1. business and industrial
2. company
3. merger and acquisition

Monday, 20 October 2014
TELECOMMUNICATION TOWER/COMPANY UPDATE
SELL
Target Price
Rp 6,600
Upside (Downside)
(22.3%)
TBIG.JK/TBIG IJ
Last Price, Rp
No. of shares (bn)
8,500
4,796
Market Cap, IDR bn
40,766
3,369
0.6
(US$ mn)
3M T/O, US$mn
TBIG relative to JCI Index
TBIG (LHS)
Relative to JCI Index (RHS)
Rp
%
9,000
Tower Bersama
Value-accretive acquisition
We raise our TP on Tower Bersama Infrastructure (TBIG) to IDR6,600 from IDR6,350
previously to factor in its acquisition of Mitratel via share swap. The acquisition will
allow TBIG to grow faster given Mitratel’s towers’ low tenancy ratio and an increase
in ability to assume more debt due to larger equity base . We expect EBITDA growth
to accelerate to a CAGR of 34% in the next two years from our previous expectation
of a CAGR of 25%. Nevertheless, there will be EPS-dilution from the increase in
number of shares, minority interests, and interest expense from rising gearing level.
That said, we cut our EPS estimate on TBIG by 17% in 2015 and 2016. We maintain
SELL on the counter as the stock remain expensive compared to TOWR, trading at
FY15F EV/EBITDA of 14.7x vis-à-vis TOWR’s of 12.4x.
40
30
8,000
20
7,000
10
6,000
0
10/17/14
8/6/14
9/11/14
7/1/14
5/26/14
4/18/14
2/5/14
3/13/14
12/31/13
11/25/13
-10
10/18/13
5,000
Market Recommendation
BUY
HOLD
8
4
SELL
5
Danareksa vs Consensus
Target price, IDR
EPS 2014F, IDR
PE 2014F, x
Our
6,600
312
27.2
Cons
8,705
296
28.7
Lucky Ariesandi, CFA
(62-21) 2955 5823
[email protected]
Danareksa research reports are also
available at Reuters Multex and First Call
Direct and Bloomberg.
www.danareksa.com
% Diff
-24.2
5.4
-5.2
Share swap with conditional cash payment based on achievement of milestones
TBIG has entered an agreement with Telkom to buy 49% stake in Mitratel through a share swap
with 290mn of new TBIG shares, giving Telkom 5.7% ownership in TBIG. Telkom also has option
to further divest the remaining 51% ownership in Mitratel within two years in exchange for
472.5mn of new TBIG shares, which if exercised will give Telkom 13.7% ownership in TBIG. We
gather that Telkom will likely swap unless unusual situation occurs dictating otherwise. On top
of that, TBIG will pay Telkom earnout of up to IDR1,739bn if Mitratel achieves certain performance
milestones. The additional earnout will not be in lump sum; rather, the payment will be in several
stages, based on different tenancy ratio thresholds of Mitratel.
Valuation not excessive
According to release from Telkom, net debt of Mitratel as of June 2014 was IDR2.7tn while TBIG’s
net debt as of June 2014 was IDR14.2tn. Using these figures and TBIG shares’ 30-days VWAP of
IDR7,972, the transaction values 100% of Mitratel at a maximum level of IDR8.2tn. This implies that
the value of the transaction was between USD85k to USD172k. Given Mitratel’s tenancy ratio of
1.1x, we see the transaction as fair, as other tower transaction in Indonesia averages at EV/tower
multiple of USD147k for tenancy of 1.4x-1.8x.
EBITDA accretive and EPS destructive in the short term, but overall positive for growth
Telkom said that Mitratel had revenue of IDR1.5tn and EBITDA of IDR875bn in 2013. The EBITDA
will be immediately accretive to TBIG’s performance, thus giving the company an increase in
borrowing ability as lenders usually set the covenant based on last quarter annualized (LQA) or
last twelve months (LTM) EBITDA. However, we see the acquisition to be EPS destructive in the short
term due to several reasons: 1) TBIG will increase its net gearing by IDR2.7tn, and interests on the
new debts are higher than that of TBIG’s existing debt at JIBOR+1.4%-3% (9.7%-11.3%) vis-à-vis
TBIG’s current average of 5.8%, 2) increase in minority interests from Telkom’s ownership in Mitratel,
and 3) EPS dilution from issuance of new shares. But overall, we believe the acquisition will allow
TBIG to grow faster in the foreseeable future.
