EQUITY RESEAR CHciptadana-sekuritas-asia.com/system/researches/files/000/000/108/... · 19/5/2017 · hiccups to adjacent tower industry. We can refer to Bakrie Telecom example with

EQUITY RESEARCHCIPTADANA SEKURITAS ASIA

Please see analyst certification and other important disclosures at the back of this report 2

TBIG - Initiation Coverage - 19 May 2017

Exhibit 1 : Financial Highlights

Year to 31 Dec 2015A 2016A 2017F 2018F 2019F

Revenue (Rpbn) 3,421 3,711 3,781 4,193 4,546

Operating profit (Rpbn) 2,661 2,978 2,972 3,310 3,590

Net profit (Rpbn) 1,430 1,290 1,120 1,425 1,714

EPS (Rp) 315.6 284.8 247.1 314.5 378.3

EPS growth (%) 104.1 -9.8 -13.2 27.3 20.3

EV/EBITDA (x) 14.8 13.5 13.6 12.2 11.1

PER (x) 17.4 19.3 22.3 17.5 14.5

PBV (x) 16.3 16.0 12.4 8.7 6.4

Dividend yield (%) 0.0 2.4 2.7 2.2 2.9

ROE (%) 93.5 82.9 55.7 49.6 44.2

Source : TBIG, Ciptadana Estimates

HOLD Tower BersamaTP: Rp5,950 (+8.2%) Growth story intact; but higher valuation vs. locals

Positioned to capture new infra demand resulted from growth in telco data traffic…TBIG is the second largest tower company in Indonesia with more than 12,000 towers.TBIG has managed to grab opportunities during the sector’s infancy stage through organicand inorganic growth and with its scale it could continue to profit from the telco(telecommunication) industry’s prospects. Telco companies will be increasingly relying ontower providers to secure space for their antennae and BTS especially with the evolutionof 3G/4G LTE technologies. This transition could translate to increased mobile data trafficof 63% CAGR in 2015-20 and average monthly data consumption from 211MB in 2015 to2000MB by 2020 per subscriber. 83% of TBIG’s towers are located in economically vibrantregions of Java, Sumatra & Bali that makes its great beneficiary to capture this data trend.

…and transition from 2G/3G to 4G/LTE that requires network densificationTelcos are continuously in a phase of roll-out capex to establish network coverage of 3Gand 4G LTE and enter the capacity phase to boost the density of telco networks. 3G & 4Gtechnologies accompanied by its ecosystem, have lifecycle lasting almost 20 years eachexcluding 5G rollout, whereas towers can fairly outlive them with minimum capexstretching monetization period. As roll-out capacity intensifies, the tower companies willcontinue to provide uninterrupted value to operators and consequently to TBIG. As landacquisition and site rentals become scarce, the assets will become worthier.

New incremental revenue stream and support to exceptional 86-87% EBITDA marginTBIG grows via organic and inorganic tower acquisition growth. EBITDA margin is about86% and there could be some more to room to improve as towers have not reached yettheir full capacity. Tower portfolio has currently a tenancy ratio of 1.6x with capacity totake up to 3 tenants/tower through collocation. Incremental revenue from additionaltenants circa Rp15 mn/month is added almost intact to EBITDA revenues with minimumincremental to opex and capex expenses. Both Revenues and EBITDA are expected to grow~7% CAGR respectively in the next 3 years.

Strong cash flow ensures operating flexibility and profitabilityBinding contracts with telco customers ensure stability and visibility for future revenueand high profit. TBIG’s performance and superior business model, enables the company toobtain capital in good terms. This flexibility allows the company to i) allocate enough fundsfor capex growth, ii) return dividends to shareholders, iii) conduct share buybacks asperformed currently and iv) engage in potential acquisition of remaining towers fromtelcos.

Expensive valuation vs. local peers but industry seems very potent. Initiate with HOLD.TBIG is trading at EV/EBITDA 2017-18F of 13.6x - 12.2x. TBIG deserves its premium but ischallenging to justify further strong upside and risk/reward to TBIG as i) TOWR and SUPRcurrently trading at 36%/50% discount to TBIG – consensus figures, ii) recent share pricerally leave only 8.2% upside to our target price of Rp5,950 . We initiate TBIG with a HOLDrecommendation. At our target price of Rp5,950, our TBIG valuation suggests 2017FEV/EBITDA of 13.9x that we view as expensive vs. local peers and we think the recent+8.2% Ytd rally has priced in most of the positives.

