Tower Bersama Infrastructure

Transcription

1 Indonesia Company Guide Version 3 Bloomberg: TBIG IJ Reuters: TBIG.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 13 Feb 2017 HOLD Last Traded Price ( 10 Feb 2017): Rp5,375 (JCI : 5,371.70) Price Target 12-mth: Rp5,500 (2% upside) (Prev Rp6,400) Potential Catalyst: Quarterly earnings performance Where we differ: We believe TBIG's stretched balance sheet could pose risk to its sites and tenants addition outlook Analyst William Simadiputra william.simadiputra@id.dbsvickers.com Sachin MITTAL sachinmittal@dbs.com What s New Maintain HOLD rating with lower TP of Rp5,500 Valuation is still 20% premium to TOWR s Our TP drops on lower earnings forecast Lower sites and tenants addition assumptions Price Relative Forecasts and Valuation FY Dec (Rp m) 2015A 2016F 2017F 2018F Revenue 3,421 3,655 4,125 4,688 EBITDA 2,911 3,114 3,514 3,993 Pre-tax Profit 1, ,219 1,617 Net Profit 1, ,127 Net Pft (Pre Ex.) 1, ,127 Net Pft Gth (Pre-ex) (%) (80.0) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) 277 (80) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): (42) (12) (10) Consensus EPS (Rp): Other Broker Recs: B: 7 S: 4 H: 10 Source of all data on this page: Company, DBS Vickers, DBS Bank, Bloomberg Finance L.P Current valuation unjustified by mild growth outlook Maintain HOLD and reduce TP to Rp5,500. Our lower TP reflects the slower earnings growth outlook on the back of TBIG's softer sites and tenants growth outlook. We also assume a lower sites and tenant's addition of 2,000 sites and 3,200 tenants, respectively, for this year which still reflect a tower site tenancy ratio of 1.6x. This is due to the still slow new tower rollout from TBIG's major tenants, i.e. Indosat and XL with both telcos still in network consolidation mode. Stretched balance sheet could hinder its expansion. Its gross debt annualised EBITDA reached 5.0x in 3Q16, close to its debt covenant of 6.25x. In our view, this could limit TBIG s ability to clinch one-off M&A transaction opportunities or even a big order from its clients, as TBIG needs to keep an eye on its capital structure to stick to its commitment to reward shareholders via dividends. Valuation is still premium at TOWR despite the share price drop. We think the share price drop has priced in TBIG's softer site and tenant addition going forward. However, TBIG s valuation is still steeper than TOWR s, though the premium has narrowed to 10% vs. the 3-year historical average of 20%. Valuation: Our target price of Rp5,500 is based on DCF valuation (WACC 9.2%, terminal growth 4%) and implies an FY16F EBITDA of 13.0x. Key Risks to Our View: TBIG's deleveraging process. If its deleveraging initiatives or its existing sites and tower additions fail to generate meaningful cash flow to repay its debt, TBIG's growth could come in below our and consensus expectations. Rental rate pressure and tenancy risk. A change in the industry s competitive landscape and shift in bargaining power towards telecommunication operators could pressure rental rates. At A Glance Issued Capital (m shrs) 4,531 Mkt. Cap (Rpbn/US$m) 24,356 / 1,830 Major Shareholders (%) Wahana Anugrah Sejahtera 22.4 Provident Capital Indonesia 22.2 TB 6.1 Free Float (%) m Avg. Daily Val (US$m) 1.1 ICB Industry : Technology / Technology Hardware & Equipment ed: CK / sa: MA, PY