Revenue, IDRbn
EBITDA, IDRbn
EBITDA growth, %
Net profit, IDRbn
Core profit, IDRbn
EPS, IDR
EPS growth, %
Core EPS, IDR
Core EPS growth, %
Net gearing, %
PER, x
Core PER, x
Yield, %
EV/EBITDA, x
2012
2013
2014F
2015F
2016F
1,715
1,398
83.1
856
679
181
73.7
143
68.2
193.7
47.0
59.3
0.0
34.7
2,691
2,205
57.7
1,248
1,269
260
43.9
264
84.5
299.8
32.7
32.1
0.7
24.1
3,560
2,906
31.8
1,496
1,496
312
19.9
312
17.9
208.9
27.3
27.3
1.3
18.1
4,870
3,918
34.8
1,629
1,629
320
2.7
320
2.7
117.6
26.5
26.5
1.1
14.7
5,466
4,369
11.5
2,042
2,042
367
14.7
367
14.7
97.8
23.1
23.1
1.2
14.0
See important disclosure on the back of this report
20 October 2014
Tower Bersama
Exhibit 1. The scenarios suggest transaction value of USD85k-USD172k per tower
No additional earnout
Further sale of 51% shares in Mitratel
Current # of shares (bn)
New shares issued (bn)
Total shares (bn)
TBIG’s price prior to announcement
Value of Telkom’s TBIG shares (IDRbn)
EV of Telkom’s TBIG shares (IDRbn)
Additional earnout (IDRbn)
Net debt at Mitratel (IDRbn)
Transaction EV (IDRbn)
Transaction EV incl TBIG’s debt (IDRbn)
No of towers
EV/tower (IDRbn)
In USDk
EV/tower incl TBIG’s debt (IDRbn)
In USDk
No
4.80
0.29
5.09
7,972
2,312
1,349
0
2,707
5,019
4,056
3,928
2.61
214
1.03
85
Max additional earnout
Yes
4.80
0.76
5.56
7,972
6,079
3,765
0
2,707
8,786
6,472
3,928
2.24
184
1.65
135
No
4.80
0.29
5.09
7,972
2,312
1,349
1,739
2,707
6,758
5,795
3,928
3.51
288
1.48
121
Yes
4.80
0.76
5.56
7,972
6,079
3,765
1,739
2,707
10,525
8,211
3,928
2.68
220
2.09
172
Source: Danareksa Sekuritas
Exhibit 2. Mitratel’s site locations (including rooftops etc)
Source: Mitratel
Exhibit 3. Comparison between Mitratel, XL, and Indosat’s tower transactions
# of towers divested
Tenancy (x)
Value (USDmn)
Enterprise value (USDmn)
EV/tower (USDk)
Monthly lease (IDRmn)
Earnout (USDmn)
Mitratel
XL
Indosat
3,928
1.1
192-507
338-684
86-174
15-17
145
3,500
1.8
467
467
133
10
0
2,500
1.4
406
406
162
15
113
Source: Company, Danareksa
2
20 October 2014
Tower Bersama
Exhibit 4. Change in forecasts
Revenue
EBITDA
Net profit
# of towers
Tenancy
New
FY15F
FY16F
FY15F
Old
FY16F
4,870
3,918
1,629
15,794
1.58
5,466
4,369
2,042
17,294
1.61
4,342
3,533
1,861
12,866
1.73
5,197
4,208
2,117
14,866
1.78
Source: Danareksa Sekuritas
3
20 October 2014
Tower Bersama
Exhibit 5. Profit and Loss (IDR bn)
Revenue
Depreciation
Other operating expenses
Operating income
EBITDA
Others
Net interest
Forex
Revaluation of investment properties
Others
Pre tax income
Income tax
Minorities
Net profit
2012
2013
2014F
2015F
2016F
1,715
(118)
(317)
1,280
1,398
2,691
(153)
(485)
2,052
2,205
3,560
(190)
(655)
2,716
2,906
4,870
(290)
(953)
3,628
3,918
5,466
(339)
(1,097)
4,030
4,369
(518)
(84)
259
(23)
913
(85)
(85)
856
(839)
(799)
781
(18)
1,177
(104)
(104)
1,248
(832)
0
0
(14)
1,870
(187)
(187)
1,496
(1,107)
0
0
(15)
2,506
(501)
(501)
1,629
(1,099)
0
0
(14)
2,918
(292)
(292)
2,042
2012
2013
2014F
2015F
2016F
507
154
229
1,411
2,301
647
603
328
1,020
2,599
653
590
392
1,102
2,736
936
771
511
1,416
3,635
1,755
872
547
1,486
4,659
87
10,364
619
946
12,016
14,317
220
12,965
908
2,028
16,121
18,719
231
15,176
1,142
1,040
17,589
20,325
240
22,443
1,484
3,180
27,347
30,982
245
24,203
1,582
3,239
29,270
33,929
0
253
209
858
862
2,182
0
126
446
2,331
1,028
3,931
0
325
547
2,328
1,374
4,574
0
463
709
2,518
2,087
5,776
0
424
802
2,328
2,317
5,872
7,871
19
7,890
10,072
10,650
24
10,674
14,605
10,087
32
10,119