Sector Towers

Bloomberg Ticker TBIG IJ

Share Price Performance

Last price (Rp) 5,500

Avg. daily T/O (Rpbn/USDmn) 17.1/1.3

3m 6m 12m

Absolute (%) 5.8 -2.2 -17.3

Relative to JCI (%) 0.4 -10.7 -35.3

52w High/Low price (Rp) 7,000/4,930

Outstanding shrs (mn) 4,531

Mkt. Cap (Rpbn/USDmn) 24,923/1,859

Estimated free float (%) 45.1

Major shareholders

PT Wahana Anugerah Sejahtera 29.4%

PT Provident Capital Indonesia 25.5%

EPS Consensus

Ciptadana Cons. % Diff

2017F 247.1 276.1 -10.5

2018F 314.5 325.9 -3.5

2019F 378.3 425.2 -11.0

Niko Margaronis+62 21 2557 4800 ext. 734

[email protected]

http://www.ciptadana.com

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

May

-16

Jun-

16Ju

l-16

Aug-

16Se

p-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17Fe

b-17

Mar

-17

Apr-

17M

ay-1

7

TBIG 1yr Rel. to JCI (RHS)




Industry overview – Rising data traffic great for sectorThere is a clear and sustainable demand trend for wireless data. Much of the basis for thisgrowth is due to the proliferation of smartphones and the introduction of high capacity LTEnetworks that can carry a great deal of data and video consumption.

Exhibit 2: Cisco expects rising mobile data traffic in Indonesia

Source: Cisco VNI Mobile, Feb 2017

Mobile data traffic for biggest 3 listed telcos grew 114% cagr 2014-16 based on theirdisclosures. Cisco expects rising data traffic from OTT players offering video contentfollowed by browsing, social media and browsing. It is estimated that a 30-minute videocontent consumes 10,000 to 11,000x more bandwidth than listening to a 3-minute song,browsing or writing an e-mail. Cisco projects these trends to drive mobile data traffic growthby 63% CAGR driven by mobile video traffic of 76% CAGR in 2015-2020. Video will be 75% ofIndonesia's mobile data traffic in 2020, compared to 51% at the end of 2015.

Furthermore, the average mobile connection will generate 2,021 megabytes of mobile datatraffic per month in 2020, up from 211 megabytes in 2015. We understand these trends willdefine the future of Indonesian telco industry and consequently impacting the fate of towerproviders.

Exhibit 3: Bandwidth for video far exceeds other uses

Source: American Tower

75.9183.6

307.7481.5

719.5

1053.4

0

200

400

600

800

1,000

1,200

1,400

2015 2016 2017 2018 2019 2020

( Monthly traffic in Petabytes)

TB = (Terabyte) 1000 GBPB = (Petabyte) 1000 TB




Telco industry not yet optimized to capture promising trendsMobile market in Indonesia is very attractive to investors due its immense size. The market isstill dominated by Telkomsel (owned by Government and Singtel) with 169mn subscribers,and aggressive players backed by foreign investors like Indosat (Ooredoo based in Qatar), XLAxiata (backed by Axiata group from Malaysia), and Hutchison 3 (Hong-Kong group based).TBIG has comparatively the highest exposure to incumbent Telkomsel that has widestcoverage nationwide, has the largest subs base and has very little debt compared to listedpeers.

The market is rounded by other smaller players too, such as Internux, SampoernaTelekomunikasi and Smartfren controlled by local prominent families with high aspirationsfor market share. TBIG has customer relationship with all but Sampoerna that has yet togrow subscriber base.

Currently, the telco companies are bracing for changes in their cost structures as the markettransitions from voice to data services, and tariff wars have intensified. We can foresee someform of telco consolidation taking place in the not so distant future that can result to revenuehiccups to adjacent tower industry. We can refer to Bakrie Telecom example with towercoswriting-off receivables, and recent termination of tenancies from Telkom CDMA arm Flexi notinstantly substituted as both became technologically redundant.

Exhibit 4: Revenue contribution to TBIG per telco customer

Source : TBIG and Ciptadana Sekuritas

Indonesia has a unique geographical and complex landscape with dense metropolitan,suburban regions and remote rural areas spread across a vast island archipelago. It is saidthat Jakarta alone (incl. Jabodetabek) has circa 28 million population.

Indonesia has a young population that jumped in straight to mobile technology and hasembraced data services; we reckon mobile broadband penetration is still much below 50%but climbing, and handheld devices are being the dominant method of accessing the Internet.We believe the geographic diversity is reflected also in the array of technologies used aspeople are still dependent on 2G phones in remote areas with less economic growth,leapfrogging to 4G in more urban areas.

The pending government regulation on matters such network sharing, interconnection fees,data tariffs, drafting the process for pending spectrum auction, all have the ability to alter themarket landscape, causing telcos to have more moderate approach when it comes toexpansion. On the other hand, the government-led projects of Palapa Rings serve themandate to increase telecom coverage to rural areas and spread across Indonesia, which isa positive in the foreseeable future to drive demand for tower tenancies.

