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18 Januari 2022

TOWR IJ - MNC Sekuritas Equity Report 18 January 2022

Strengthening Its Position

 

Promising 9M21 Performance

• In 9M21, TOWR booked a revenue of IDR6.1 tn (9.2% YoY), EBITDA of IDR5.2 tn (9.3% YoY) and net income of IDR2.6 tn (35.2% YoY) with the EBITDA margin of 86.0%.
• This positive movement was highly driven by the increasing number of towers in 9M21. In 3Q21, TOWR had successfully added 266 towers to 21,639 towers in 3Q21 with 52% of its towers in Java and 48% in ex-Java and the total tenants exceed 40,456.
• In 3Q21, TOWR had an increase in the number of tenants by 1,841 tenants to 40,456 tenants, making the leasing ratio to be 1.87x from the previous 2.50x. Moreover, with the added towers, the number of leases of each tower is expected to increase, which results in higher revenue.
• Furthermore, with the high demand of data in Java, Bali, and Sumatra, TOWR had generated 60,000 km (82.5% YoY) of revenue generating fiber towers in 3Q21.

 

Capturing the Same Old Story
• TOWR also had planned a buyback of 2.55 mn of their shares for the next 18 months due to their share price was undervalued. With this buyback, TOWR is going to acquire 5% of their total shares on the market. As of now (30/12), TOWR had done buybacks twice in the past 3.5 years where they had 2.38% of their total shares on the market, which were on 3Q18 and 2Q20.
• On 6M18, the share price of TOWR fell for 26.88% to IDR585 per share even though its financial performance improved compared to the previous year, as seen from the EBITDA increased for 3%, total towers built increased for 2.8% and total leases increased for 5% during the period. After the buyback, TOWR share price increased for 53.56% to IDR10,250 in 6 months.
• Moreover, on 1Q20, the share price of TOWR fell for 51.43% to IDR2,975 per share even though its financial performance significantly increased. After the buyback, TOWR share price increased for 94.24% to IDR6,750 up to 1Q21.

 

Waiting for a ‘SUPR’ Performance
• This positive financial performance of TOWR will further be improved with the acquisition of SUPR on TOWR in 4Q21 by acquiring 94.03% of SUPR’s shares or IDR16.7 tn. From this acquisition, there will be an expected increase of revenue worth IDR2.2 tn, long term contracts worth IDR10.1 tn, EBITDA worth IDR1.9 tn and loan worth IDR24.0 tn in 4Q21.
• However, this acquisition was fully paid by having debts worth IDR14.0 tn with the average interest rate of 5.1%. This results in the net debt to increase to IDR42.0 tn and net debt/EBITDA ratio of 5.4x in FY21.
• With the acquisition, TOWR will consolidate 28,300 sites, 53,000 tenants and fiber optics of almost 75,000 km. With this consolidation, TOWR is expected to have increased of revenue by 13% in FY21E and 15% in FY22F. Furthermore, with this acquisition, TOWR is expected to increase its number of towers by 500-800 towers and having 2,000 new leases in FY22F.
• Moreover, TOWR is expected to have EV/EBITDA of 12.46x post-acquisition, below the average EV/EBITDA of tower sectors with 14.00x. Meanwhile, in FY21F pre-acquisition, TOWR had EV/EBITDA of 11.90x, while TBIG had EV/EBITDA of 16.58x.

 

Valuation and Recommendation: BUY at Target Price IDR1,600
We transfer our coverage on telco sector, especially TOWR from Victoria Venny to Andrew Sebastian Susilo. We recommend buy with target price of IDR1,600 due to the positive movement in 9M21 and SUPR acquisition that might boost the financial growth of TOWR further. The risks are: 1) decreased revenue post-merger of telco companies; 2) increased post-merger integration costs; 3) decreased demand of tower rentals.

 

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