2 WHAT S NEW TBIG needs to trade at lower multiple for a rating upgrade Maintain HOLD and reduce TP to Rp5,500. Our lower TP reflects the slower earnings growth outlook on the back of TBIG's softer sites and tenants growth outlook. Moreover, TBIG s valuation is still steeper than TOWR s, though the premium has narrowed to 10% vs. the 3-year historical average of 20%, even after the recent share price correction. Given both players have a pretty similar growth outlook; we believe that TOWR is a more attractive investment proposition vs. TBIG at this point. We also assume a lower sites and tenant's addition of 2,000 sites and 3,200 tenants, respectively, for this year which still reflect a tower site tenancy ratio of 1.6x. This is due to the still slow new tower rollout from TBIG's major tenants, i.e. Indosat and XL with both telcos still in network consolidation mode. Our lower earnings forecast reflect the soft sites and tenants addition going forward, at 1,500-2,000 sites and tenants addition on average, vs. TBIG's historical addition level of 2,000-3,000 sites per annum. Our softer operational performance outlook reflect the softer BTS rollout from TBIG s second- and third-largest tenants XL and Indosat amid network consolidation. We assume TBIG's rental rate will remain stable at Rp11-12m per month, as TBIG's rental rate is based on the long-term lease scheme of 10 years with the operators. Coupled with stable operational cost like site maintenance, we believe TBIG's profitability outlook will be stable going forward and its EBITDA margin of 80% will sustain as well. Stretched balance sheet could hinder its expansion. Its gross debt annualized EBITDA reached 5.0x in 3Q16, close to its debt covenant of 6.25x. In our view, this could limit TBIG s ability to clinch one-off M&A transaction opportunities or even a big order from its clients, as TBIG needs to keep an eye on its capital structure to stick to its commitment to reward shareholders via dividends. TBIG s high gearing ratio also will limit its tower and sites tenant's growth going forward. With its current leverage level, we believe that TBIG is unable to take on a tower addition transaction of 2,500 as evidenced by TOWR and XL s tower transaction last year, where TOWR sweetened the deal by paying cash to XL. Earnings revision summary 2016F 2017F 2018F Old New Changes Old New Changes Old New Changes Revenue (US$mn) 3,955 3,655-8% 4,615 4,125-11% 5,078 4,688-8% Gross profit (US$mn) 3,173 2,893-9% 3,840 3,422-11% 4,293 3,954-8% EBITDA (US$mn) 3,370 3,114-8% 3,931 3,514-11% 4,325 3,993-8% Net profit (US$mn) % % 1,253 1,127-10% Sites 14,825 13,000-12% 16,325 15,000-8% 17,750 16,900-5% Tenants 24,165 20,800-14% 26,120 24,000-8% 29,288 27,040-8% Tenancy ratio (x) % % % Source : Company, DBS Vickers, DBS Bank Page 2

3 CRITICAL DATA POINTS TO WATCH Tower sites Earnings Drivers: Double-digit EBITDA growth. We forecast EBITDA to grow by a 13.2% CAGR over FY16-18, driven by solid profitability and site expansion. Our assumption only accounts for organic growth (built-to-suit). EBITDA margin will remain above 80%. Stable rental rate and tenancy ratio also means TBIG's EBITDA margin will be sustainable at the c.80% level, the highest among regional peers. Almost all operational costs are passed through to the operators and the tower-co will only bear the tower maintenance costs. Double-digit tower site and tenant growth. TBIG plans to grow its tower sites and tenant base by 13.1% and 14.0% CAGR respectively over FY16F-18F, by leveraging on the tower outsourcing trend. Telkomsel, which accounts for 39% of TBIG s total revenue, will remain the key tenant growth driver and keep TBIG's tenancy ratio stable at 1.6x despite the doubledigit growth in tower sites over the next three years. DAS & shelter only sites Tower tenants Stable rental rate outlook. We expect tower-co's monthly rental rate, including TBIG s, to be stable at Rp12m per tower. We believe the current rental rate is a win-win situation for both tower-cos and operators, and hence, there will not be rental pressure ahead. Long-term lease contracts provide visible earnings and cash flows. Operators are locked in under 10-years lease contracts with fixed terms until expiry. The long-term contract benefit creates visible earnings and cash flows, and the nature of the business also allows tower-cos to leverage up with competitive external financing to gain business scale. Tower acquisition. Given operators' stretched cash flows amid tight competition and the urgency to deleverage balance sheets, they will continue to divest non-core assets, mainly tower assets. This will benefit tower-co as it would boost tower ownership and EBITDA simultaneously, and in turn, drive up the share price. This was what happened after Indosat acquired 2,500 towers back to 2012, and after the announcement of the ongoing Mitratel transaction. The next tower tender will probably come from Indosat (ISAT IJ, BUY). Tower tenancy ratio Capex (Rp tn) Source: Company, DBS Vickers, DBS Bank Page 3

4 Balance Sheet: Leveraged balance sheet. Given its stable and visible cash flow business model, TBIG is able to leverage its balance sheet to gain business scale. Net debt-to-ebitda ratio is 6.25x as the debt covenants are based on rolling EBITDA every time TBIG generates US$1 EBITDA, it is allowed to raise another US$1 from the creditors. Steady capital expenditure outlook. TBIG s capex will reach around Rp2tr per year in FY16-17, in line with average annual addition of 2,000 towers. We assume each tower infrastructure requires Rp1bn of investment. Leverage & Asset Turnover (x) Capital Expenditure Share Price Drivers: Share trading at 12.3x EV/EBITDA. Tower Bersama is trading at double-digit EV/EBITDA multiple, but that is justified by its stable business and cash flows, and strong earnings visibility. TBIG is trading at around 20% premium to TOWR, thanks to its higher stock trading volume liquidity. Key Risks: Tenancy risk. If tower-co fails to find additional tenants for the newly acquired/built towers, this would result in a drop in tenancy and profitability. ROE (%) Rental rate pressure. Change in industry's competitive landscape and bargaining power with telcos, potentially leading to rental rate pressure. Weak rupiah vs USD. High USD-denominated debt may hit earnings if the Indonesian currency depreciates. Operators' network expansion slowdown. Slower network expansion means slower BTS roll-outs, which would hurt tower-cos' site expansion outlook. Forward PE Band (x) Company Background PT Tbk provides telecommunication infrastructure services to Indonesian wireless carriers. The company develops and operates telecommunication-supporting infrastructure including towers and in-building systems across Indonesia. PB Band (x) Source: Company, DBS Vickers, DBS Bank Page 4