1,063

632

317 282

770

1,477

734

468335

820

1,517

826

512371

93 85

1,655

896

524377

148 91

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

PT Telkom Indosat Ooredoo XL Axiata Hutch 3 Smartfren BOLT

2013 2014 2015 2016

Rp billionRp billion




RIDING THE RISING DATA TRENDTelco network rollouts should typically consist of 2 broad phases: Coverage and Capacity.First step is to build coverage followed by investment in capacity to meet demand assubscribers adopt the new technology. Capex decisions on spending allocation and timing isentirely up to the discretion of Telco’s discretion. We understand that telcos currently arefitting coverage for 4G LTE while beefing up data network as per consumer demand. Thisshould translate to higher demand for both collocations and build-to-suit towers.

Exhibit 5: Investment phases in telcos

Source : American Tower, TowerExchange

New playing field - Going from 2G to 4G/LTE requires network densificationIn an effort to support seamless data service in dense areas, network deployments havestarted to integrate multiple layers to form the Heterogeneous Networks (HetNets).Traditional macro cell towers provide a blanket coverage, while underneath a combination ofother technologies are deployed to increase network capacity, particularly in dense urbanareas. Macro Sites will continue provide wide area coverage for high mobility users and willbe the core of wireless networks. Multiple solutions including DAS, Rooftops, Wi-Fi and smallcell networks will complement the coverage provided by towers and help fill signal gaps.

Not surprisingly, microcells and fibre seem to be the new playing field in the tower space. Tothat respect, Protelindo acquired iForte owning 450 micro cell towers, STP also has~2,500km of fibre and 390 microcell poles following acquisition of Bit Teknologi Nusantaraand PT Platinum Teknologi, while Balitower have installed fibre and added over 2,000micropoles in Jakarta. Rooftop installations and DAS are becoming a significant chunk ofTBIG assets too.

Exhibit 6: Heterogeneous Network model (Hetnets)


Furthermore, as devices become more advanced, the increasing demand for high-bandwidthapplications and higher quality of service result in a narrower range at which signals can betransmitted. As a result, carriers are investing in denser networks. Also with 3G/4G siteshaving smaller radius than 2G sites, there will be need for 3G/4G in-fill sites, i.e. additionalsites in existing coverage. One macro tower can support multiple carriers’ cell sites throughcollocation.




Exhibit 7: From 2G network format to 4G LTE design


If VoLTE is the new voice, more reason for tower space capacity. Voice Service so far isdelivered mainly over 2G and 3G networks while data is transmitted over all 2G/3G/4G LTEnetworks. Leading carriers abroad may be attempting voice over LTE or VOLTE to movetransmission to 4G LTE networks. Voice delivered with Quality of Service (QoS) requirementshas more stringent capacity requirements than “pure data” (e.g., browsing). This is morepronounced on the typical cell edge, where a data session/feed can degrade to a point but avoice call can’t.

Exhibit 8: From 2G network format to 4G LTE design

Source : American Tower. TowerExchange

Technology brings efficiency gains for tower space. Upside is on additional revenuesfor added capacity on existing tower sites. Technology improvements augment capacityand functionality of telecommunication equipment. These result in less space requirementfor tower space and/or enabling more value extraction from existing site. Thus we might seetrend of more equipment being placed on existing sites rather than leasing new collocationor tower. New RAN equipment has also been developed to run multiple technologies2G/3G/4G in one cabinet as opposed to multiple.

Exhibit 9: Expecting more equipment placed on existing towerExhibit 10: Less tower space needed due to technologyprogress

Source : American Tower, TowerExchange Source : American Tower, TowerExchange




COMPANY PROFILEBased in Indonesia, Tower Bersama is an established group with a number of subsidiariesoperating seamlessly under one management team. The group’s infrastructure extends toJava, Bali, Sumatra and Batam and is currently being expanded into Kalimantan andSulawesi. Tower Bersama has steadily grown its tower portfolio with acquisitions of smallertowercos, towers purchased from operators, and tower builds, and was the first towerco toachieve scale with its early acquisition of passive infrastructure assets from TelenetInternusa, Bali Telekom, Mobile-8, Prima Media Selaras and PT Solu Sindo SKP.

Exhibit 11: TBIG Corporate structure

Source : TBIG

BUSINESS OVERVIEWTBIG leases vertical space on towers, on which telcos install radio frequency antennas andmicrowave antennas, as well as ground space at each site for telco customers' shelters andcabinets that house electronic equipment and power supplies. They are installed atnumerous geographic locations across their targeted service area and area of existingcoverage for telecommunication services. Due to the long-term nature of tenant leases withtelcos, TBIG receives stable recurring cash flows under long-term site leases. Telcos relysignificantly on Tower companies for tower support.

