PT Telekomunikasi Indonesia Tbk (TLK), the leading integrated telecommunications service provider of Indonesia, recently suffered a setback due to the adverse movement of foreign exchange rate. Yesterday, the stock price of Telekomunikasi dropped 5.57% mainly attributed to a 0.8% fall in the value of Indonesian Rupiah with respect to the U.S. Dollar.
An adverse movement of the foreign exchange rate will significantly hurt the company’s revenues in terms of the U.S. Dollar. Telekomunikasi reports in Indonesian Rupiah. Thus, a weak Rupiah will reduce its revenues and net income after conversion into U.S. Dollar. Furthermore, Telekomunikasi has U.S. Dollar denominated loans, which may worsen its balance sheet and increase interest payment.
Telekomunikasi, along with other carriers, provides wireless, wireline, fixed-mobile broadband Internet and interconnection services. Telecom service providers of the Asian region are highly dependent on the U.S. and European firms for critical equipments to deploy network. These firms generally offer prices in the U.S. Dollar and a strong Dollar will certainly inflate these telecom carriers’ operating expenditure.
We expect the future sales of Telekomunikasi to remain unstable as both wireless and the wireline telephone operations have become highly competitive in Indonesia. Operating expenses are also likely to increase due to network upgrades and promotional activities. On the other side, despite facing competition, Telekomunikasi is exhibiting solid growth in cellular services and data and Internet revenues that may reduce its top-line volatility.
Other Stocks to Consider
Apart from Telekomunikasi, other stocks in the Asian Telecom segment that warrant a look include Shenandoah Telecommunications Co. (SHEN), Nippon Telegraph and Telephone Corp. (NTT) and Tata Communications Ltd. (TTCMY). Both Shenandoah and Nippon currently carry a Zacks Rank #1 (Strong Buy) whereas Tata has a Zacks Rank #2 (Buy).
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