EQUITY RESEARCH - MNCS COMPANY UPDATES

Telecommunication Sector - July 05, 2024

PT Sarana Menara Nusantara Tbk (TOWR IJ)

BUY I TP : IDR1,050 Unpacking TOWR’s Performance Metrics and Strategic Acquisition
The Non-Tower Segment as Revenue Brace Amid Flattening Tower Performance
• In 1Q24, TOWR booked a revenue of IDR3.05trillion (+0.85% QoQ/+6.35% YoY),
TOWR Stock Price Data
representing each 24.67%/24.69% of our target and consensus. This was influenced by
Last Price : IDR745 the flat performance in the tower segment (-1.05% QoQ/+0.97% YoY) due to
52wk High : IDR1,130 decreasing number of tenants (-0.21% QoQ) which resulted into lower tenancy ratio at
1.74x from 1.78x in FY23. On the other hand, the non-tower business improved well
52wk Low : IDR660
(+5.23% QoQ/+20.17% YoY), mainly flourished by the growth in the sections of the
Share Out : 49.8bn FTTT (+3.25% QoQ/+15.53% YoY) and the FTTH (+31.11% QoQ/972.73% YoY).
Market Cap : IDR37.1tn
Following this, we estimate the non-tower line to continue as a growth driver to the
company, favoured by aggressive fiber optics rollouts, with our projection of this
segment revenue to expand by +19.64%/+22.75% YoY in FY24E/FY25F. Meanwhile, we
TOWR Stock Price Performance anticipate a flattish presentation in the tower performance (-0.54%/-0.42% YoY in
1-Day : 0.00%
FY24E/FY25F) with lower tenancy ratio of 1.74x/1.72x. Our estimations for both
segments are projected into +5.20%/+7.07% YoY total revenue growth in
1-Week : +4.20% FY24E/FY25F.
1-Month : +4.20% • From earnings standpoints, TOWR recorded IDR2.44trillion EBITDA (-5.63%
QoQ/+3.02% YoY), reflecting 23.59%/23.43% of our estimation/consensus. This
3-Month : -13.87%
brought into a tapering EBITDA margin of 80.08% (vs 82.67%/85.58% in 1Q23/4Q23).
Year-to-Date : -24.75% Meanwhile, the net profit stood at IDR797.39billion (-3.64% QoQ/+5.98% YoY) with a
relatively stable NPM of 26.17% (vs 26.27%/27.39% in 1Q23/4Q23). This bottom-line
reflected 22.97%/22.94% of our estimation/consensus. The earnings were impacted by
Shareholders
higher cost of revenue (-12.92% QoQ/+14.87% YoY) and operating expenses
PT Sapta Adhikari (+51.12% QoQ/+28.53% YoY). We expect TOWR’s EBITDA to improve by
: 54.42%
Investama +5.69%/+7.31% YoY with a margin of 83.73%/83.92% in FY24E/FY25F and its net
PT Dwimuria profit to increase by +6.72%/10.74% YoY with NPM of 28.11%/29.07% in
: 5.00%
Investama Andalan FY24E/FY25F.
Public (<5%) : 40.58%
Painting a Fuller Picture of the IBST Acquisition
Upon the completion of IBST acquisition, TOWR owns 90.11% of the shares through its
indirect subsidiary, iForte. This deal was closed at IDR2,813/share, amounting to
IDR3.42trillion in total. We view this investment as a sweet deal, as it was acquired at a
significantly discounted price with an 11.76x EV/EBITDA and 0.61x PBV. This acquisition will
strategize TOWR’s position in the industry, resulting to an estimated ownership of 34,283
towers, 60,055 tenants, and 238,214 km optical fiber. Additionally, we expect IBST to
complement relatively positive towards TOWR’s performance, should the financial
statements console in FY24E, where we project the revenue to grow at 13.15% YoY in FY24E
(from +5.20% YoY without IBST) and an additional of IDR672.68billion EBITDA. Meanwhile,
we consider the potential burden of debt towards the company’s performance as one
dilutive factor resulted from this deal, with an estimated of IDR217.10billion additional
financial expense (~6.34% interest cost).

