telco - tower indonesia april 21, 2014 apr-13 jul-13 oct...

Telco - Tower│Indonesia

April 21, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

SUPeR growth We expect Solusi Tunas Prama (SUPR), an independent tower operator (ITO), to grow faster than its larger peers on the back of its smaller base and strong demand from XL and Telkomsel. SUPR differentiates its offerings with micro-cell poles and fibre-optic connectivity.

We initiate coverage of SUPR with an Add rating and a DCF-based (WACC 11.5%) target price of Rp10,200. We expect SUPR's 24% EV/EBITDA discount to the average for TBIG and TOWR to narrow given its higher growth profile and continuous improvement in the quality of revenue. A potential re-rating catalyst is its continued strong growth.

High growth The ITO industry enjoys higher growth and yet, has lower risks than the telecom industry. Within this industry, SUPR offers higher growth than its larger peers, TBIG and TOWR, with revenue and EBITDA estimated to surge at a CAGR of 30% over the next three years. This is on the back of its smaller base and strong demand from XL and Telkomsel this year. We expect SUPR to add about 1.6k tenants/year in FY14-16 compared with 1.5k and 1.6k in the past two years.

Resilient industry Despite concerns over pricing pressure in the tower space, we expect lease rates to remain resilient because the share of towers owned by

the big four ITO has risen from about 55% two years ago to 85%. This gives the industry much better pricing power. Also, we expect the mobile operators to continue relying on ITOs for their tower requirements in the coming years given their stretched balance sheets. We forecast demand for independently-owned tower spaces to more than double over the next three years.

Improving revenue quality SUPR’s revenue contribution from tier-1 telcos will jump from 29% in 4Q12 to over 63% in 1Q14, with XL acquiring Axis and XL rapidly awarding contracts to SUPR. Telkomsel, which continues to expand its network aggressively, should contribute strongly to SUPR.

High exposure to BTEL Bakrie Telecom (BTEL), an ailing telco, contributed 17% of SUPR’s 4Q13 revenue. This figure has fallen from 47% in 4Q11 as the tower company expanded its revenue from other telcos. We project revenue from BTEL to fall to 9% of revenue by 2016.

Solusi Tunas Pratama COMPANY NOTE SUPR IJ / SUPR.JK Current Rp8,350

Market Cap Avg Daily Turnover Free Float Target Rp10,200

US$580.6m US$0.01m 21.0% Prev. Target N/A

Rp6,632,782m Rp101.0m 794.3 m shares Up/Downside 22.2% Conviction| |

Sources: CIMB. COMPANY REPORTS

Notes from the Field

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Kelvin GOH, CFA T (60) 3 2261 9099 E [email protected]

Company Visit Expert Opinion

Channel Check Customer Views

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‘‘‘‘ Data traffic is expected to grow by 50% per year for the next five years, fostering nationwide 3G deployment. This will drive an increase in tenancy ratios and new infill requirements in Java, and in some new sites outside of Java, provided they can be economically deployed to justify this expansion.

– AT Kearney

on the Indonesian telecom tower industry

89

111

133

156

178

4,600

5,600

6,600

7,600

8,600

Price Close Relative to JCI (RHS)

Source: Bloomberg

100

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300

400

Apr-13 Jul-13 Oct-13 Jan-14

Vo

l th

EFAPChartPriceVolRelDaily|

Financial Summary

Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F

Revenue (Rpb) 529 840 1,146 1,497 1,823

Operating EBITDA (Rpb) 442 693 951 1,242 1,513

Operating EBITDA Margin 83.5% 82.5% 83.0% 83.0% 83.0%

Net Profit (Rpb) 175.7 197.6 435.9 568.8 718.9

Core EPS (Rp) 206.8 297.5 405.9 515.0 642.0

Core EPS Growth 78.1% 43.8% 36.5% 26.9% 24.7%

FD Core P/E (x) 40.37 28.07 20.57 16.21 13.01

DPS (Rp) - - - - -

Dividend Yield 0% 0% 0% 0% 0%

EV/EBITDA (x) 15.15 13.41 11.29 9.57 8.45

P/FCFE (x) NA 23.77 34.74 16.42 8.43

Net Gearing 65% 127% 151% 159% 153%

ROE 10.6% 11.3% 12.8% 13.6% 13.9%

% Change In Core EPS Estimates

CIMB/consensus EPS (x)