Building coverage in high traffic areasTBIG has grown organically with build to suit towers as per demand by telcos. TBIG does notengage into speculative tower building, but will wait order to come from the big 3 IndonesianTelcos to be the anchor tenant before searching and building a new site.

The site acquisition is a rigorous process and involves consultation with the customer, thelocal authorities and community to issue permits, a process that lasts 6-8 months onaverage. Thus build-to-suit is long process that requires expertise and knowledge of thelocal market. Currently an active site for TBIG registers on average Rp15mn/month ofrevenue. Extensive experience in deployment of build-to-suit sites for telcos, particularlyexperience site acquisition (SITAC) and regulatory compliance, allows to provide competitivespeed to market on build-to-suit site construction in diverse areas of the Indonesianarchipelago. Regional management unit, supervises and works closely with subcontractorsand agents, and manages an extensive network of relationships with local vendors andgovernment authorities. This allows working with the telco customers to identify locationswhere they can install their BTS.




Exhibit 12: TBIG Tower portfolio per type

Source : TBIG

TBIG tower portfolio can support on average 3 tenants per tower. The incremental expensefor each new tenancy is minimal and capex is approx. Rp150 mn for height extension andstrengthening the tower foundation. Adding more tenants, equipment and upgrades yieldsadditional revenue, while costs will remain relatively flat. Collocation is typically faster, ofabout 1-2 months from order to completion and thus expecting faster rate of monetization.

Exhibit 13: typical tenancy additions via collocation

Tenancy ratio was 1.63 as of December 31, 2016; there is strong potential for tenancy ratio toincrease in near future going closer to 2.0x as we expect underlying telco trends to last.Evolving uses of data with more sophisticated consumer applications will require highernetwork capacity which will drive to higher demand for tenancies sooner or later.

Exhibit 14: # Towers, # Tenancies & Tenancy ratio of TBIG

Source: TBIG

4,133

2,613

3,221

1,535

54328

685

710

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Ground Based >65m

Ground Based51-65m

Ground Based32-50m

Ground Based <32m

Rooftop 32-50m Rooftop SST <32m

Rooftop /Monopole <

32m

DAS / Indoor &Outdoor

1.52x

1.44x

1.62x 1.63x 1.61x1.60x

1.63x

1.30x

1.35x

1.40x

1.45x

1.50x

1.55x

1.60x

1.65x

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013 2014 2015 2016

Towers Tenants Tenancy ratio




VISIBILITY WITH STABLE RECURRING REVENUES

TBIG maintains a quality cash flow stream coning from Indonesia's largest 4telecommunications operators (in terms of subscriptions) that accounts for 89% of TBIG'stotal revenue. Tenancies are based on long term contracts thus offering stable revenueoutlook to TBIG.

Decoupled from telco balance sheet – Tower assets inherently connect to telco growth– Win-Win situation

Telecommunication operators employ "asset-light" strategies in response to increasednetwork demand, by disposing their tower portfolios to independent tower companies. Thisallows telecommunications operators to reduce capex and expand their networks andnetwork capacity more quickly than if they had to build, own and operate their own towers. Italso allows telcos to monetize their tower portfolios.TowerCos can offer to telcos:

financial capacity, by unloading tower asset from telco balance sheet cost reduction opportunity, by not having to maintain tower assets unlocking asset value by increasing collocation upside quick telco expansion to tower assets spread across regions via collocation

Telcos industry growth will remain the main engine for the tower industry and passiveinfrastructure growth. Opportunities and challenges in cellular business will be realized tooby Tower companies. Tower companies being inherently connected with telcos companiescan ride on the strong data user and data traffic growth trends.

Long strong contracts in place with escalation provisionsWe understand contracts have built-in tenant lease terms binding customers in recurringpayment streams that could be prohibitively expensive to cancel. Also the length of towerlease agreements is generally 10 years offering high visibility on future revenues.

The majority of site lease contracts are based on Master Lease Agreements with telcooperators (MLA). This include escalation mechanisms that result in a periodic increase in thelease maintenance, or other fees that are tied to inflation index or other related economicindicator. Fees vary based on tower location and height, size and location of customer’santennas on the tower; and ground space and utilities provided to the customer.

Many of TBIG sites are located in densely populated areas where telecommunicationsoperators are experiencing high subscriber traffic and relocation of equipment takes timeand involves operators reconfiguring their networks. Due to this fact, we believe thatcustomers are likely to renew their lease agreements at the end of their current term inorder to i) minimize disruption of coverage in such areas, ii) avoid risk of potential loss ofrevenue, and iii) also avoid the expense they would incur from the relocation of their antennaequipment.

