that most of the corporate action already been done last year. The trend of the cost coming from the professional fee is supposed to be decreased compared to last year. And I think that's about the costs and the other costs in the operation and maintenance, some costs are coming from the content that we provide along with this connectivity services in the enterprise side. This is coming at a cost that we need to also up. So mostly, I think the cost that happened in the last quarter of last year. .

Operator: Our next question comes from the line of Marissa Putri from UBS.

Marissa Putri: So I have 3 questions. Firstly, in terms of your numbers. Can you provide some details on why the group booked a negative IDR 1 trillion revenue from the IndiHome Enterprise business in Q4, whether it has anything to do with the transfer of IndiHome to Telkomsel or maybe InfraCo establishment. And also how big is this impacting to your EBITDA net profit numbers in general? Secondly, you launched Telkomsel Lite this year. There was also a push of by.U product. Given that we are now seeing 2 consecutive decline in both ARPU and data volume, data subs, would it be fair also to assume there has been some change in your mobile strategy, which would also point to potentially more intense competition, especially in lower end of the market? And lastly, your guidance of mid-single-digit growth compared to the current 1% growth. Which part of the business you're expecting to be a lever for growth on the top-line side? And I guess your margin guidance would also imply some decline to flattish margins with such top line growth target, what cost item you are expecting to increase in 2024 then? .

Heri Supriadi: Okay. And I think on the revenue from enterprise, basically, when we did, I think, transferred IndiHome to Telkomsel, part of the enterprise connectivity we use, I think, brand of IndiHome, in which we -- because of this, we also booked a gross revenue in Telkomsel. So this is intercompany transaction. So when you see from the segment-wise, this looks like the enterprise is declined and actually, it's not. So we mentioned, the IndiHome still grow around 2.7%. In addition to that, I think, bookkeeping side, actually, in the -- some of the subsidiary still ongoing of turnaround. So we do more selective business, I think, acquisition for the projects that's coming to the enterprise. So this becoming more conservative in the growth and some correction in the growth in the subsidiary as well. That's basically the main reason of the enterprise. I think revenue, we booked a decline compared to last year. And then on the third question before we go to Telkomsel, which part of the business that could provide the mid-single-digit growth in our business. Actually, 75% of our business is actually coming from, I think, our consumer side that's currently managed by Telkomsel. We see actually the both mobile and also fixed broadband able to provide with a mid-single-digit growth as well on this one. So the other part of the business, of course, coming from enterprise and then the wholesale business still provides almost similar figure or slightly higher than that, for example, in tower business and international business and also enterprise, we expect a kind of improvement this year. This all together will provide us with the basis how we come to the mid-single digit of revenue growth. I think in the EBITDA side, we do expect that we, of course, can beat this. I think guideline 52% margin that we have today. We do expect, I think, the competition is still manageable. And also we can do some, I think, bring in cost control. So I think we do expect around 52% to 53% supposed to be a target we want to achieve.

Mohamad Ramzy: Yes. [indiscernible] from Telkomsel here. I would like to share our view on how our study on Telkomsel [indiscernible] I think we believe that we need to address various segments of markets that we have in overall markets. And basically, Telkomsel and by.U is our strategy to address both selectively mass market segment, as well as the youth. With this broad product portfolio that we have, we have carefully selected the market who actually been very competitive to make sure that our affordability and also competitiveness are maintained in the market. I think from the ARPU decline point of view, we believe it is a balance between how we maintain the market share situation and also trying to still provide the profitability. If you see from the past perspective, I think the Telkomsel Lite positions, we always maintain the price point while we're accelerating the more bonus in the quarter basis. So basically, with that, we believe that we can attract more towards the mass market segment as well as youth with by.U and also Telkomsel Lite.

Operator: Our next question comes from the line of Arthur Pineda from Citi.

Arthur Pineda: Several questions, please. Firstly, on Telkomsel. What's causing the quarter-on-quarter drop in external mobile revenues when your peers are growing by mid-single-digit levels on a Q-on-Q basis, I know in the past, you used to mention the legacy revenues. But now your revenue ratio on legacy versus total seems to be very aligned to that of your peers. So I'm just trying to understand why there is a drop in ARPU and drop in revenues? Second question I had is with regard to the margins. Can you help us quantify what would be the transformation-related expenses on the FMC. I recall last year, you mentioned the target was around IDR 0.5 trillion in synergies back and in the second half, yet costs have actually expanded and margins had dropped in the second half. Are there any one-off bookings? And what are the related target synergies for FY '24? And lastly, maybe if I can just ask about the asset spin-off plans. What are the timelines for potential strategic investors for data centers and maybe the fiber business?