Maintaining a BUY rating, with a TP of IDR1,050/share

We maintain a BUY recommendation for TOWR with a TP of IDR1,050/share (+40.94%
upside), implying 8.33x of FY24E EV/EBITDA. Our projections and valuation have not factored
in the IBST acquisition yet. Reflecting from its 5-year EV/EBITDA, TOWR is currently trading
near STD-2. The downside risks to our call include: 1) the weakening of IDR exchange rate; 2)
higher interest on debt.

Key Financial Highlight (IDR bn) FY21 FY22 FY23 FY24E FY25F

Revenue 8,635.35 11,035.65 11,740.35 12,350.64 13,223.65

Net Income 3,427.38 3,442.03 3,253.10 3,471.77 3,844.63
EPS (IDR) 68.82 69.12 65.32 69.72 77.20
PE (x) 10.82 10.78 11.40 10.69 9.65
BVS (IDR) 242.21 289.81 331.57 377.18 429.37
PBV (x) 3.08 2.57 2.25 1.98 1.74
EV/EBITDA (x) 11.04 8.98 8.38 8.16 7.74
Research Analyst ROA (%) 5.21 5.24 4.75 4.77 4.99
Vera
ROE (%) 28.41 23.85 19.70 18.48 17.98
[email protected]
Sources : Bloomberg, MNCS Research

MNCS Research Division Page 1

 EQUITY RESEARCH - MNCS COMPANY UPDATES
Telecommunication Sector - July 05, 2024

Painting a Fuller Picture of the IBST Acquisition

• On July 1st, 2024, TOWR completed the acquisition of PT Inti Bangun Sejahtera
Tbk (IBST IJ) through its indirect subsidiary, iForte, with 90.11% ownership. This
deal was transacted at IDR2,813/share, amounting to IDR3.42trillion in total. We
view this investment as a sweet deal, as it was acquired at a significantly
discounted price with an 11.76x EV/EBITDA and 0.61x PBV, compared to the IBST
market trading price of 16.54x EV/EBITDA and 1.19x PBV. This is also favourable
compared to the previous acquisition of SUPR, which was transacted at 17.75x
EV/EBITDA and 8.97x PBV. Following the completion of this transaction, iForte will
conduct a mandatory tender offer.
• As of FY23, IBST owns a portfolio consisting of 3,234 towers, 5,885 tenants, and
17,239km fiber optic. Hence, this acquisition will strengthen TOWR’s position in
the industry, resulting to an estimated ownership of 34,283 towers, 60,055
tenants, and 238,214 km optical fiber (as of TOWR’s portfolio in 1Q24) to
enhance its FTTT, connectivity, and FTTH business segments. Following this, IBST
shall compliment positively to a slight improvement of TOWR’s tenancy ratio at
1.75x from 1.74x. Additionally, we estimate the tower market share of TOWR to
increase by ~3%.
• We expect IBST to contribute relatively positive towards TOWR’s performance
after consolidation. Should the financial statements console in FY24E, our
estimation on TOWR’s revenue is to grow at 13.15% YoY in FY24E (from +5.20%
YoY without IBST). Additionally, we estimate an additional of IDR672.68billion
EBITDA to be generated from this acquisition. However, we anticipate that the
EBITDA margin may fall slightly to 82.91% (from 83.73% before IBST), as well as
the NPM from 28.11% to 26.30%.
• Considering that IBST’s customers portfolio is mainly dominated by FREN,
74.62% as of FY23 or 65.72% as of 1Q24, we anticipate that TOWR’s revenue from
FREN to increase to >5% contribution from <5% currently.
• Our concern on this deal is its potential burden of debt towards the company’s
performance. Considering that TOWR’s cash and equivalents stood at
IDR1.13trillion as of 1Q24, we assume that this deal was fully facilitated by debt.
Hence, we estimate an additional IDR217.10billion financial cost may be resulted
from this transaction (with ~6.34% interest cost).