Naturally, we expect lease rates may change as site lease agreements reach expiry. TBIGpolicy is to enter into renewal process and term negotiation as soon as they reach the 6-7th

year of the lease life.

Recent regulation in regards to amended zoning laws, restrict tower operators' ability tobuild towers in proximity to each other. This could increase demand for space on existingtowers and also in certain cases reduce the demand for new towers or limit our ability tobuild new towers in proximity to other towers.




Potential for Significant Operating Leverage – Profitability – The good assets.

Since commencing operations, TBIG has been able to build site portfolio in areas wheretelecommunications operators experience high subscriber traffic and where there is highdemand for tower space to install BTS. As end of 2016, approximately 86% of total revenuecame from the densely populated provinces of Java, Bali and Sumatra. A key condition forvalue creation requires site identification in high demand areas to maximize potential foradditional tenancies. Considering the tenancy ratios at TBIG portfolio and exposure to allactive players with Telkom being first, are good indications for good value in those sites.

Exhibit 15 : Breakdown of towers and tenancies by region

Source: TBIG

More opportunities for acquisitions of tower portfolios may become available in the nearfuture. We believe TBIG or any other leading tower company will not pass easily on suchopportunity presented as these assets gradually become more scarce, hence more valuable.It will do so as long as it does not deteriorate tenancy ratio prospect, reduce profitability orthere is too high a premium which in that case TBIG may well opt to search new site andbuild instead of buying.

More opportunities to acquire assetsAs mentioned previously, TBIG has managed to grow partly organic growth and fromacquiring companies and tower portfolios, including major acquisitions of 1,380/2,500towers from SKP (subsidiary now of TBIG) and Indosat. Telco operators have been offloadingtower assets as part of their asset light strategy to allow them focus on essential telcooperations with angle for differentiation. We expect this trend to continue. As a result of theasset-light strategy, a new landscape is developed with several independent tower owners.

Exhibit 16: Tower asset transactions vary at $100-208k/tower Exhibit 17: longevity assets can outlive current technologies

Source : TowerExchange & disclosures Source : American Tower

Region/Island # Towers/sites Percentage # Tenancies Percentage Tenancy RatioJava, Bali & Sumatra 10,455 83% 17,612 86% 1.68xOther 2,155 17% 2,874 14% 1.33xTotal 12,610 20,486 1.62x

Year Seller Buyer US$/Tower # Towers/Sites US$ Value2016 XL Axiata Protelindo $100k 2,500 $250 mn2014 XL Axiata STP $131.4k 3,500 $460 mn2012 Hutchison Protelindo n.a. 503 n.a.2012 PT Central Investindo Protelindo n.a. 152 n.a.2012 Indosat Tower Bersama $207.6k 2,500 $519 mn2011 Infratel Tower Bersama n.a. 595 n.a.2010 Hutchison Protelindo $112k 1,482 $165.9 mn2010 Solusindo Kreasi SKP Tower Bersama n.a. 1,380 n.a.2008 Bakrie STP $64.4k 543 $136 mn2008 Hutchison Protelindo $135.4k 3,692 $500 mn




The presence of many players is a risk to increase premium as they look to buy remainingtelco assets in case they are on offer. However it also raises the possibility for M&A in thefuture when operating and financial leverage may not match for some players. TBIGattempted deal to gain control of Telkom subsidiary Mitratel via share-swap, but wasoverruled by the government in Q3 2015.

Exhibit 18: Market Overview – Independent and Telco tower owners

Source : Source: companies information, TowerExchange, Analysys Mason, internet, estimates*

TowerCo # Towers % Telco # Towers %Protelindo 14,562 18% Telkomsel 17,000 21%Tower Bersama 12,539 16% Indosat Ooredoo 8,600 11%Mitratel 9,100 11% XL Axiata 4,000 5%Solusi Tunas Pra 6,349 8% Sampoerna Tel 400 0%IBS Tower 3,677 5% Others * 1,000 1%Centratama (Retower) 719 1%Nusantara Infra 1,228 2%Bali Tower 1,040 1%Others * 3,200 4%Total 49,214 61% TOTAL 31,000 39%Grand Total 80,214




OPERATIONAL EXCELLENCERunning costs include amortization of license/permit costs, site maintenance,security/monitoring and electricity. Main bulk of electricity cost is passed-through to thetenants. Ground leases and licenses constitute capex for Indonesian Tower companies. Thecost structure incorporates operating leverages as accommodating additional tenantsthrough collocation typically requires minimal additional operating costs, to strengthen thetower construction for additional capacity.