Derrick Heng: Arthur, this is Derrick. I'll address your 2 questions. For our Q-on-Q, legacy declined minus 52.2% Q-on-Q. That's actually due to a continued natural decline and a onetime adjustment from the IFRS implementation on legacy business post integration. So this onetime adjustment only applies in Q4 2023, and it will not be reflected in the next quarter, and you'll be back to a normal run rate. So we see this continued natural transition of legacy towards data, and we will project it to be stabilized for the next 1 and 2 years with the current rate, along with our initiatives to manage this decline as well as to prolong the tail. And your thoughts about how we are accelerating the profitability. On Q-on-Q, the ARPU declined by minus 4.3%. As we are investing and we are securing the future of, this is really this balance between customer quality as well as profitability.

Heri Supriadi: On the, I think, synergy that we expect to be achieved from fixed mobile convergent. So this year, we do expect we can hit around IDR 1.5 trillion. This is coming from the combination of the revenue uplift as well as the cost synergy that we can achieve. Along with that, also, we're going to have, I think, a synergy coming from CapEx efficiencies as well on this one. So that's, I think, about the synergy that we budget in 2024. And is there any other one-off cost in 2023, if I'm not mistaken your question on this. Arthur, I think if we see the cost that's coming quite new in 2023, basically coming from the cost of spectrum 2,100 and 2,300, which coming by the end of 2022. So basically, this we booked around 868 additional spectrum costs in 2023. The other costs that we make -- consider there, I think kind of one-off, the cost of the electricity of data center because of, I think, energy price increase, around IDR 300 billion. But the cost has already been adjusted right now by the agreement with a customer, they are going to be at the cost. In 2024, we do not expect that we're going to have this one-off cost, so far that we see at that. Number 3 assets spin-off timeline for data center and fiber business.

Unknown Executive: Thank you. I see here [indiscernible] getting our target for data center [indiscernible] through higher [indiscernible]

Arthur Pineda: Sorry, the line is really bad. is it possible to put the mic nearer? Sorry, the audio is quite bad.

Unknown Executive: Is it clear now?

Arthur Pineda: Much better. Yes.

Unknown Executive: So regarding our time line to unlock the data centers, we are now in the process to hire the business consultant as well the financial advisor. Hopefully, [indiscernible] we will start in this first semester and the target will be close at this end of this year. So about the fiber business, we just set up our subsidiary to transfer asset for our fiber optic to the business subsidiary. But for this year, this [indiscernible] all Telkom fiber businesses. In 2025, we have a plan to transfer all the asset fiber to this company. And after that, we see that opportunity if we can also fund such partner also to invest together with us and going together. Thank you.

Arthur Pineda: Sorry. Just on the first point, it was mentioned there was an IFRS adjustment, which resulted in a reduction in revenues. What is this about? And any guidance what the actual growth would have been like if we were to look at it on a like-for-like basis versus prior quarters? .

Mohamad Ramzy: Yes. Arthur, this is Ramzy from Telkomsel. As you may see that the Q-on-Q legacy declining around 52%. Actually, it is because of the implementation of the IFRS 15, especially for the legacy from our postpaid. It will be only one-off this last quarter. And throughout 2024, it will be back to normal, and we expect that the declining rate is around 28% to 30% on an annual basis.

Operator: Our next question comes from the line of Henry Tedja from Mandiri.

Henry Tedja: This is Henry from Mandiri Sekuritas. Perhaps 2 questions from my end, please. The first is about the IndiHome business. I think Heri mentioned before about the IndiHome Enterprise business, how there are some turnaround in this business, how to be more selective in terms of the enterprise segments, et cetera. But if we talk about -- more about the B2C business segments in IndiHome, we highlight that the IndiHome booked more than 200,000 net subs in the last 2 quarters, but it seems like the revenue growth on a Q-on-Q basis are not aligned with this IndiHome B2C subscriber adds. So could you provide more color on that? What are the drivers for this sluggish IndiHome revenue growth on a Q-on-Q basis? And the second question for the Telkom itself. We highlight that the company booked like more than IDR 500 billion of the unrealized loss in fourth quarter, which due to the MDI investment. Could you provide more colors on that? Any [indiscernible] for this unrealized loss in the fourth quarter?

Heri Supriadi: Okay. Maybe I'll go to the first [indiscernible] thought that coming this year. Actually, we booked around IDR 118 billion plus coming per value of GoTo. In addition to that one, some investees in MDI, we need to do also the kind of, I think, fair value valuation based on the method that been also, I think, audited by the -- our auditor and also external parties on this one. So it is supposed to replace what is the closest to the real value at that time. So based on that one, several investees, we need to do, I think, book some loss because the valuation is lower compared to the last year. So the amount in total, including the GoTo is around IDR 700 billion. So that's the development, I think, about our investment in the start-up of digital company.