8,350

10,200

5,000 8,850

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS

http://www.efasoftware.com/

Solusi Tunas Pratama

April 21, 2014

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PEER COMPARISON

Research Coverage

Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside

Bharti Infratel Ltd BHIN IN IN ADD 6,115 195.2 201.0 3.0%

Solusi Tunas Pratama SUPR IJ ID ADD 581 8,350 10,200 22.2%

Tower Bersama Infrastructure TBIG IJ ID HOLD 2,677 6,375 6,300 -1.2%

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Rolling P/BV (x)

Bharti Infratel Ltd Solusi Tunas Pratama Tower Bersama Infrastructure

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Rolling FD P/E (x)

Bharti Infratel Ltd Solusi Tunas Pratama Tower Bersama Infrastructure

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Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Peer Aggregate: P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-80%

-63%

-45%

-28%

-10%

8%

25%

43%

60%

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Peer Aggregate: FD P/E vs FD EPS Growth

FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs)

Valuation

FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)

Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15

Bharti Infratel Ltd 27.36 23.73 20.44 2.10 2.07 2.03 7.95 7.09 6.38

Solusi Tunas Pratama 28.07 20.57 16.21 2.89 2.43 2.01 13.41 11.29 9.57

Tower Bersama Infrastructure 27.57 20.40 15.88 5.45 3.96 2.95 18.52 15.06 12.64

Growth and Returns

FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield

Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15

Bharti Infratel Ltd 43.2% 15.3% 16.1% 7.9% 8.8% 10.0% 2.69% 2.89% 3.34%

Solusi Tunas Pratama 43.8% 36.5% 26.9% 11.3% 12.8% 13.6% 0.00% 0.00% 0.00%

Tower Bersama Infrastructure 59.0% 35.1% 28.4% 23.1% 22.5% 21.3% 0.00% 0.00% 0.00%


Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends. NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.


April 21, 2014

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Strong growth driven by

demand from Telkomsel and

XL

Expect capex of Rp1.5tr p.a.

Share price info

Share px perf. (%) 1M 3M 12M

Relative -3.3 12.5 65.2

Absolute -2.9 22.8 65.3

Major shareholders % held

PT Kharisma Indah Ekaprima 53.6

Cahaya Anugrah Nusantara Holdings

25.5

0.00%

2.29%

4.57%

6.86%

9.14%

11.43%

13.71%

16.00%

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1.50

2.00

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3.50


P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-40%

-10%

20%

50%

80%

110%

140%

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FD Core P/E vs FD Core EPS Growth

Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs)

Profit & Loss

(Rpb) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F

Total Net Revenues 529 840 1,146 1,497 1,823

Gross Profit 477 752 1,029 1,344 1,637

Operating EBITDA 442 693 951 1,242 1,513

Depreciation And Amortisation (88) (111) (135) (142) (158)

Operating EBIT 354 582 816 1,100 1,355

Financial Income/(Expense) (164) (273) (386) (554) (675)

Pretax Income/(Loss) from Assoc. 0 0 0 0 0

Non-Operating Income/(Expense) 0 0 0 0 0

Profit Before Tax (pre-EI) 190 309 430 545 680

Exceptional Items 51 (41) 151 213 279

Pre-tax Profit 241 268 581 758 959

Taxation (65) (71) (145) (190) (240)

Exceptional Income - post-tax

Profit After Tax 176 198 436 569 719

Minority Interests (0) (0) 0 0 0

Preferred Dividends

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Net Profit 176 198 436 569 719

Recurring Net Profit 138 227 322 409 510

Fully Diluted Recurring Net Profit 138 227 322 409 510

Cash Flow


EBITDA 442 693 951 1,242 1,513

Cash Flow from Invt. & Assoc.