Exhibit 19: Revenues, EBITDA & EBITDA marginUnlocking asset value with increasing profitability

Source : TBIG and Ciptadana Sekuritas

TBIG offers a simple but intuitive method to unlock value from its assets via collocation thatallows to realize operational leverage on each new tenancy addition. If we expect also telcosto increase network coverage and raise capacity for 3G and 4G LTE, we could also assumethat orders for space and tenancies will come in higher numbers that should boost revenuesand EBITDA further.

Being able to maintain high level profitability is also owed to the disciplined expansion ofbuild to suit towers at manageable costs allowing high EBITDA margin level. With this risingprofitability level, we may assume that past acquisitions of tower portfolios have been fairlyattractive for collocation purposes and in terms of cost maintenance.

Good operational execution provides basis to sustain and grow the profitability.

We feel that TBIG business model adapts well with the current evolution of Hetnets withsubstantial number of Rooftop towers and DAS that can infiltrate dense areas. We believeTBIG relative strength on macro towers could play major role in Hetnets by offering blanketcoverage especially now with the roll-out of Palapa Rings in remote areas. Being one of thelargest players, will provide leverage in forming partnerships with niche players who deployfiber capacity in the cities. With those prospects while maintaining the profitability trajectory,we can expect TBIG to continue be in a position to offer returns to shareholders. TBIGrecently declared dividends with 77% payout ratio on FY16 earnings and has previouslyembarked on share buybacks. We estimate TBIG net debt/EBITDA to be ~5.8x, and adjustedfor its hedges it becomes 5.1x as the ratio measured for its lenders. TBIG has as financialcovenant of 6.25x net debt/EBITDA, meaning it still has headroom for significant acquisitionssubject to transaction price, profitability perspectives and level of tenancy for the targetassets.

76%

79%

82% 82% 82%

85%87%

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2011 2012 2013 2014 2015 2016

Revenues EBITDA EBITDA margin

Rp billion




VALUATION & RATINGWe initiate coverage on Tower Bersama Infrastructure (TBIG) with HOLD, using DCF valuationmethod which gives us TP Rp5,950 or implies 13.9x 2017F EV/EBITDA , almost one STDbelow its 7-year historical average. Indonesian Tower Industry fundamentals have still roomto grow if we compare with valuations of international established peers. Our assumptionsinclude using WACC of 9.8% to discount 10 year free cash flows, terminal growth rate of3.5%, Indonesian 10-yr government bond average rate as risk free rate, equity risk premiumof 5.5% and beta of 0.8. We use theoretical capital structure of 60:40 for equity & debtrespectively to reflect ability to leverage given long visibility on revenues, and use interestcost of 10%. Although TBIG has qualities of leasing property business, we use DCF as theappropriate method to value the company to encapsulate rising demand of tower spacebased on underlying trends in telecommunications of Indonesia.

TBIG deserves its premium but is challenging to justify further strong upside andrisk/reward to TBIG as i) TOWR and SUPR are currently trading at 36%/50% discount to TBIG– consensus figures, ii) recent share price rally leave only 8.2% upside to our target price ofRp5,950 . We initiate TBIG with a HOLD recommendation. At our target price of Rp5,950, ourTBIG valuation suggests 2017F EV/EBITDA of 13.9x that we view as expensive vs. local peersand we think the recent +8.2% Ytd rally has priced in most of the positives.

Exhibit 20: Comparable multiples vs. peers

Source : Bloomberg and Ciptadana Sekuritas

Business and Financial Risks

Downward pricing pressure during contract renewals with Telcos Upward pressure in land leases especially in densed areas may drive higher capex Telecom operators possible consolidation may bring more hiccups in “stable”

revenues Inability to increase significantly collocation rates. Certain existing site leases may

not be renewed, or renewed in less favorable terms. Competitors building micro-cell capacity with fiber may gain significant importance

depending on financial factors Technological advancements and more spectrum frequency may have the

ability/potential to increase efficiencies in tower space Tenancies based on 2G service to become redundant in near future may not be

compensated equally with tenancies in newer technologies

Net Debt /EBITDA

EBITDA / Int.Expense

Company Code 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018FTower Bersama TBIG IJ 11.6x 10.5x 13.6x 12.2x 22.3x 17.5x 85.5% 85.7% 5.9x 1.8xSarana Menara Pra TOWR IJ 7.9x 7.2x 9.1x 8.4x 13.9x 12.4x 85.9% 85.9% 1.4x 7.4xSolusi Tunas Pratama SUPR IJ 7.0x 6.5x 8.3x 7.6x 16.5x 13.9x 85.1% 84.9% 4.8x 3.1xBharti Infratel BHIN IJ 10.2x 9.3x 21.3x 19.0x 23.7x 20.4x 47.9% 49.1% -1.2x -American Tower C AMT US 11.6x 10.8x 19.0x 17.6x 42.2x 34.3x 60.9% 61.3% 5.3x 4.7xCrown Castle Int CCI US 11.6x 11.0x 20.3x 19.2x 76.9x 64.7x 57.1% 57.6% 5.6x 4.0xSBA Comm Corp SBAC US 14.2x 13.4x 20.5x 19.1x 130.0x 79.4x 69.6% 70.6% 8.4x 3.1xCellNex Telecom CLNX SM 7.1x 6.6x 16.2x 14.7x 50.9x 41.8x 43.6% 45.2% 5.7x 94.8x