Exhibit 01. We estimate the acquisition of IBST to bode relatively well towards TOWR’s performance in the future

Performance IBST TOWR IBST+TOWR

(IDR Billion) FY23 1Q24 FY24E FY24E FY24E
Revenue 1,109.76 222.11 933.19 12,350.64 13,283.84
Gross Profit 592.87 64.65 485.14 8,745.18 9,230.33
GPM (%) 53.42% 29.11% 51.99% 70.81% 69.49%
Operating Profit 417.95 (17.11) 325.67 7,431.65 7,757.32
OPM (%) 37.66% -7.70% 34.90% 60.17% 58.40%
EBITDA 813.91 108.60 672.68 10,341.35 11,014.03
EBITDA Margin (%) 73.34% 48.89% 73.02% 83.73% 82.91%
Net Profit 38.30 (933.49) 21.82 3,471.77 3,493.59
NPM (%) 3.45% -420.28% 2.34% 28.11% 26.30%

Sources: Company, MNCS

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 EQUITY RESEARCH - MNCS COMPANY UPDATES
Telecommunication Sector - July 05, 2024

Exhibit 02. TOWR’ segment contribution profile and projection

Tower Non-Tower Revenue growth (L HS)

10.00 30%
9.00 8.61 8.40 8.36 8.32
25%
8.00
7.10
7.00 6.33
20%
6.00 5.58
4.90
IDR Tn

5.00 15%
3.99
4.00 3.34
2.43 10%
3.00
2.00 1.53
0.87 1.11 5%
1.00
- 0%
2019 2020 2021 2022 2023 2024E 2025F

Sources: Company, MNCS

Exhibit 03. TOWR’s customer profiles towards its revenue, with contribution from FREN is currently <5%, but expected to increase to
>5% through IBST acquisition

TSEL ISAT EXCL Others (each <5%)

100%

90% 17.78% 18.57% 18.17% 18.37%

80% 42.31%
46.41% 44.58%
70%
29.52% 30.83% 30.18% 30.50%
60%
50%
28.71%
40% 28.90% 29.49%
37.38% 38.13% 37.76% 37.94%
30%

20% 7.47% 10.95% 14.93%

10% 17.23% 14.98% 14.04% 15.32% 12.46% 13.89% 13.18%

0%
2019 2020 2021 2022 2023 2024E 2025F

Sources: Company, MNCS

Exhibit 04. The downtrend of TOWR’s tenancy ratio is coupled with the uptrend of the utilization ratio, indicating the non-tower
segment to become the growth engine in the future

Ten ancy Ratio Utilization Ratio Lin ear (T enan cy Ra tio) Lin ear (U tilization Ratio)

2.05
1.88 1.94
1.83 1.81 1.86
1.78
1.73 1.74 1.72
1.70
(x)

1.55

1.25 1.25

201 9 202 0 202 1 202 2 202 3 202 4E 202 5F

Sources: Company, MNCS

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 EQUITY RESEARCH - MNCS COMPANY UPDATES
Telecommunication Sector - July 05, 2024

Exhibit 05. TOWR’s debt ratios towards the years

DER Net Debt/EBITDA

5.88 4.92
4.58 4.56
4.39
(x)

3.09 3.93
2.83

3.14
2.74
1.77 2.53
2.02 2.29

2019 2020 2021 2022 2023 2024E 2025F

Sources: Company, MNCS

Exhibit 06. The performance of TOWR in 1Q24 compared to consensus and our projections