5 Key Assumptions FY Dec 2014A 2015A 2016F 2017F 2018F Tower sites 10,825 11,389 13,000 15,000 16,900 DAS & shelter only sites 993 1,040 1,090 1,141 1,196 Tower tenants 18,081 18,796 20,800 24,000 27,040 Tower tenancy ratio Capex (Rp tn) Segmental Breakdown FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (Rpbn) Tower revenue 3,267 3,399 3,540 4,005 4,563 Shelter-only & DAS Total 3,307 3,421 3,655 4,125 4,688 (Rpbn) Income Statement (Rpbn) FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 3,307 3,421 3,655 4,125 4,688 Cost of Goods Sold (510) (449) (762) (702) (734) Gross Profit 2,797 2,972 2,893 3,423 3,954 Other Opng (Exp)/Inc (292) (311) (292) (330) (375) Operating Profit 2,505 2,661 2,601 3,093 3,579 Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (1,404) (1,600) (2,028) (1,873) (1,962) Exceptional Gain/(Loss) Pre-tax Profit 1,431 1, ,219 1,617 Tax (689) 356 (260) (309) (358) Minority Interest (40.8) (15.1) (32.9) (95.5) (132) Preference Dividend Net Profit 701 1, ,127 Net Profit before Except , ,127 EBITDA 2,718 2,911 3,114 3,514 3,993 Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) (2.3) Net Profit Gth (Pre-ex) (%) (70.6) (80.0) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Source: Company, DBS Vickers, DBS Bank Page 5

6 Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue Cost of Goods Sold (131) (108) (102) (102) (106) Gross Profit Other Oper. (Exp)/Inc (83.7) (73.6) (73.9) (78.0) (79.8) Operating Profit Other Non Opg (Exp)/Inc 147 (19.9) (267) Associates & JV Inc Net Interest (Exp)/Inc (466) (476) (410) (463) (385) Exceptional Gain/(Loss) 0.0 (54.5) (101) Pre-tax Profit Tax (90.7) (215) (235) Minority Interest (19.4) 31.7 (2.4) (7.3) 0.70 Net Profit Net profit bef Except (131) EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) (1.3) Net Profit Gth (Pre-ex) (%) (24.9) (90.5) nm Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (Rpbn) FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets ,664 3,424 5,119 Invts in Associates & JVs Other LT Assets 17,847 19,660 19,660 19,660 19,660 Cash & ST Invts , Inventory Debtors ,051 Other Current Assets 1,511 1,309 1,309 1,309 1,309 Total Assets 21,629 22,800 29,501 26,224 27,798 ST Debt 7, ,131 9,389 9,604 Creditor Other Current Liab 1,635 1,472 1,550 1,599 1,648 LT Debt 8,748 18,033 21,583 11,234 11,491 Other LT Liabilities 1,653 1,262 1,262 1,262 1,262 Shareholder s Equity 2,076 1,530 1,754 2,406 3,307 Minority Interests Total Cap. & Liab. 21,629 22,800 29,501 26,224 27,798 Non-Cash Wkg. Capital ,119 Net Cash/(Debt) (15,157) (17,986) (19,110) (20,219) (21,007) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) Source: Company, DBS Vickers, DBS Bank Page 6

7 Cash Flow Statement (Rpbn) FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 1,431 1, ,219 1,617 Dep. & Amort Tax Paid (122) (187) (182) (260) (309) Assoc. & JV Inc/(loss) Chg in Wkg.Cap. (515) (45.1) (330) (146) (175) Other Operating CF Net Operating CF 1,006 1, ,235 1,548 Capital Exp.(net) (2,335) (2,003) (1,644) (2,181) (2,110) Other Invts.(net) (1,415) Invts in Assoc. & JV 0.0 (1.0) Div from Assoc & JV Other Investing CF Net Investing CF (3,750) (2,003) (1,644) (2,181) (2,110) Div Paid (288) (286) (56.0) (163) (225) Chg in Gross Debt 3,078 (477) 6,431 (4,090) 471 Capital Issues Other Financing CF Net Financing CF 2,791 (302) 6,375 (4,253) 246 Currency Adjustments Chg in Cash 46.6 (604) 5,308 (5,199) (317) Opg CFPS (Rp) Free CFPS (Rp) (277) (63.0) (223) (209) (124) Source: Company, DBS Vickers, DBS Bank Target Price & Ratings History Source: DBS Vickers, DBS Bank Analyst: William Simadiputra Sachin MITTAL Page 7

8 DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 13 Feb :50:49 (WIB) Dissemination Date: 13 Feb :55:37 (WIB) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. 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