Ririek Adriansyah: Yes. I think let me address on the IndiHome consumer part questions. I think, as you mentioned, I think in the first half of last year, we actually booked additional about 245,000, which is improving compared to the first half of last year. I think from the revenue side, what we've seen so far, I think in the consumer side, we can grow the Q-on-Q basis on 0.3%. Part of the revenue impact is actually beside the additional knowledge we have growth in some of the IndiHome. We're also doing some promotions and also bonuses that we can give. So I think the impact on the revenue is not as much as the additional. However, I think we believe it is a one-off discount that we can give to the customers to attract to have the additional addressable market that we can attract and capturing the penetration. But in the long run, it will still going to be reflected in the revenue growth on our fixed broadband business.

Operator: Our next question comes from the line of Piyush Choudhary from HSBC.

Piyush Choudhary: Yes. I have several questions. Firstly, in the mobile. Subscriber additions have been quite strong in the last 2 quarters. But if I look at service revenue in the fourth quarter, it was flat sequentially. Just trying to understand like if you can dig a bit deeper and help us understand what is happening there? Is it cannibalization of existing subscribers to new plans? Or are you -- like is there a decline happening in the old subscriber base, and that's why this even despite of new subscriber growth not leading to any revenue growth. Any light over there? And what is the outlook for mobile ARPU going forward? And in light of this Telkomsel Lite plan, which you have launched recently, what is the outlook for mobile ARPU, can it further drop from here?

Ririek Adriansyah: Okay. This is Ririek. I would like to address your questions. Yes, the declining ARPU in Q-on-Q basis is basically due to how we apply the right pricing initiatives across our customer segments, and we wanted to stimulate customer productivity. And we were addressing additional segments like the youth and the selective mass market customers. So going forward, we expect ARPU to be stabilized along with the improvement of customer productivity. Yes. I think we have shared about -- when we launched Telkomsel Lite, it is really an initiative where we see opportunities to grow our market share in selected areas where we deem that we have that ability to grow. Plus, from a network perspective, we still -- we are still able to optimize the network utilization. So this is a segment that we will be focusing at as well as by.U, which is our youth segment, the customers of tomorrow. So these 2 segments will help us in our perspective to grow market share while balancing profitability.

Unknown Executive: Yes, sir, I would like to add some more color on the revenue side. I think if you take a look on the broadband and digital businesses, we are even grow 7.7% on a Q-on-Q basis. Basically, it also drives that our impact on the revenue in the quarter 4 is basically because of the decline on legacy and one-off that we have mentioned before. So in terms of aligning on how we grew the customer base with the right approach on the segment addressing to the market, we've seen that, I think the traction on the Q-on-Q basis in terms of broadband revenue are still on the right track. And even further, I think we've seen there is a good positive momentum that we have gained along the way in this year even after we launched the Telkomsel Lite. And it give us confidence to continue to drive the market share that we can gain from the -- especially on the market that we have seen that we have room for us to grow and gain the market share.

Piyush Choudhary: If I may ask, like on this Telkomsel Lite plan, what percentage of industry customer base or what percentage of your customer base like this footprint has an overlap with this new Telkomsel Lite plan? Because you're saying it's selective, right? So if you can shed some light on that. And secondly, on IndiHome. Earlier, there was an expectation there will be cost synergies coming in, in second half of 2023, right? But we saw margins actually dropped in fourth quarter at Telkomsel level. So what happened? Is the synergy benefit delayed? Or yes, if you can shed some light there?

Derrick Heng: I think on the Telkomsel Lite plan, we -- when we talk about the selective targeted market, we basically believe that there are certain cities that we carefully select that we can actually gain the market share through the competitive plan that we have in the Telkomsel Lite. And I think if you see from the press point angle, as I mentioned previously, we keep maintaining our price point. But I think given the bonuses, both on local bonuses and also the new bonuses that we apply only for the new subscribers. So basically, we believe that although probably in the yield side, when we use the Telkomsel Lite approach, it will be impacted. But in terms of ARPU impact, I think it is not that big compared to actually drop in terms of the ARPU because of this Telkomsel Lite approach. And so far, I think what we believe, especially on Java markets, the Telkomsel Lite have been positively progressing on how we actually attract the competitiveness, again, the pace.