Change In Working Capital (143) 110 (79) (93) (87)

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense (12) (320) 386 554 675

Other Operating Cashflow

Net Interest (Paid)/Received (164) (273) (386) (554) (675)

Tax Paid (15) (24) (57) (71) (88)

Cashflow From Operations 108 186 816 1,078 1,338

Capex (582) (1,593) (1,625) (1,674) (1,551)

Disposals Of FAs/subsidiaries

Acq. Of Subsidiaries/investments

Other Investing Cashflow 15 (161) 0 0 0

Cash Flow From Investing (567) (1,753) (1,625) (1,674) (1,551)

Debt Raised/(repaid) (61) 1,836 1,000 1,000 1,000

Proceeds From Issue Of Shares 648 285 0 0 0

Shares Repurchased

Dividends Paid 0 0 0 0 0

Preferred Dividends

Other Financing Cashflow (244) (291) (386) (554) (675)

Cash Flow From Financing 343 1,830 614 446 325

Total Cash Generated (116) 262 (195) (150) 111

Free Cashflow To Equity (520) 269 191 404 787

Free Cashflow To Firm (285) (1,282) (402) (28) 469

BY THE NUMBERS



April 21, 2014

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Expect SUPR to fund its

growth largely with debt

Balance Sheet


Total Cash And Equivalents 263 525 330 179 290

Total Debtors 305 194 267 349 424

Inventories 40 51 63 82 100

Total Other Current Assets 308 599 599 599 599

Total Current Assets 917 1,369 1,259 1,209 1,414

Fixed Assets 2,590 4,129 5,770 7,515 9,187

Total Investments 0 0 0 0 0

Intangible Assets 134 129 129 129 129

Total Other Non-Current Assets 241 683 683 683 683

Total Non-current Assets 2,965 4,941 6,582 8,327 9,999

Short-term Debt 254 308 308 308 308

Current Portion of Long-Term Debt

Total Creditors 9 18 24 31 38

Other Current Liabilities 481 236 236 236 236

Total Current Liabilities 744 562 568 575 582

Total Long-term Debt 1,119 3,128 4,128 5,128 6,128

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 298 329 417 536 687

Total Non-current Liabilities 1,418 3,456 4,545 5,663 6,815

Total Provisions 0 0 0 0 0

Total Liabilities 2,161 4,019 5,113 6,239 7,397

Shareholders' Equity 1,720 2,292 2,728 3,297 4,016

Minority Interests 0 0 0 0 0

Total Equity 1,721 2,292 2,728 3,297 4,016

Key Drivers


Anchor Tenants 1,946 2,798 3,798 4,798 5,698

Collocation Tenants 1,213 1,910 2,510 3,110 3,650

No. Of Towers 1,946 2,798 3,798 4,798 5,698

Anchor Lease Rate Per Year (US$000) 17.6 17.6 17.6 17.6 17.6

Collocation Lease Rate Per Year (US$000) 17.6 17.6 17.6 17.6 17.6

Tenancy Ratio (x) 1.62 1.68 1.66 1.65 1.64

BY THE NUMBERS

Key Ratios


Revenue Growth 60.0% 58.7% 36.4% 30.6% 21.8%

Operating EBITDA Growth 58.8% 56.8% 37.2% 30.6% 21.8%

Operating EBITDA Margin 83.5% 82.5% 83.0% 83.0% 83.0%

Net Cash Per Share (Rp) (1,510) (3,665) (5,170) (6,619) (7,738)

BVPS (Rp) 2,341 2,886 3,435 4,151 5,056

Gross Interest Cover 2.03 2.04 2.00 1.94 1.99

Effective Tax Rate 27.1% 26.3% 25.0% 25.0% 25.0%

Net Dividend Payout Ratio NA NA NA NA NA

Accounts Receivables Days 174.9 108.4 73.4 75.1 77.6

Inventory Days 203.6 188.2 177.8 173.1 179.0

Accounts Payables Days 118.4 55.2 65.6 66.2 68.5

ROIC (%) 15.9% 18.6% 14.8% 15.2% 14.9%

ROCE (%) 13.4% 13.5% 13.0% 14.0% 14.2%



April 21, 2014

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SUPeR growth 1. COMPANY BACKGROUND

1.1 Company structure

PT Solusi Tunas Pratama (SUPR) was established in 2006 and began commercial operations in 2008. It is the third largest independent tower company (ITO) for mobile operators. As an ITO, SUPR supports its customers’ requirements for network expansion and enhances their network coverage and capacity in both build-to-suit towers and collocation schemes where tenants share the same tower.

The major shareholders of the company are PT Kharisma Indah Ekaprima and Cahaya Anugrah Nusantara Holdings (Figure 1). The companies making up the SUPR Group are PT Sarana Inti Persada, which operates and leases towers, PT Platinum Teknologi and PT Gema Dwimitra Persada, which are holding companies, PT BIT Teknologi Nusantara, which leases towers and network services and Pratama Agung, which is an investment holding company.