FY24E
IDR billion 1Q23 4Q23 1Q24 QoQ YoY FY24E MNCS % Consensus % MNCS
Consensus
Revenue 2,864.67 3,020.97 3,046.55 0.85% 6.35% 12,338.74 12,350.64 24.69% 24.67%
COGS 805.11 1,062.05 924.85 -12.92% 14.87% 3,199.52 3,605.46 28.91% 25.65%
Gross Profit 2,059.56 1,958.91 2,121.70 8.31% 3.02% 9,139.22 8,745.18 23.22% 24.26%
Gross Profit Margin 71.90% 64.84% 69.64% 74.07% 70.81%
Operating Profit 1,739.02 1,686.29 1,709.72 1.39% -1.69% 7,474.48 7,431.65 22.87% 23.01%
Operating Profit Margin 60.71% 55.82% 56.12% 60.58% 60.17%
EBITDA 2,368.13 2,585.37 2,439.75 -5.63% 3.02% 10,410.96 10,341.35 23.43% 23.59%
EBITDA Margin 82.67% 85.58% 80.08% 84.38% 83.73%
Profit Before Tax 871.26 859.17 857.03 -0.25% -1.63% 4,267.99 3,886.54 20.08% 22.05%
Net Profit 752.43 827.52 797.39 -3.64% 5.98% 3,475.40 3,471.77 22.94% 22.97%
Net Profit Margin 26.27% 27.39% 26.17% 28.17% 28.11%

Sources: Company, MNCS

Exhibit 07. TOWR is currently trading near STD-2 of its 5-Year EV/EBITDA

EV/EBITDA Mean STD-1 STD-2 STD+1 STD+2

15
14
13
12
11
10
9
8
Jan- 19 Jan- 20 Jan- 21 Jan- 22 Jan- 23 Jan- 24

Sources: Bloomberg, MNCS

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 EQUITY RESEARCH - MNCS COMPANY UPDATES
Telecommunication Sector - July 05, 2024

Exhibit 08. Financial Projections

Income Statement Balance Sheet

IDR Billion 2021 2022 2023 2024E 2025F IDR Billion 2021 2022 2023 2024E 2025F

Revenues 8,635.35 11,035.65 11,740.35 12,350.64 13,223.65 Total Current Assets 7,398.14 3,651.13 4,426.88 4,008.40 4,143.64

COGS (2,340.17) (2,914.45) (3,527.75) (3,605.46) (3,874.85) Cash and Cash Equivalents 4,748.36 308.64 428.68 366.11 252.02

Gross Profit 6,295.17 8,121.20 8,212.59 8,745.18 9,348.79 Trade Receivables 2,171.30 2,557.80 3,086.33 2,738.57 2,981.37

Other Current Assets 478.48 784.69 911.87 903.72 910.25

Operating Expense (898.62) (1,293.56) (1,271.29) (1,313.53) (1,378.46) Total Non-Current Assets 58,430.53 61,974.00 63,992.06 68,727.94 72,892.30

Operating Profit 5,396.55 6,827.64 6,941.30 7,431.65 7,970.34 Fixed Assets - net 32,951.48 37,152.09 40,385.07 44,719.74 49,003.90

EBITDA 7,256.37 9,134.32 9,784.57 10,341.35 11,097.13 Other Non-Current Assets 25,479.05 24,821.91 23,606.99 24,008.21 23,888.40

Total Assets 65,828.67 65,625.14 68,418.95 72,736.35 77,035.94

Interest Expense (1,345.58) (2,368.39) (2,837.51) (3,006.79) (3,073.06)

Other income (expense) (334.89) (511.22) (557.92) (538.32) (604.92) Total Current Liabilities 21,880.26 14,446.08 24,298.95 23,543.75 23,986.62

Profit Before Tax 3,716.08 3,948.03 3,545.88 3,886.54 4,292.36 Trade Payables 521.68 839.30 1,206.94 990.51 1,082.56

Short-term Debt 16,793.66 9,563.55 18,589.67 18,087.21 18,153.45

Tax Expense (268.21) (451.50) (242.23) (363.18) (395.07) Other Current Liabilities 4,564.92 4,043.24 4,502.34 4,466.03 4,750.61
Total Long-Term
Net Income Before MI 3,447.88 3,496.54 3,303.64 3,523.36 3,897.30 31,886.39 36,746.72 27,608.33 30,409.32 31,667.09
Liabilities
Minority Interest (20.50) (54.51) (50.55) (51.60) (52.67) Long-Term Debt 30,668.61 35,681.86 26,637.45 29,465.79 30,812.24