Ririek Adriansyah: Maybe I'd like to add to particularly to Derrick. So Telkomsel Lite also supports our FMC strategy. Looking at our family members. So we want to really increase penetration to these multiple layers of segments. And we want to leverage the brand and our portfolio to grow the unserved segment. So the goal is really ARPU accretion from productivity and volume increase. So that's our strategy.

Derrick Heng: Yes. To add on the synergy, as we already explained in the previous quarter, actually, we realized certain synergy that we expected on the cost side, at least we realized about IDR 100 billion cost synergy that comes from the optimization and the closing of the outlet go from the existing Telkom Plaza or Telkom [indiscernible]. It is more than 280 now until December. And also the content cost that we spent previously on the 2 different channels from Telkom and Telkomsel and also contribute some cost. On the uplift in terms of revenue, we also recognized some uplift revenue, both on the cross-selling and also upselling. As we now more understand about the customer and also, we try to provide the offer to the customer, who are likely to have the same ID that own both fixed and also the mobile. And if you look at the quarter-on-quarter basis, if some of that reflects to the improvement in G&A costs, in the last quarter, a decline by 3.7% and also the cost of service. But it is still early, as we will continue certain initiatives towards the synergy value creation. And as mentioned by Heri, this year, we aim at least about IDR 1.5 trillion, both from the revenue uplift as well as the cost side.

Piyush Choudhary: So, Pak, if there are cost synergies, then why is the guidance more of a flattish margin year-on-year in Q4? Like is there any other cost headwind which you envisage? Or you do -- or this is more of a conservative guidance and you do expect margins to improve?

Ririek Adriansyah: Actually, we don't expect any kind of new costs coming to quite -- coming at price this year, except for the, let's say, the cost, for example, if we have new spectrum, which is not in our discussion today. But this is more, as you mentioned, to the counterparty guidance. We do believe this is supposed to be improved next year, the cost situation. I think that's what I can say appears.

Operator: We'll take our next question from the line of Sukriti Bansal from Bank of America.

Sukriti Bansal: Quick 3 questions from my side. Number one, on the transformation-related costs. How come large [indiscernible] have been booked in 4Q and not in 3Q when the -- the IndiHome spin-off actually happened, both on marketing and sales expenses for Telkomsel, which have increased 15% Q-on-Q and at the Telkom level G&A expenses, which have increased 33% Q-on-Q. Why is this a 4Q phenomenon? I'll come to my end.

Heri Supriadi: Okay. I think on the cost transformation related. Besides IndiHome, we also did several consultancy with regard to the [indiscernible]. That's also ongoing up to a year-end. And also when we -- if and when we did the transfer IndiHome to Telkomsel, actually, we are not only focusing on the process of the spin-off itself. But also, basically, we need kind of PMO to answer all the business process can be smoothly run by Telkomsel. And also we try to find, I think, some room for improvement as well whenever this business is run by Telkomsel. That's -- I think that cost, why this has also happened in Q4 and Q3.

Ririek Adriansyah: Yes. To add to Heri point on Telkom side, I think on especially on the marketing and sales expense in Q4, this is due to, I think, seasonality. First of all, I think we believe that Q4 has been -- we're trying to capture the demand on the seasonality. And on top of that, after the merger, we're trying to also accelerate our fixed broadband penetrations to really boosting with many and various new initiatives that we believe it will help us to capture and increase the penetration of the fixed broadband itself. I think on top of that, we also enhanced our digital capability and also along with how we also manage the promoting beyond the connectivity, which is also the content and also services that we have.

Sukriti Bansal: Understood. Got it. And is there any progress you can share on cross-sell targets for the FMC? You had mentioned that there are about 3 million households, which have only IndiHome, but not Telkomsel, and about 8 million households which have mobile only, but not IndiHome. Is there any progress you can share in terms of where we are now?

Ririek Adriansyah: Yes. Sukriti, I can share our half year outcomes. So we had a solid half year post integration of IndiHome from the convergence perspective. When we started after commercial day 1, which was at 37.4%, we have now reached 44%, and that has been a smooth integration of how we're able to do cross-sell and to serve our existing customers without any disruption.

Sukriti Bansal: Got it. Understood. And thirdly, on Telkomsel Lite, you mentioned that there are specific areas and cities where you're aiming at which you're aiming from these packages. Any further light you can share on which particular areas. You mentioned Java, I think. Is this more a Java focused initiative? And where are you seeing more traction?

