Tiphone Mobile Indonesia Updates on the acquisition progress

Tiphone Mobile Indonesia: Updates on the acquisition progress (TELE, Rp700, Buy, TP: Rp810)

We had a quick conversation with TELE yesterday, to gain insights on the progress of the acquisitions and the potential impact of the new import regulation on its Tiphone handset brand.
The key takeaways are as follow:

• The acquisition of MTS, an iPhone distributor for Telkomsel –  TELE expects to announce the acquisition this month. This suggests about two months of delay, assuming that the consolidation starts from May onwards. For every one month of delay, our sensitivity suggests a reduction of 1-1.5% of FY13F EPS.
• The acquisition of Samsung distributor – The plan to acquire a Samsung distributor for the Jakarta area remains intact for 2H13. During the conversation, TELE further mentioned that it intends to acquire another Samsung distributor for West Java (the company is located in Bandung). If everything goes well, the action may go through in May. We did not manage to get details on the acquisition price, but the company mentioned that the sales target is about Rp600bn this year. Based on the industry standards, the gross margin should be in the range of 8-10% roughly.
• The acquisition of EXCL voucher distributor – The letter has been sent to EXCL but approval has not been given. From the discussions, we sensed that there could be chance of a disapproval on this transaction, like what happened to the delayed acquisition of Simpatindo. However, TELE claimed that the acquisition of Samsung’s distributor for West Java area should be enough to cover the net profit addition from EXCL voucher distributor. Based on our calculation, the acquisition of EXCL voucher distributor should give annual Rp20bn NPAT assuming 2% net margin.
• Import regulation impact – The new import regulation has taken place since March 15. The new ruling helped in reducing the grey market imports on brands like BlackBerry, but also at the same time gave more difficulties in importing Chinese-made handsets. TELE acknowledged this, but so far it managed to go through the procedures and found no difficulties yet to import its Chinese-made Tiphone brand. Tiphone brand itself accounts for about one-third of TELE’s EBIT in 2011, but the contribution should come down after the acquisition of the distributors for Samsung and iPhone.