Figure 1: Shareholding and organisational structure

Public

53.55% 25.5% 20.95%


100% 100% 100%

Sarana Inti Persada PT Platinum Teknologi Pratama Agung Pte Ltd

100%

PT Gema Dwimitra Persada

100%

PT BIT Teknology Nusantara

Cahaya Anugerah Nusantara

Holdings

PT Kharisma Indah

Ekaprima

SOURCE: CIMB RESEARCH, COMPANY

1.2 Assets and businesses

Tower rental comprises 93% of SUPR’s revenue, with the rental of micro-cell poles, DAS and fibre-optic network making up the balance.

Towers, shelters and DAS. SUPR has 2,798 towers, 536 shelters and 14 distributed antenna system (DAS). The group’s towers are primarily located in Jakarta, Java, Bali and Nusa Tenggara, as illustrated in Figure 2 below. SUPR focuses on acquiring and building towers in the Greater Jakarta area and Java where the population density is highest, instead of having assets spread out nationwide. Apart from reducing operating cost by keeping its assets in a concentrated area, SUPR believes that traffic growth will be highest in these regions.

It recently ventured into leasing spaces in commercial buildings and offices to install a DAS network of antennas. These DAS units, which are placed throughout buildings, are leased to telcos to provide indoor coverage. SUPR

Table of Contents

1. COMPANY BACKGROUND p.5

2. INDUSTRY BACKGROUND p. 9

3. OUTLOOK p.11

4. SUPR VS TBIG VS TOWR p.14

5. RISKS AND CHALLENGES p.16

6. FINANCIALS p.17

7. VALUATION AND RECOMMENDATION p.19

‘‘‘‘ …the tower sharing business model has asserted its value proposition in the delivery chain of telecommunications, even in the emerging markets.

– KPMG


April 21, 2014

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differentiates itself from other tower companies by providing fibre-optic linkages for its DAS units.

Figure 2: SUPR’s towers are predominantly located on Java island


Micro-cell poles. SUPR is one of three companies that leases out space on micro cell poles to mobile carriers looking to roll out 3G and LTE services in Jakarta, as it is one of 3 companies in Jakarta which has been awarded a 20 year contract by the local government, that allows it to do so. The government awarded the right of use for the government owned assets (eg, roads/sidewalks on which micro cell poles might be located) in exchange for fiber connection into government offices or spaces. The poles range from 12-15m in height vs 20-60m for regular towers (Figures 4 and 5). SUPR links these poles with fibre optic connectivity to add value to its proposition and differentiate itself.

Fibre-optic connectivity. Apart from telecom towers, SUPR also owns over 2,000km of land and submarine fibre-optic cables linking key cities in Indonesia and from Batam to Singapore. It has over 1,000km of fibre-optic cables in Greater Jakarta. This is illustrated in Figure 3 below.


April 21, 2014

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Figure 3: SUPR’s land and submarine fibre assets


Figure 4: A four-legged telecom tower Figure 5: A micro-cell pole Figure 6: A distributed antenna system

unit (DAS)

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

SUPR’s tier-1 revenue contribution is rising. SUPR’s revenue contribution from tier-1 carriers has increased rapidly over the last few years, as illustrated in Figure 7. In our view, this has largely been driven by contribution from XL Axiata (Figure 8), which has mainly been through SUPR’s acquisition of tower portfolios from ITOs. Revenue from tier-1 operators received another boost when XL completed the acquisition of Axis, which contributed 12.7% of SUPR’s 4Q13 revenue. Tier-1 operators now make up 63% of SUPR’s revenue. Combined with Axis, XL is now the largest revenue contributor to SUPR, at 35.2%.


April 21, 2014

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Figure 7: SUPR’s revenue contribution from Tier-1 telcos is rapidly rising

Figure 8: XL Axiata has emerged as the largest customer for SUPR

Title:

Source:

Please fill in the values above to have them entered in your report

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Bakrie Tel Axis XL Axiata Telkomsel Tellkom Indo

Hutchison First Media Indosat Smartfren Others


1.3 Company management

Figure 9: SUPR’s towers are predominantly located on Java island

Nobel Tanihaha

Chief Executive Officer

President Director

Juliawati Gunawan

Chief Financial Officer

Eko Abdurrahman Saleh

Operations Director

Yan Heryana

Marketing Director

After obtaining his Bachelor of Science degree from the University of Southern California in 1996, he started his career as Director of Vikay

Group in Singapore, Hongkong and China. He was also a Director of PT Sekawan Abadi Prima, and President Director of PT Jaring Lintas

Indonesia.

