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20 Juni 2022

TOWR IJ - MNC Sekuritas Equity Report June 20, 2022

Enduring Interest Rate Shock

Strong Revenue Growth Amidst Erratic Market Condition
In the 1Q22 FS, TOWR IJ recorded an improved revenue of IDR2.62 tn (+33.9% YoY; +2.0% QoQ), in-line with our estimates (26.29%/24.76% of our/cons FY22E estimates). Tower rental contributes 81.7%, valued at IDR IDR2.14 tn (+31.5% YoY), which was driven by the addition of the towers. The number of towers stood at 29,011 units in 1Q22 (+35.4% YoY), making TOWR the greatest independent telco tower in Indonesia. This huge achievement was from TOWR’s acquisition of SUPR where the latter had a total number of towers of 6,949 units in 4Q21. Meanwhile, total tenants stood at 54,580 units (+37.2% YoY) thus making the tenancy ratio to be 1.88x (vs 1.86x in 1Q21). Moreover, tower fiber service recorded a huge yearly increase where TOWR recorded an increase to IDR217.3 bn (+90.1% YoY). This upsurge movement was driven by the addition of its tower fibers to 81,319 km (+99.9% YoY) as there was an uptrend in the data demand in Indonesia where there was an increase in data traffic by around 50% YoY.

EBITDA Margin Slightly Higher
TOWR also recorded an increase in its EBITDA to IDR2.25 tn (+34.0% YoY; +1.6% QoQ), which implies an EBITDA margin of 85.9%. This is in line with the MNCS and Bloomberg Consensus estimates (24.18%/23.40% of our/cons FY22E estimates). Depreciation and amortization were recorded to grow to IDR566.55 bn (32.4% YoY), as well as G&A expenses to IDR186.37 bn (+33.0% YoY) and selling and market expenses to IDR38.77 bn (+33.6% YoY). Furthermore, COGS rose to IDR143.58 bn (+32.8% YoY), driven by the increased site maintenance cost by 48.0% YoY due to the additional towers from the SUPR acquisition.

Net Profit Remained Stable
Net profit rose to IDR853.53 bn (+8.15% YoY), in line with our and consensus estimates (26.32%/23.40% of our/cons FY22E estimates)., implying a net margin of 32.6% (vs 40.3% in 1Q21). This decrease in the net profit was mainly caused by the increase in finance costs, particularly in the bank and bond interest expenses where the company recorded increases to IDR466.25 bn (+137.5% YoY) and IDR 72.26 bn (+127.4% YoY), respectively. Tax expense increased to IDR119.72 bn (+66.3% YoY) while the corporate income tax expense fell to IDR22.82 bn (-77.6% YoY).

Low-Interest Debt for Expansion
As of 1Q22, TOWR recorded net debt of IDR44.75 tn, thus making its debt/equity ratio to be 3.47x, slightly above its peers (vs TBIG: 2.79x). Despite that, TOWR recorded an increase of its assets by 72.9% YoY to IDR63.49 tn with its cash and cash equivalents worth IDR1.77 tn (+39.1% YoY). This improvement was supported by TOWR’s acquisition of SUPR on Oct-21 where the company acquired 6,949 towers. However, the relatively big debt is necessary for sustaining its cash flow and expansion as TOWR became the biggest tower company in Indonesia currently by acquiring SUPR with 100% debt. The management remained optimistic as the company got a lower fixed rate of 6.2% for its 5-year tenor, compared to the sovereign’s treasury yield of 6.4%, as well as fixed 45% of its debt and had a current interest rate at 5.2% for the entire company’s debts.

Valuation and Recommendation: BUY at Target Price IDR1,100
We transfer our coverage on telco sector, especially TOWR from Victoria Venny to Andrew Sebastian Susilo. We recommend BUY with target price of IDR1,100 (+20.2% upside), implying FY22E EV/EBITDA of 6.32x. Our target price is based on DCF valuation with 8.2% of WACC and 3.5% perpetual growth. We see that TOWR is able to record a positive performance in FY22E after its acquisition of SUPR on Oct-21. Despite having a slightly bigger debt/equity ratio compared to its peers, TOWR is benefitted from having a lower fixed rate for its 5-year tenor, as well as having a 5.2% interest rate for all of its debts.

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