Ririek Adriansyah: Yes. I think on the Telkom side strategy, as we mentioned before, we believe that we have addressed the mass market segment to selectively in the specific area, mainly it's in Java and some of the city outskirts of Java as well, which we believe, I think the competitions are actually comparable against [ rupees ] And we also believe that our network competitiveness also room more to grow actually [indiscernible] For us to actually push further, we're giving up some of the bonuses within the same price that we have, I think. On top of that, I think Telkomsel Lite, what we believe also will help us to improve our brand perceptions in terms of how we can address the mass market segments instead of how we're going to continuously focus with both Halo and also Prabayar for high-value customer segments. And I think what Derrick mentioned on the FMC strategy, we would like to also stress out again, when we have this FMC, we realize that we cannot only focus on high-value customer only, but we also have to address more youth as well as the mass market segments, which we believe within the family, also have to have that to be covered. And with Telkomsel Lite and also by.U in place now in the market, we believe that we have addressed that, and we will use that for us to continue to leverage our mobile penetration using our FMC strategy, which I think was to continuously increase, not individual ARPU, but hopefully, will improve the ARPU per household for ARPA, we call it. .

Sukriti Bansal: Got it. And just one last thing. Any further clarity on 5G auctions. Can we expect them still at some point this year? And any timeline that you are expecting?

Unknown Executive: Okay. Yes. To answer the question on the strategy of 5G. Auction, yes, tentatively is going to be in Q2 or Q3 this year. And [indiscernible] said it will also come with some incentives. So it is good for the industry. Let's hope that it will happen that way.

Operator: Our next question comes from the line of Ranjan Sharma from JP Morgan.

Ranjan Sharma: A couple of questions. Maybe I can take them one by one. First question is on these new plans, which help you target like more of mass market segment and more competitive in nature. How we should look at the areas to launch these plans in? So that's the first question. And I will talk to you.

Ririek Adriansyah: Yes. Ranjan, just to share the Telkomsel Lite strategy, we want to address opportunities that we could still increase our market share. So we have increased our product competitiveness, but we will ensure that there is the ARPU upward trend. If you look at what we are offering, it is the same price point, but we are offering more local quota in our product. So that will help us to address the principles of a healthy market on that. At the same time, we want to increase our subscriber base and grow. So it is targeted rollout. We want to make sure that we optimize relevance, and we will achieve yield as compared to our competitors, yes. As just now we mentioned, it is part of our FMC strategy to target the different members of the household. So beyond the head of the household, we want to have our plans to reach out to other family members. So it is aligned to our strategy to increase penetration of the different players of segments to cement our FMC cross-sell and upsell strategy.

Unknown Executive: I think to add some color on how we select area. We believe, I think, of course, we're looking at how we can always address the competitiveness against the peers. Number two, we also select the area where we have the room for us to grow in terms of [indiscernible] grow as well as the network competitiveness again the pace as well. And I think what we've also seen that the progress so far been good and positive structures on our end, and we believe this is the right strategy as we also address the complete segments as we go along.

Ranjan Sharma: If I can just follow up on that. A lot of focus of the discussion on like market share compared to plans, but also profitability. You've seen like Telkomsel EBITDA margin -- sorry, Telkomsel EBITDA declined by 3% in 1 quarter's time. And I think the guidance is also [indiscernible] improvements in the coming period, either, despite higher customer numbers or revenues. So is it like that you're going to see some costs which go up further this year? Or that these are basically like very low-margin products that you're offering for competition reasons?

Ririek Adriansyah: Yes. In terms of the margin, as we already explained earlier, there's also some costs due to declining in legacy. But as we see the third quarter compared to the fourth quarter, actually, the margin is around 46% to 47%. And as we provide the guidance for this year, we aim at around 46% to 48% in terms of [indiscernible] margin. This will come on the normalized impact of legacy as well as the initiatives that we already been done on the cost efficiency, especially not only in the FMC side, but also in the other areas, which at some point, like in the network operation as well.

Ranjan Sharma: Okay. And if you can just share like, I think your earnings are down this year. Should we expect the same level of dividend payment as last year? Or should we expect around like IDR 70 in payout?

Heri Supriadi: Okay. Thank you, Ranjan. On the dividend as we used to say to you and also other analysts, EBITDA that we used to pay around 60% to 80% of net income. Our net income, as reported, grew by 18.3%. So we do expect to still pay with the same dividend payout ratio. With that, we do expect that we can, I think, pay higher dividend per share.

Ranjan Sharma: You want to pay a higher dividend per share in 2023? .

Heri Supriadi: We will propose that one.

Operator: We have reached the end of the Q&A session. Thank you very much for all your questions. I'll now turn the conference back to Ahmad Reza for closing comments.

Ahmad Reza: Thank you, everyone, for participating in today's call. Therefore, just for those whose questions are not addressed yet. If you have any further questions, please don't hesitate to contact us directly. Thank you. .

Operator: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.