RHB Indonesia - Tower Bersama Infrastructure - No Surprises (Tower Bersama Infrastructure, Lippo Cikarang, Visi Media Asia) Unknown Selasa, 16 Mei 2017




Good morning,

Tower Bersama Infrastructure – No Surprises
We reiterate our NEUTRAL recommendation on Tower Bersama and maintain our DCF-derived TP of IDR5,700 (3% downside), in view of the stock’s rich valuations, moderated EBITDA growth and long-term lease rate concerns. Its current 2017F EV/EBITDA of 13.5x remains the highest amongst Indonesian tower companies although we believe the company’s ongoing share buyback programme should support its share price. Tower Bersama’s 1Q17 results were in line with our expectations.


¨ Decent tenancy adds in 1Q17. Tower Bersama Infrastructure (Tower Bersama) added 335 new towers and 1,019 new tower tenancies, resulting in a 10%/5% YoY/QoQ growth in 1Q17. This brings its latest tenancy ratio to 1.66x.
Management guided for similar tenant adds and EBITDA margin of 86.5%, while targeting to maintain its tenancy ratio at 1.65x. As the majority of telcos have already invested the lumpiest capex for 4G transition, we expect the softened, single-digit tenancy growth situation to continue.
Concerns on long term lease rates remain although management mentioned that only XL Axiata (EXCL IJ, BUY, TP: IDR3,355) was looking to slash lease rates while its biggest customer, Telkomsel (TLKM IJ, BUY, TP: IDR5,000) has agreed to maintain current lease rates for its new-built tower.
¨ Rich valuations with less room for inorganic expansion. Despite its diversified clientele profiles, Tower Bersama's FY17F EV/EBITDA of 13.5x is the highest in the sector. In addition, 1Q17’s net debt/EBITDA ratio of 5.1x is close to its 6.5x maximum debt covenant, leaving limited room to further leverage on its balance sheet to pursue inorganic growth.
¨ Share buyback programme should support share price. On 26 Oct 2016, Tower Bersama had allocated another IDR1.5trn to buy back its shares, effective until 25 Apr 2018; 72% remain unspent at this juncture. As such, we believe Tower Bersama's share price should be relatively stable this year.
¨ Maintain a NEUTRAL call and DCF-derived TP of IDR5,700, which assumes a WACC of 9.5% and terminal growth rate of 3%. Our TP implies a FY17-18F EV/EBITDAs of 13.8x/12.7x respectively.
¨ Risks. Upside risk to our call is a higher-than-expected telco capex, which could lead to better-than-expected tenancy, tower additions and tower sales. Key downside risk is faster-than-expected downward revisions in lease rates.
¨ No surprises in 1Q17, with Tower Bersama recording YoY revenue and EBITDA growth rates of 6% and 5.7% respectively (flat QoQ). We are projecting a slightly higher growth rate in 2Q17, as the bulk of 1,019 new tenants were only added towards the later part of 1Q17, hence higher revenue should be recognised in the coming quarter. (Norman Choong, CFA)

Link to report: Tower Bersama Infrastructure : No Surprises
Link to daily report: Indonesia Morning Cuppa 160517





Company Update:

Key Takeaways from Ground visit on LPCK IJ Meikarta Grand Launching on 13 May 2017 @ Maxxbox Cikarang

We visited Meikarta Grand Launching event last Saturday at Maxxbox, Cikarang. Meikarta is Lippo’s new mega development project that is located between Jakarta and Bandung and the project will be under Lippo Cikarang (LPCK IJ, NR). The event is scheduled from 10 am – 8 pm and we droppped by at 3.45 pm. Upon arrival, we noticed the place was very packed and cars were parking along road side due to insufficient parking space.

¨ Strategic independent city. Meikarta development is strategically located between Jakarta – Bandung route and surrounded by 6 industrial estates. The area will be interconnected by 6 new infrastructures such as: LRT, Monorail (under feasibility study until 4Q17), Jakarta-Bandung Speed train, and Jakarta – Cikampek toll road. Other facilities that Meikarta offers include: Top 3 universities, Indonesian Silicon Valley, 100 ha central park, 50 high schools, 100 primary schools, Opera & Theatres, City Library, International Hospital, Shopping centres, Convention centre with 200,000 people capacities, 5 star hotels, and CBD. According several media news, Meikarta will have an area of 2,200 ha, meanwhile on-site Lippo personnels told us that Meikarta total development area is 500 ha.

¨ 3 types of apartment units were offered, ranging from 2 – 4 bedrooms with areas range between 48-98 sqm/unit. Several Lippo personnel’s told us that there are 28 towers to be offered with ground-breaking started since January 2016 and handover is slated 18-24 months from launch date. This information is different than what was reported on media where there will be 50 towers ready to be occupied by December 2018 (based on Investor Daily 15 May 2017).

¨ Pricing & payments. We did not receive any price list and according to sales agent the price range from IDR10-12mn/sqm. Later, we found the price list is downloadable in its website. Hard cash buyer can enjoy 8%-12% discount while others are able to opt 12x – 24x in-house instalments with 10% down payments. Mortgage loan was offered by Nobu Bank (affiliated with Lippo) with 7.75% fixed interest rate for 5 years.

