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Good morning,
Tower
Bersama Infrastructure – Moderated Growth And Stretched Balance Sheet
We resume coverage on Tower Bersama with
NEUTRAL recommendation and lower DCF-derived TP of IDR5,700 (from IDR6,450,
0% upside), which implies FY17F EV/EBITDA of 13.5x. Business is stable but
the company is caged by moderate EBITDA growth, longer term lease rate
concerns, and a stretched balance sheet. We prefer Sarana Menara Nusantara,
which has cheaper valuations and lower gearing. Tower Bersama’s 4Q16 results
were in line with our and consensus numbers.
 Moderated
growth and stretched balance sheet . As the majority of telco companies have
invested in lumpy capex for 4G transition, we expect the softened,
single-digit tenancy growth rates to continue from hereon. Management guided
for similar tenant adds, and EBITDA margin of 86.5%, keeping tenancy ratio at
1.65x. Concerns on long term lease rates remain, as telcos are looking to
lower lease rates upon contract renewals.Rich
valuations with limited room for inorganic expansion. Notwithstanding its
stable business and diversified clientele, Tower Bersama Infrastructure's
(Tower Bersama) FY17F EV/EBITDA of 13.5x is the highest in the sector. In
addition, 4Q16 net debt/EBITDA of 5.1x is near its maximum debt covenant of
6.5x, leaving limited room to further leverage on its balance sheet in the
pursuit of inorganic growth. Coming from this angle, we prefer Sarana Menara
Nusantara (TOWR IJ, BUY, TP: IDR4,700) with cheaper valuations (FY17F
EV/EBITDA of 8.8x) and lower net debt/EBITDA (1.5x).Buyback
program should support share price. On 26 Oct 2016, Tower Bersama allocated
another IDR1.5trn to buy back its shares, effective until 25 Apr 2018 – of
the total, 72% remain unutilised at this juncture. As such, we believe Tower
Bersama's share price should be relatively stable this year.Maintain
NEUTRAL recommendation with revised DCF-derived TP of IDR5,700, which assumes
WACC of 9.5% (from 9.2% to reflect higher equityto- debt ratio) and TG of 3%.
Our TP implies FY17F-18F EV/EBITDA of 13.8x/12.7x respectively.Risks.
Key
upside risk to our call is higher-than-expected telco capex, which could lead
to better-than-expected tower tenancy, tower additions and tower sales. Key
downside risk is faster-than-expected downward revisions in lease rates.Closed
2016 with no surprises. In 4Q16, Tower Bersama recorded decent YoY growth in
revenue and EBITDA of 8.5% and 10.5% respectively, driven mainly by higher
rental revenue from Telekomunikasi Indonesia Persero (Telkom) (TLKM IJ, BUY,
TP: IDR5,000) and Indosat (ISAT IJ, NEUTRAL, TP: IDR7,100). (Norman Choong, CFA)
Link
to Daily report: Indonesia Morning Cuppa 290317
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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