In this note, we look at 9M24 results from major Indonesia telecom towercos, which have shown positive upward earnings trends. The growth came from organic tenant recoveries (albeit slower co-lo growth). We also observe that impacts from spectrum re-farming at major telcos are largely over. In addition, we see decreasing impacts from Indosat (ISAT IJ, Buy) site relocations. Lower renewal rental rates (where rental rates are ~IDR11-12mn per tenant per month) are also largely over. Further out, we don’t expect any additional spectrums for telcos in the near term, or much 5G investment from these major telcos. Thus, future network expansions by these telcos should be predominantly for 4G (and thus either build-to-suit site additions and/or co-locations [co-los]). For these reasons, we continue to maintain positive on the long-term outlooks for these tower cos. One possible risk would be that organic growth might decelerate driven by soft mobile data traffic growth; which we think could be attributed to data off-loading on fixed broadband infrastructures.

As of 9M24, total tower sites from the major towercos were at 98,195 sites (+4,901 q-q / +9,014 y-y). On a q-q basis, Sarana Menara Nusantara (TOWR IJ, Buy)) had the largest increase of +3,869 sites followed by Mitratel (MTEL IJ, Buy) +678 and Tower Bersama Infrastucture(TBIG IJ, Buy) +354. In terms of tenancies, the towercos recorded total tenants of 162,922 (+5,041 q-q / +8,579 y-y). Most of the increases come at TOWR +3,839 tenants, followed by MTEL +833 and TBIG +369. TOWR’s strong site and tenancy growth is attributable to the company’s acquisition of IBST (unlisted). These have explained combined co-lo ratio of 1.66x (a slight decline from 1.69x in 2Q24 / 1.73x in 3Q23) with TOWR registering most visible drop in co-locations as IBST sites have lower co-los. Having said this, we think the risks of further non-renewals should be lesser in coming quarters. 

As of 9M24, total revenue from these towercos reached IDR21.4tn (+7.3% y-y), with MTEL reporting the highest growth of +8.7% y-y (reflecting in part rising co-lo), while TOWR +8.4% y-y in part reflected the company’s strategy to invest into fiber infrastructure to offset lower tower rental revenues. Meanwhile, TBIG (+3.5% y-y) has maintained its organic growth strategy and has not been as aggressive on fiber expansion as TOWR has been.

Combined 9M24 EBITDA reached IDR18.0tn (+7.5% y-y) with MTEL had most jumped +12.1% y-y followed by TOWR +7.1% and TBIG +2.7%. The implied margin is at 84.7% (an improvement +95bps q-q / +146bp y-y). Both MTEL and TOWR saw y-y and q-q margin improvements in EBITDA, we attribute this to rising co-los for MTEL and improving fiber utilization for TOWR.

Meanwhile, headline combined profit reached IDR5.1tn (+3.5% y-y), with the highest growth coming from MTEL +7.1% y-y, followed by TBIG +4.4% y-y and TOWR +0.9% y-y. TOWR’s lower profit growth is mainly due to one-time cost of the IBST acquisition as well as higher debt and interest expense from the acquisition. We believe that as synergies with IBST improve, so will TOWR’s bottom line. Our detailed assessments suggest profit growth could be attributed to variations in D&A charges. For 9M24, MTEL has highest D&A charges as a percentage of net fixed assets of 7.6-7.7% (implying the lowest asset life remaining of ~13.0 years). This may suggest that MTEL could have a more conservative in its earnings reporting. Meanwhile, TOWR has average D&A charges of ~7.0% of net fixed assets – resulting into remaining asset life of ~14.3 years. On the flip side, TBIG has least D&A charges of 4.0-4.3% of net fixed assets – translating into ~23.3 years of asset life.

Valuation and risks

TOWR – Our DCF-based TP of IDR1,780 for TOWR assumes a risk-free rate of 6.2%, a discount rate of 7.4% and a terminal growth rate of 2.5%. We assign a WACC of 9.0% to reflect rising interest rates. At our TP, the stock would trade at 13.4x 2024F EV/EBITDA. Downside risks include adverse macroeconomic developments, irrational competition leading to lower rental rates, lower-than-projected tower renewal rental rates, slower organic growth, higher opex trends and/or co-los, and/or difficulties in securing new sites to accommodate telecom operators' network expansions as well as consolidation of cellular operators.

TBIG – We derive our TP of IDR2,300 based on a DCF-based model, assuming a risk-free rate of 6.2%, cost of debt (after tax) of 5.3% (6.0% earlier), cost of equity of 14.4%, equity risk premium of 7.4%, WACC of 8.2% (8.7% earlier), a terminal growth rate of 2.5%, and beta of 1.1x. Downside risks include adverse macroeconomic developments, irrational competition leading to lower rental rates, lower-than-projected tower renewals, slower organic growth, higher opex trends and/or co-los, and/or difficulties in securing new sites to accommodate telecom operators' network expansions.

MTEL – Our TP of IDR820 is based on DCF, assuming a risk-free rate of 6.2%, equity risk premium of 7.44%, beta of 1.0x, and a terminal growth rate of 2.5%. At our TP, the implied FY24F EV/EBITDA is 11.2x (compared to 8.6x at the current price). Risks are adverse macroeconomic developments that would reduce operators’ network expansions (either build-to-suit / B2S or co-lo), irrational rental price competition, a higher tower rental churn rate, difficulties in securing new sites to accommodate B2S, and/or higher opex increases.

Fig. 3: TOWR - 12MMA ROAA consolidated

Fig. 4: TOWR- 12MMA ROAE consolidated

Fig. 5: TBIG 12MMA ROAA %

Fig. 6: TBIG 12MMA ROAE %

Fig. 7: MTEL 12MMA ROAA %

Fig. 8: MTEL 12MMA ROAE %

Fig. 9: TBIG quarterly results