Other Long-Term Liabilities 1,217.78 1,064.86 970.88 943.52 854.85

Net Income 3,427.38 3,442.03 3,253.10 3,471.77 3,844.63 Total Equity 12,062.02 14,432.33 16,511.66 18,783.28 21,382.23

EPS (full amount) 68.82 69.12 65.32 69.72 77.20 Total Liabilities & Equity 65,828.67 65,625.14 68,418.95 72,736.35 77,035.94

Cash Flow Ratios

IDR Billion 2021 2022 2023 2024E 2025F 2021 2022 2023 2024E 2025F

CFO 8,026.43 3,602.30 4,518.17 4,963.47 5,468.92 Revenue Growth (%) 15.98 27.80 6.39 5.20 7.07

Net Income 3,427.38 3,442.03 3,253.10 3,471.77 3,844.63 EBITDA Growth (%) 16.84 25.88 7.12 5.69 7.31

Depreciation 737.13 1,019.76 1,389.52 1,388.53 1,497.00 Net Income Growth (%) 20.85 0.43 (5.49) 6.72 10.74

Change in Working Capital (944.42) (68.89) (175.46) 145.90 (150.75)

Change in Others 4,806.33 (790.60) 51.01 (42.73) 278.05 Current Ratio (x) 0.34 0.25 0.18 0.17 0.17

Quick Ratio (x) 0.34 0.25 0.18 0.17 0.17

CFI (30,619.92) (4,600.54) (3,112.10) (6,124.41) (5,661.35)

Capex (13,769.87) (5,692.30) (4,824.99) (5,723.19) (5,781.16) Receivables Days 72.10 78.21 87.74 80.93 82.29

Change in Others (16,850.05) 1,091.76 1,712.89 (401.22) 119.81 Payable Days 82.40 85.22 105.86 100.27 101.97

Debt to Equity (x) 3.93 3.14 2.74 2.53 2.29

CFF 25,899.23 (3,441.49) (1,286.04) 1,098.38 78.33 Net Debt to EBITDA (x) 5.88 4.92 4.58 4.56 4.39

Change in Debt 26,842.28 (2,216.86) (18.30) 2,325.89 1,412.68

Change in Equity - - (2.95) - - Gross Profit Margin (%) 72.90 73.59 69.95 70.81 70.70

Dividend (1,399.00) (1,200.15) (1,200.16) (1,200.16) (1,245.68) Operating Margin (%) 62.49 61.87 59.12 60.17 60.27

Other 455.95 (24.48) (64.63) (27.36) (88.67) EBITDA Margin (%) 84.03 82.77 83.34 83.73 83.92

Net Profit Margin (%) 39.69 31.19 27.71 28.11 29.07

Change in Cash 3,305.74 (4,439.73) 120.04 (62.56) (114.10) ROA (%) 5.21 5.24 4.75 4.77 4.99

Closing Balance 4,748.36 308.64 428.68 366.11 252.02 ROE (%) 28.41 23.85 19.70 18.48 17.98

Sources : Company, MNCS Research

MNCS Research Division Page 5

 EQUITY RESEARCH - MNCS COMPANY UPDATES
Telecommunication Sector - July 05, 2024

MNC Research Industry Ratings Guidance

§ OVERWEIGHT : Stock's total return is estimated to be above the average total return of our industry coverage
universe over next 6-12 months
§ NEUTRAL : Stock's total return is estimated to be in line with the average total return of our industry coverage
universe over next 6-12 months
§ UNDERWEIGHT : Stock's total return is estimated to be below the average total return of our industry coverage
universe over next 6-12 months

MNC Research Investment Ratings Guidance

§ BUY : Share price may exceed 10% over the next 12 months
§ HOLD : Share price may fall within the range of +/- 10% of the next 12 months
§ SELL : Share price may fall by more than 10% over the next 12 months
§ Not Rated : Stock is not within regular research coverage

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MNCS Research Division Page 6