Friday, November 2, 2012

Strong results, but valuation is fair

by DBS

Tower Bersama Infrastructure : HOLD; Rp5,050;

Price Target : Rp5,300 (previous: Rp3,900); TBIG IJ

· 9M12 EBITDA of Rp920bn (+70% y-o-y) was 6% ahead of our estimate as  TBIG added ~2,600 tenants in the period vs our 2,200 estimate

· Raised FY12F/13F/14F EBITDA by 5%/10%/18% on higher tenant additions

· Maintain HOLD with revised DCF-based TP of Rp5,300 (WACC 10.2%, terminal growth 4%); we continue to prefer tower companies to telcos

Telkomsel & XL leading drive to ramp up 3G networks. The company booked about two months’ contribution from 3,350 tenants on 2,500 towers acquired from Indosat. Excluding these, TBIG added a record 2,600 tenants in 9M12 with Telkomsel as the biggest driver, followed by XL. The Big 4 operators accounted for 69% of revenues in 9M12 versus 60% in 9M11. TBIG completed a record ~1800 co-locations on top of ~800 customised orders in 9M12. Net senior debt to annualised EBITDA (latest month) is ~3.7x, much lower than its 4.5x covenant, leaving room to raise more debt.

Raised FY12F/13F/14F EBITDA by 5%/10%/18%. We expect TBIG to add 3,400/3,800/3,061 tenants in those years compared to our previous assumptions of 2,800/2,800/1,043. It is expected to accelerate expansion of its 3G network in 2013 further as Indosat will also join the 3G fray.

Prefer tower companies to telcos. Revenues for tower companies are operating costs for telcos, hurting their margins. TBIG is trading at 15.3x FY13F EV/EBITDA, comparable to 16x for US peers, but offers 38% EBITDA CAGR over FY12-14F versus 11% for US peers. Local peer Protelindo (TOWR) is quite attractive at only 11x FY13F EV/EBITDA while offering 20% EBITDA CAGR, which may be revised up post 3Q12 results. Key risk for tower companies will be telcos negotiating for lower tower lease fees in the long run

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