She was Manager of Prasetio, Utomo & Co from 1992 to 2003 and Head of Finance and Accounting of PT Solusi Tunas Pratama from 2009

to June 2011. She holds a Bachelor of Economics in Management from Universitas Tarumanagara in 1993.

He begun his career in marketing and program development at PT Indosat Mega Media (2005-2007), then as Senior Account Manager of XL

Axiata's Tower Business Unit, and as Head of Operational Department of PT Solusi Tunas Pratama Tbk. He has a degree in economics,

majoring in management from the University of Padjajaran in 2004.

Obtained his degree in Electro Telecommunications from the Institut Teknologi Nasional Bandung in 2001. He began his career in PT Harrif

Daya Tunggal engineering with the latest position as General Manager of Marketing and Sales (2004-2007), Vice President of Marketing and

Sales of PT Harrif Daya Tunggal Engineering (2009-May 2012).


1.4 Commissioners

The company has a five-member Board of Commissioners, with three of them being independent commissioners.


April 21, 2014

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2. INDUSTRY BACKGROUND

Indonesia has a large and vibrant independent tower company (ITC) industry. While no official numbers exist, we estimate that there are 70-80 ITCs owning about 30k towers or 43% of the total number of towers in the country. The rest are owned or controlled by telcos.

There are five publicly-listed ITCs: Sarana Menara Nusantara (TOWR), which owns 9.7k towers, Tower Bersama Infrastructure Group (TBIG) - 8.9k towers, Solusi Tunas Pratama (SUPR) - about 3.0k towers, Inti Bangun Sejahtera (IBST) - 2k towers, and recently-listed Bali Towerindo Sentra (BALI), with 207 towers.

Higher growth, lower risk than the telco industry. This sector is attractive to investors as ITCs enjoy:

1) high earnings visibility through contracts of 10 or more years with tight exit clauses;

2) very robust growth driven by telcos expanding their network capacity and coverage;

3) high operating leverage from collocations (i.e. when more than one tenant leases a tower); and

4) a higher growth rate than the telecom industry. The three largest tower operators experienced revenue growth of 37-59% vs. 0-9% among the big three mobile carriers in 2013.

In short, the industry enjoys higher growth but has lower risks than the telecom industry.

Figure 10: SWOT analysis

Strengths Opportunities

• Diversity of location by being the third largest independent tower company in

Indonesia

• Telcos are outsourcing their tower requirements to reduce capex and enhance

ROE.

• Financial strength • High potential demand as telcos roll out 3G, 4G, and expand coverage.

• Non-cancellable contracts, over a defined tenure. • Higher demand for towers from telcos expanding capacity and coverage.

• Favourable regulations that mandate/encourage tower sharing. • Potential to provide fixed broadband services to retail and corporate customers in

Greater Jakarta

• Offers fibre optic backhaul to operators which differentiates it from other tower

companies.

• Opportunity to acquire tower and fibre optic assets from small operators.

Weaknesses Threats

• Financial weakness of its customers. 16.7% of 4Q13 revenue from struggling

carrier Bakrie Telecom.

• Single RAN equipment and network/RAN sharing by operators could reduce

demand for tower space.

• Highly capex intensive. • Consolidation among telcos could reduce demand for tower space.

• Price competition from smaller ITOs.

• Higher cost of construction following the fall in the rupiah. SOURCE: CIMB RESEARCH, COMPANY

2.1 A simple business model

Landlords. ITCs such as SUPR are in the business of building and buying towers and leasing space on the towers to telcos. They expand their tower portfolios via build-to-suit expansion or acquire towers from telcos and smaller players. ITCs only construct towers when a lease is secured. ITCs maintain the towers, provide security and ensure that the electricity supply and air-conditioning to cool the equipment are functioning. Additionally, ITCs go through the site development process, obtain approvals from local authorities and communities, deal with security and manage disasters.