14,693
12,871
44
12,915
18,691
13,557
49
13,606
19,478
Source: Company, Danareksa Sekuritas
Exhibit 6. Balance sheet (IDR bn)
Cash and equivalent
Receivable
Inventory
Other current assets
Total current assets
Fixed assets - net
Investment properties
LT site rentals
Other LT assets
Total non current assets
TOTAL ASSETS
ST loans
Payables
Unearned revenue
Current portion of LT loans
Other current liabilities
Total current liabilities
LT loans
Other LT liabilities
Total non current liabilities
TOTAL LIABILITIES
Source: Company, Danareksa Sekuritas
4
20 October 2014
Tower Bersama
Exhibit 7. Cash flow (IDR bn)
2012
2013
2014F
2015F
2016F
Pre tax income
Depreciation
Income tax
Others
Cash flow from operation
913
118
14
232
1,277
1,177
153
174
81
1,586
1,870
190
(187)
196
2,068
2,506
290
(376)
(223)
2,197
2,918
339
(584)
(267)
2,406
Capex
Disposal of fixed assets
Others
Cash flow from investing
(5,867)
0
295
(5,572)
(1,848)
0
(743)
(2,591)
(2,412)
0
(68)
(2,480)
(7,565)
0
(2,352)
(9,918)
(2,103)
0
(99)
(2,202)
Change in loans
Change in equity
Dividend
Others
Cash flow from financing
4,391
757
0
(761)
4,387
1,245
(577)
(288)
502
881
(566)
0
(512)
1,495
417
2,974
2,312
(469)
3,186
8,003
496
3,767
(551)
(3,097)
615
92
(124)
6
283
819
2012
2013
2014F
2015F
2016F
84.6
74.6
81.5
49.9
8.1
24.6
85.3
76.3
82.0
46.4
7.6
29.9
85.1
76.3
81.6
42.0
7.7
30.7
83.1
74.5
80.4
33.5
6.4
18.2
82.4
73.7
79.9
37.4
6.3
15.3
1.1
0.2
0.7
0.2
0.6
0.1
0.6
0.2
0.8
0.3
32.3
138.4
106.1
51.4
108.1
56.8
61.2
97.3
36.1
51.0
115.7
64.7
54.9
112.8
57.9
194
2.7
5.9
300
2.6
5.6
209
3.5
4.0
118
3.5
3.7
98
4.0
3.2
Change in cash
Source: Company, Danareksa Sekuritas
Exhibit 8. Ratios
Profitability (%)
Gross profit margin
Operating margin
EBITDA margin
Net profit margin
ROAA
ROAE
Liquidity
Current ratio, x
Quick ratio, x
Activity
Receivable turnover, days
Payable turnover, days
Working capital cycle, days
Leverage
Net gearing, %
Interest coverage
Net debt to EBITDA
Source: Company, Danareksa Sekuritas
5
20 October 2014
Tower Bersama
DISCLAIMER
The information contained in this report has been taken from sources which we deem reliable. However, none of P.T. Danareksa Sekuritas and/or its affiliated companies and/or
their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or
completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining
unchanged after the issue thereof.
We expressly disclaim any responsibility or liability (express or implied) of P.T. Danareksa Sekuritas, its affiliated companies and their respective employees and agents whatsoever
and howsoever arising (including, without limitation for any claims, proceedings, action , suits, losses, expenses, damages or costs) which may be brought against or suffered by
any person as a results of acting in reliance upon the whole or any part of the contents of this report and neither P.T. Danareksa Sekuritas, its affiliated companies or their respective
employees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy
therein or omission therefrom which might otherwise arise is hereby expresses disclaimed.
The information contained in this report is not be taken as any recommendation made by P.T. Danareksa Sekuritas or any other person to enter into any agreement with regard to
any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. In
considering any investments you should make your own independent assessment and seek your own professional financial and legal advice.
6