¨ Conclusion. We observed there were a lot of potential buyers that came on launch date. We view that affordability or price becomes one of the major determinant during property purchase and at IDR10-12mn/sqm price point is very attractive compared to IDR18-20mn/sqm in Bekasi-Cikarang area. This is reflected in the record-breaking sales of 16,800 apartment units on the first day. Although the initial price range is very attractive and affordable in our view, we also believe most the sales on the first day were also caused by the significant 45%-50% discount given exclusively to Lippo Group employees. Target marketing sales for this project is not yet known and there are some information mismatch regarding details on Meikarta project, we are still waiting for further clarifications from management.

The company targets IDR1.67trn of marketing sales this year and until 1Q17 it has reached IDR169bn or 15% achievement. Currently, LPCK is trading at 4.92x 2017F consensus P/E or 73% discount to consensus RNAV (slightly below its 4 year average discount of 72%). (Yualdo Tirtakencana)



Visit notes (VIVA IJ, NR), A Turnaround Story
Yesterday, we visited the main studio facility of Viva Media Asia (VIVA IJ, NR) for analyst expose. Below are several key highlights from the meeting:

¨ Visi Media Asia runs two Free-To-Air (FTA) TV under its group which are AnTV (MDIA IJ, NR) and TVOne, and also operates an online news portal, viva.co.id. The company is the fastest growing media group in the country with group audience share increased by 92% in the last six years. YTD, the company is the top gainer in term of audience share with total group audience share reached 18.9%, increased by 1.9% YoY. This makes the company has a strong position as the tier-1 media group together with MNC Group (MNCN IJ, BUY, TP: IDR2,500), Surya Citra Media (SCMA IJ, BUY, TP: IDR3,300).
¨ The company has a proven track record of outperforming industry growth with 2012-2016 revenue CAGR of 16.5%. Last year, Viva experienced a major turn-around by recording positive earnings of IDR462.2bn from net losses of IDR481.4bn in 2015 partly driven by one-off gained from tax amnesty. In our calculation, its FY16’s core earnings should be around IDR240bn.
¨ In FY17, the company is aiming to book revenue growth twice the industry growth outlook (c. 9%) which is achievable in our view, underpinned by several catalysts, including:
i. TVOne increases sport and entertainment contents, which have a bigger market compared to news programmes, to 18 hours a day, and then decreasing the news programmes to 10 hours a day. The sport and entertainment line ups of TVOne such as MMA One pride, Gojek-Traveloka Liga 1, Super Family 100, Endless Love, and etc.
ii. Well-positioned AnTV as the most preferred TV station for female audience, thanks to Indian drama series. This is good for the company by considering the fact that female advertising expenses (ADEX) is about 60% of total ADEX in 2015 and continue to grow each year.
iii. 3600 campaign in order to increase the sustainability of Indian drama series and develop brand loyalty by bringing the talent closer to the audiences through meet and greet event.
¨ Going forward, Viva’s bottom line will be supported by deleveraging activities. According to Viva’s management, FY17 debt service to EBTDA will be around 2.5-3x, from 1.8x in FY16 and 1.0x in FY15. Several corporate actions that would be taken including;
i. Debt refinancing which slated in 2Q17 is expected could cut cost of debt up to 40%.
ii. Private placement in Intermedia Capital (MIDA IJ, NR) side, subsidiary of VIVA which runs AnTV, up to USD186m for debt repayment.
Key risk is sharp depreciation in IDR, as the company highly exposed by foreign exchange due to many foreign content as well as USD denominated debt. (Ahmad Idham)
Economics Update:

Exports And Imports Moderate In April

Exports moderated 12.6% YoY in April, led by a slowdown in non-oil and gas exports. Moving forward, we envisage exports of goods and services to return to a growth of 10% in 2017, from -3.9% in 2016 on:
1. Low base effect;
2. Stable to modest pick-up in primary commodity price outlook;
3. Gradual improvement in world merchandise trade volumes.

¨ We expect the current account deficit to widen in 2Q17. In April, the trade surplus declined to USD1.2bn, from USD1.4bn in February. This points to a lower trade surplus in 2Q17, suggesting that the country’s current account deficit in the balanced of payments could widen during the quarter.
¨ Exports moderated in March, mainly on account of a slowdown in non-oil and gas exports and a reversal into a contraction in crude oil exports, particularly on larger decline in volumes.
¨ Slowdown in exports was broad-based. This was mainly on the back of a slower increase in exports to Japan, ASEAN, the EU, China, and the US.
¨ Imports registered slower growth during the month. Likewise, imports recorded a slower pace of growth, rising 10.3% YoY, on account of lower prices of non-oil & gas imports. (Rizki Fajar)

Link to report to be sent out later

Media Highlights:

Corporate

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Golden Energy Mines to acquire four coal companies
Cowell Development to launch five new projects this year
Alfa Energi to raise up to IDR150 billion in initial public offering
Realisation of customs and excise revenue reached 18% of state budget’s target

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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia


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