Telco picking up in capex. Telkomsel (subsidiary of TLKM) and XL Axiata has been consistently spending capex for network expansion in the past two years. This has been supporting the growth of the tower industry. We expect tower industry to pick up, due to indication of higher capex from Indosat and Hutchison 3 Indonesia (H3I). Indosat indicated to increase capex to IDR10tn in the next three years (vs avg capex spending of IDR6-7tn per year). Meanwhile, H3I indicated to add 8,000 BTS in FY19 which translate into 15% BTS growth. Telkomsel is expected to continue its capex of 20-25% of revenue and XL Axiata will spend around IDR9-10tn (vs IDR7.0-8.0tn). TBIG expects additional gross tenancy of 3,000 unit in FY19 (1,000 Built-to-suit and 2,000 co-location).
Tower rental to stay. Despite further intention from telco operators to reduce tower rental cost, we think that tower rental should stay at IDR15mn/month. TBIG indicate willing to accept current rental rates with exchange of volumes of which operators also agreed to. Fiberized and additional equipment rental income should also help to maintain blended rental rates. TBIG said there is no significant contract renewal up to FY22, of which 2,500 towers of Indosat will be subject to renewal.
Minor inorganic growth. TBIG has acquired majority stake in Gihon Telekomunikasi Indonesia (GHON IJ) and Visi Telekomunikasi Infrastructure (GOLD IJ) with a cost of IDR70.1bn and IDR35bn, respectively. GHON has asset of 500 towers with colocation ratio of 1.4x, while GOLD has total towers of 300 units with colocation ratio of 1.0x. Full impact of these acquisition will be reflected in FY19 earnings. 9M18 revenue of GHON was IDR79.7bn with net profit of IDR23.2bn, while revenue of GOLD was IDR25.4bn and net loss of (IDR4.2bn). Revenue of both companies only represents 3.2% of total revenue of TBIG.
Internux overhang. Internux operation has been shut down, leaving outstanding account receivables of IDR689.7bn as of 9M18. This account receivable is not been collected over 60 days. Additionally, Internux revenue represents about 2.3% of total TBIG’s revenue which translate to annual loss of income of IDR100bn. The loss of revenue from Internux will negate the positive impact from acquisition and organic growth from higher capex from telcos.
Valuations. Our quick take on TBIG earnings are potential pointing at PER FY18 of 25.6x and EV/EBITDA FY18 of 11.2x. The company intends to keep dividend at minimal IDR750bn, which should translate into a yield of 3.5%. The gross add tenancy of 3,000 BTS represents a growth of 12%, assuming YE18 tenancy of 25,000.