The anchor tenant. ITCs will typically scout for an anchor tenant, giving the tenant the choice of location and height on the tower. Once a tenant is secured for a new site, the ITC proceeds to lease the site land for usually 10 years and build the tower, which would take, on an average, seven to eight months to complete. Each tower costs about US$120k to build and can accommodate up


April 21, 2014

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to seven tenants. Typically, anchor tenant leases yield Rp18m per month, giving an 80% EBITDA margin for a period of 10 years.

Subsequent tenants. The lease for the second and subsequent tenants is about US$18k p.a. and it will cost the ITC an additional US$13k-15k to build a separate shelter to house their equipment. Some ITCs give discounts to second tenants because there is little incremental cost to providing the space to subsequent tenants, except for building another shelter. The lease is fixed and the maintenance fee builds in an escalation clause, which is pegged to inflation. Most leases are collected in advance annually while others pay quarterly or monthly, in advance. In the case of SUPR, it does not provide a collocation discount. It collects annually from XL, Telkomsel and Hutchison, and quarterly from Indosat and Axis. It collects quarterly and semi-annually from Bakrie Telecom.

Size matters. The size of an ITC matters to telcos as they prefer to deal with fewer vendors. Hence, ITCs with a large portfolio of towers give telcos greater flexibility.

Highly leveraged. Due to the low-risk nature of their revenue streams, ITCs are able to access cheaper capital, often being able to lever up significantly to 4-5x net debt/latest quarter annualised (LQA) EBITDA. SUPR’s debt covenants allow it to lever up to 4x net debt/LQA EBITDA. This is substantially higher than the 1.5-2x for the telcos.

Independent tower companies. ITCs do not compete with mobile operators and are solely in the business of building, leasing and maintaining towers as well as supplying electricity for their customers’ equipment. Telcos tend to avoid leasing towers from their rivals as they may lose their strategic edge. Usually, a telco's expansion or build-out in a certain geographical area can be linked to its upcoming focus areas. With ITCs, telcos are able to expand network coverage and capacity by mounting equipment on towers belonging to a neutral third party without giving away their strategic intentions to their competitors.

In SUPR’s case, it is also expanding into the provision of fibre-optic links, a space that telcos operate in. The tower company bundles fibre-optic leases with micro-poles as a value-added service, in addition to its trunk and submarine fibre-cable linkages. While this may seem to compete with some telcos, it also helps to lower capex and increase the speed-to-market of telcos that do not have the fibre infrastructure, in our view.

2.2 Collocation is key

ITCs can improve their operating leverage when they add tenants to their existing towers vs. building new towers. For example, the incremental margin on additional tenants is higher than the 80-85% for the anchor tenant. This is largely due to the relatively fixed nature of tower operating costs such as depreciation, rentals and security. On average, the payback period per tower is six to seven years with just one anchor tenant but by collocating, ITCs can halve their payback periods. Also, telcos can improve their quality of service from infrastructure sharing. Collocation enables telcos to put together a denser network in highly populated areas where availability of sites is scarce.

2.3 Regulator encourages tower-sharing

Although there are no anti-zoning laws in Indonesia, the Minister of Communication and Information Technology issued Regulation No. 02/PER/M.KOMINFO/3/2008, which requires tower providers and tower managers to share towers. The current law requires that before erecting a new tower, the builder must obtain 100% approval and no-objection certificate from all neighbourhood residents within a "radius equal to the height of the tower".

The Indonesia Investment Coordinating Board (BKPM) has a restriction on foreign ownership of private ITCs in Indonesia and only local shareholders can own 100% of a tower company. However, this rule does not apply to publicly listed ITCs or towers owned by foreign-controlled telcos. This limits competition and supply of new towers, in our view.


April 21, 2014

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2.4 Structural shift towards tower companies

In recent years, there has been a structural shift among telcos to outsource their tower requirements to tower companies. As a result, tenancies of the two largest ITCs have surged at a CAGR of 56% between 2009 and 2013. We believe that the rationale behind the outsourcing of tower requirements to ITCs is as follows:

Capex reduction. The trend to outsource tower requirements to ITCs began after the global financial crisis when financing dried up and capital became very scarce, especially for smaller players. Many of the smaller telcos sold most of their towers in order to deploy scarce capital more efficiently. We gather that leasing with ITCs can substantially reduce capex by as much as 30%. Telcos spend approximately one-to-two thirds of capex on infrastructure, the bulk of which is on towers.

