The additional 6,410 towers obtained by TOWR after acquiring SUPR increased the number of its telecommunication towers to 27,985, closing its gap with Mitratel in the race for the leader in the telecommunication tower industry in Indonesia. The valuation of the acquisition is estimated at 10x-15x EV/EBITDA. After the acquisition, TOWR’s EBITDA is projected to reach IDR 8.54 trillion, up +26.1%, with an EV/EBITDA ratio of 12.7x-13.6x. We reiterate our BUY recommendation with a TP of IDR 1,600, reflecting 13.9x FY22F EV/EBITDA.
Acquisition of a 90% stake in PT Solusi Tunas Pratama Tbk. Protelindo, a subsidiary of TOWR, has acquired at least 90% of PT Solusi Tunas Pratama Tbk (SUPR) shares, although there is no information regarding the price. SUPR owns 6,410 towers with 12,417 tenants (tenancy ratio: 1.94x), and the majority (63%) of those towers are located in Java. In addition, it also operates an 8,053 km fiber-optic network and 38 indoor Distributed Antenna Systems (DAS). SUPR’s largest customer is XL-Axiata which reached 32.9%, followed by Hutchison 3 (19.3%) and Telkomsel (20.5%). SUPR is a financially healthy company, with a DER of 1.9x and annualized net debt/EBITDA ratio of 4.0x in 1H21.
Acquisition valuation at 10x-15x EV/EBITDA. After the government opens the doors for foreign companies to enter the Indonesian telecommunication tower business through the Omnibus Law, TOWR must compete fiercely to acquire SUPR. Based on the valuation of similar transactions that occurred in the past (the acquisition of CENT by Edge Point was made at ~13x EV/EBITDA), we estimate that the acquisition of SUPR was made at 10x-15x EV/EBITDA, meaning that TOWR spent USD 1.1 billion – USD 1.7 billion (IDR 16.5 trillion – IDR 24.7 trillion) on the acquisition.
A close race with Mitratel. With the addition of 6,410 towers from SUPR, TOWR now owns 27,985 towers with a tenancy ratio of 1.89x. This figure is quite close to Mitratel, which has ~28,000 towers (tenancy ratio ~1.5x). After the acquisition, TOWR’s EBITDA is projected to reach IDR 8.54 trillion (+26.1%), with an EV/EBITDA ratio of 12.7x-13.6x. If we assume that all of the funds for the acquisition came from debt, then its net debt/EBITDA TOWR ratio will increase from 2.4x to 4.6x-5.5x, indicating adequate financial condition.
Valuation: BUY, with TP at IDR 1,600 (13.9x FY22F EV/EBITDA). We consider the acquisition as a good thing for TOWR, since we believe that SUPR can renew its contracts with tenants, most of which will expire in the next 4-5 years. We reiterate our BUY recommendation for TOWR with a TP of IDR 1,600, reflecting 13.9x EV/EBITDA or 40% discount from the average FY22F EV/EBITDA of global tower industry. Downside risks: Lower demand for towers, lower rates, and changes in government policies.