Average 10.1x 9.4x 16.0x 14.7x 47.1x 35.6x 66.9% 67.5% 4.5x 17.0x

EBITDA MarginRelative Valuation EV/ Revenue EV/EBITDA PER




Exhibit 21: Historical EV/EBITDA bands


Exhibit 22: Historical PER bands


0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

-2stdev -1stdev Average EV/EBITDA

+1stdev +2stdev EV/EBITDA

0.0x5.0x

10.0x15.0x20.0x25.0x30.0x35.0x40.0x45.0x

-2stdev -1stdev Average PER

+1stdev +2stdev PER


EQUITY RESEARCHTBIG – Initiation Coverage - 19 May 2017

CIPTADANA SEKURITAS ASIA

Exhibit 23 - Income Statement

Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F

Revenue 3,421 3,711 3,781 4,193 4,546

COGS -449 -418 -432 -477 -519

Gross profit 2,972 3,294 3,349 3,716 4,026

Oper. expenses -311 -316 -377 -407 -437

Oper. profit 2,661 2,978 2,972 3,310 3,590

EBITDA 2,915 3,224 3,233 3,596 3,903

Interest income 7 6 6 6 6

Interest expense -1,473 -1,692 -1,787 -1,800 -1,773

Other income (exp.) -61 47 0 0 0

Pre-tax profit 1,089 1,364 1,191 1,515 1,823

Income tax 356 -63 -60 -76 -91

Minority interest -15 -11 -11 -14 -17

Net profit 1,430 1,290 1,120 1,425 1,714

Exhibit 24 - Balance Sheet


Cash & cash equivalent 296 365 491 344 683

Acct, receivables 482 409 417 462 501

Inventory 307 217 225 248 270

Other curr, asset 1,521 969 969 969 969

Total current asset 2,606 1,961 2,102 2,023 2,423

Fixed assets - net 18,173 20,012 21,151 22,065 22,553

Other non-curr.asset 2,021 1,648 1,648 1,648 1,648

Total asset 22,800 23,620 24,901 25,736 26,624

ST debt + curr. maturity 439 1,016 1,052 1,041 1,025

Acct, payable 193 185 216 239 260

Advances received 0 0 0 0 0

Other curr. liab 1,283 1,699 1,822 1,954 2,096

Long term debt 18,041 17,892 18,520 18,335 18,060

Other non-curr, liab, 1,253 1,204 1,204 1,204 1,204

Total liabilities 21,209 21,996 22,814 22,773 22,645

Shareholder equity 1,530 1,556 2,011 2,876 3,878

Minority interest 61 68 76 87 101

Total liab + SHE 22,800 23,620 24,901 25,736 26,624

Exhibit 25 - Per Share Data

(Rp) 2015A 2016A 2017F 2018F 2019F

EPS 315.6 284.8 247.1 314.5 378.3

BVPS 337.7 343.3 443.7 634.7 855.7

DPS 0.0 130.6 146.8 123.6 157.3

FCF per share -150.0 209.1 26.4 131.8 293.3





Exhibit 26 - Cash Flow


Net income 1,430 1,290 1,120 1,425 1,714

Depreciation and amort. 254 246 261 286 313

Chg in working cap. -236 1,123 139 86 102

Other 0 0 0 0 0

CF-Oper activities 1,448 2,659 1,519 1,797 2,129

Capital expenditure -1,568 -2,085 -1,400 -1,200 -800

Others -559 373 0 0 0

CF-Investing activities -2,128 -1,711 -1,400 -1,200 -800

Net change in debt 2,418 428 664 -196 -291

Net change in equity 0 0 0 0 0

Dividend payment 0 -592 -665 -560 -713

Other financing -2,343 -714 8 11 14

CF-Financing activities 75 -878 6 -745 -989

Net cash flow -604 69 126 -148 340

Cash - begin of the year 901 296 365 491 344

Cash - end of the year 296 365 491 344 683

Exhibit 27 - Key Ratios

Year to 31 Dec 2015A 2016A 2017F 2018F 2019F

Growth

Revenue (%) 3.5 8.5 1.9 10.9 8.4

Operating profit (%) 6.2 11.9 -0.2 11.4 8.5

Net profit (%) 104.1 -9.8 -13.2 27.3 20.3

Profitability Ratios

Gross margin (%) 86.9 88.7 88.6 88.6 88.6

Operating margin (%) 77.8 80.2 78.6 78.9 79.0

EBITDA margin (%) 85.2 86.9 85.5 85.7 85.9

Net margin (%) 41.8 34.8 29.6 34.0 37.7

ROA (%) 6.3 5.5 4.5 5.5 6.4

ROE (%) 93.5 82.9 55.7 49.6 44.2

Liquidity Ratios

Current ratio (x) 1.4 0.7 0.7 0.6 0.7

Quick ratio (x) 1.2 0.6 0.6 0.5 0.6

Cash conversion cycle (days) 281.4 215.0 210.3 208.3 208.5

Activity Ratio

Inventory turnover (days) 249.3 189.8 189.8 189.8 189.8

Receivable turnover (days) 51.9 43.8 39.9 38.3 38.7

Payable turnover (days) 19.8 18.6 19.3 19.8 20.0

Solvency Ratio

Interest cover (x) 2.0 1.9 1.8 2.0 2.2

Debt to equity ratio (x) 12.1 12.2 9.7 6.7 4.9

Net debt to equity (x) 11.9 11.9 9.5 6.6 4.7





EQUITY RESEARCH

HEAD OF RESEARCH ANALYST ANALYSTArief Budiman Syaiful Adrian Zabrina Raissa, CSAStrategy, Automotive, Heavy Equipment,Construction