Focus on its core competence. By outsourcing their tower requirements, telcos can focus on marketing, branding, customer service and network planning without being bogged down with sourcing for suitable sites, negotiating with local residents and authorities over the sites, and building towers. With rising rental rates for land and scarcity of suitable land, it is becoming increasingly difficult to build new towers, especially in urban areas. We believe that the task of site maintenance is likely to see telcos approach third parties who have a core competence in these areas.

Increase in speed-to-market. Specialising in tower building and understanding of local and regional government regulations, ITCs are, we believe, able to roll out towers more quickly than a telco. Furthermore, a telco can immediately roll out if a tower is already available.

3. OUTLOOK

3.1 3G rollout fuelling tower demand

The key demand driver for towers is the expansion of 3G networks. The number of base transceiver stations (BTS) to be fulfilled by ITCs will almost double to about 160k over the next three years (Figure 5), (Fig 5 doesn’t relate to this) based on our estimates, driven largely by:

Expanding 3G coverage and capacity. This is to cater to the surging use of data. Assuming that 1) telcos aim to have their 3G networks achieve 60% of the coverage of their 2G networks by 2016, they will require the equivalent of 70% of the existing number of 2G BTS, based on our estimates, and 2) telcos fulfil some of these tower requirements internally, we expect demand for independently-owned tower spaces to more than double over this period, as shown in Figure 11.

2G coverage to expand moderately. A lower growth of 20% in total 2G BTS for the big-3 telcos over the next three years vs. a CAGR of 28% in the last three years. This reflects a shift in capex towards 3G among telcos.

We have not factored 4G into our forecast as it has not been licensed and the licensing process has not started. 4G rollout is a few years away, in our view. The government has not set any timeline for the issuance of 4G/LTE spectrum but we believe that when it does, it is likely to drive network expansion even further. SUPR is well positioned to benefit from this through its fibre network and concentration of towers in Jakarta and Greater Jakarta.


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Figure 11: Estimated demand for tower space

No of towers Towers % of total 2015 Comments

Telkomsel + Telkom 22,581 32.3% 22,581

Indosat 7,700 11.0% 7,700

XL Axiata 9,600 13.7% 9,600

Telco-owned towers 39,881 57.0% 41,896 Assuming none of the telcos sell their towers

Towers % of total

Tower Bersama (TBIG) 9,746 13.9%

Protelindo (TOWR) 8,731 12.5%

Solusi Tunas Pratama (SUPR) 2,798 4.0%

Inti Bangun Sejahtera (IBST) * 1,992 2.8%

Bali Tower (BALI) 207 0.3%

Others (estimated) 6,645 9.5%

Independently-owned towers 30,119 43.0%

Total towers 70,000

*based on FY12 Annual report

No of BTS End-2013 2016 Comments / assumptions

"Big 3" telcos' 2G BTS 77,796 93,355 Assuming 20% growth by 2016

"Big 3" telcos' 3G BTS 24,093 65,349 Assuming 70% of 2G sites

Others* 37,022 64,022 Assuming 2x that of mid-2012

Total 138,911 222,726

Fulfilled by own towers (estimate) 59,822 62,844 Assuming 1.5x of the number of telco-owned towers

Fulfilled by ITOs (estimate) 79,090 159,882

* 2G and 3G for Hutchison, Smartfren, Btel, Flexi, StarOne

More than 2-fold jump in demand for independently-owned tower spaces over the next 3 years

SOURCES: CIMB, COMPANY REPORTS

3.2 XL Axiata and Telkomsel will be key drivers for SUPR

In the next two years, we think that XL and Telkomsel’s network rollout will continue to be key growth drivers for SUPR:

1. XL should roll out a similar number of BTS this year as the 5.5k it added in 2013, in our view. This is despite a lower FY14 capex guidance of Rp7tr vs. Rp9tr in FY13 because much of 2013’s capex will be fulfilled this year. Despite taking over Axis’s spectrum, XL still needs to expand its network capacity to accommodate Axis’s current traffic. After this, Axis’s network will be shut down and its BTS will be redeployed.