Banking, Consumer, Cigarette Poultry, Cement, Toll Road, AviationConstruction, Shipping T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 735T +62 21 2557 4800 ext 819 E [email protected] E [email protected] [email protected]

ANALYST ANALYST ANALYSTKurniawan Sudjatmiko Nichelle Ongko Edward LowisCoal, Metal Mining, Oil & Gas and Services Media, Retail, Others Consumer, PlantationsT +62 21 2557 4800 ext 739 T +62 21 2557 4800 ext 740 T +62 21 2557 4800 ext 760E [email protected] E [email protected] E [email protected]

ANALYST ANALYST JUNIOR ECONOMISTNiko Margaronis Yasmin Soulisa Imanuel ReinaldoTelecommunication, Tower Property, Healthcare T +62 21 2557 4800 ext 820T +62 21 2557 4800 ext 734 T +62 21 2557 4800 ext 799 E [email protected] [email protected] E [email protected]

TECHNICAL ANALYST RESEARCH ASSISTANTTrevor Gasman SumarniT +62 21 2557 4800 ext 934 T +62 21 2557 4800 ext 920E [email protected] E [email protected]

EQUITY SALESCo HEAD OF INSTITUTIONAL SALES Co HEAD OF INSTITUTIONAL SALESDadang Mulyana The Fei MingPlaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59Jakarta - 12190 Jakarta - 12190T +62 21 2557 4800 ext 838 T +62 21 2557 4800 ext 807F +62 21 2557 4900 F +62 21 2557 4900E [email protected] E [email protected]

SURABAYAJAKARTA - MANGGA DUA JAKARTA - PURI KENCANA Imelda SoetiknoGavin Ishak Chandra Herotionjaya Intiland Tower SurabayaKomplek Harco Mangga Dua Perkantoran Puri Niaga III Ground Floor Suite 5 & 6Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Jl. Panglima Sudirman 101-103Jl. Mangga Dua Raya Kembangan Surabaya - 60271Jakarta - 10730 Jakarta - 11610 T +62 31 534 3938T +62 21 600 2850 T +62 21 5830 3450 F +62 31 534 3886F +62 21 612 1049 F +62 21 5830 3449 E [email protected] [email protected] E [email protected]

SEMARANGLusiana PermatasariGedung Menara Suara Merdeka6th Floor Unit-02Jl. Pandanaran No.30Semarang - 50134T +62 24 7692 8777F +62 24 7692 8778E [email protected]




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Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about thecompanies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are notand will not be influenced by any part or all of his or her compensation.

Disclaimer

This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into anytransaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should determine,without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume theserisks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting thisreport, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice,(b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualifiedlegal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accountingadvice (and any risks associated with any transaction and our disclaimer as to these matters.

The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate,current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of thedocument and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions andthere can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PTCIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OROTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANYRELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF.

Analyst Certi ficationDisclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securitiesmentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinionscontained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation orwarranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any othermember of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of theinformation contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be noassurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this documentis subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed.

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EQUITY RESEAR CHciptadana-sekuritas-asia.com/system/researches/files/000/000/108/... · 19/5/2017 · hiccups to adjacent tower industry. We can refer to Bakrie Telecom example with