2. We believe that Telkomsel will continue to expand aggressively, especially in 3G (Figures 14 and 15) to maintain its lead. 3G BTS have now reached 63% of 2G BTS, a number which we think should exceed 70%, to achieve a footprint of 50-60% of its 2G coverage.

After spending much of its efforts in rolling out 3G in Java in 2013, where it relied mainly on its own towers, Indosat will, in 2014, focus on expanding outside Java where it has fewer towers of its own. However, this may not benefit SUPR significantly from a collocation perspective because SUPR does not have strong coverage outside Java, except in northern Sumatra and parts of Nusa Tenggara. In addition, SUPR intends to focus on Jakarta and Java. 84% of its towers are in Java/Bali.


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Figure 12: Industry capex peaked in 2013

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Figure 13: SUPR’s revenue contribution from telcos

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Rp bn

Note: The spike in Axis's revenue in 4Q12 was due to a one-off event. SOURCES: CIMB, COMPANY REPORTS

Figure 14: 2G BTS Figure 15: 3G BTS

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April 21, 2014

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3.3 DAS, micro-cell and fibre optics

SUPR is looking to DAS to provide indoor coverage for mobile operators. We gather that building owners are demanding high rentals and lease rates are under pressure. TOWR does not have a presence in this space while TBIG is exiting the business, citing rising rental costs from building owners and pricing pressure. SUPR sees DAS as part of its strategy to provide infrastructure for data provision where it believes high-speed wireless data will mainly be consumed indoor.

SUPR is one of three companies that lease out space on micro-cell poles to mobile carriers looking to roll out 3G and LTE services in Jakarta. The other licensed micro-cell pole operators in Jakarta are iForte and PT Citra Sari Makmur.

3.4 Fibre broadband potential

With its 1,045km of fibre optics connecting many of its towers and poles in the Greater Jakarta area, we see the potential for SUPR to provide wholesale fibre capacity to broadband and pay TV operators to reach commercial and residential buildings. We understand that SUPR’s network passes about 6m premises, giving it an addressable market of 6m customers. In our view, its network will compete with Telkom Indonesia which is just kicking off its fibre-to-the-home (FTTH) project, which aims to pass 15m premises by 2015.

3.5 Data will drive traffic growth

With rising income levels, falling smartphone prices and increasing popularity of data usage driven by data messaging and social networking, we expect smartphone penetration to rise from an estimated 18% to 30% by 2015. This is catalysing telcos to expand coverage and capacity, in our opinion, which require more cell sites and tower space.

4. SUPR VS TBIG and TOWR

A distant third. Within the industry, SUPR is a distant third, after TBIG and TOWR, as summarised in Figure 16 below.

Figure 16: SUPR VS TBIG and TOWR

SUPR TBIG TOWR

Year commercial operations commenced 2008 2004 2008

Total sites

Number of towers 2798 8866 9746

DAS 14 228 0

Shelter 536 1040 0

Microcell towers Yes No No

Tower tenancy ratio 1.68 1.73 1.88

Average tenure of outstanding tenancies 6.8 years 7.2 years 7.5 years

Revenue from Big 3 carriers 63% 81% 35-40%*

Revenue from Big 3 + Hutch 74% 92% 70%

Constructs build-to-suit towers Big 3 + Hutch Big 3 Big 3 + Hutch

Growth strategy

Mainly acquisitive

growth

Mainly organic

growth

Mainly acquisitive

growth

Accounting policy

Depreciates towers

EBITDA margin (%) 82.5% 79.6% 82.9%

Core net profit margin (%) 28.3% 47.0% 34.2%

Core ROE (%) 11.9% 32.2% 30.9%

Growth guidance 1,000 towers 3,000 tenants 1,500-2,000 towers

or 36% growth or 18% growth or 15-21% growth

* includes ISAT. TOWR has stopped disclosing customers contributing less than 10% of revenue

Towers are treated as investment

property. Does not depreciate towers



April 21, 2014

15

TBIG has the highest quality customers. At 63%, SUPR has a higher concentration of Tier-1 telcos vs. TOWR’s 35-40%^ but below TBIG’s 81% as shown in Figure 16 above. SUPR’s lower composition of tier-1 customers compared to TBIG stems from SUPR buying 543 and 200 towers from Bakrie Telecom and Hutchison, respectively (both non-tier 1 carriers), which in total comprise 27% of SUPR’s tower portfolio. The higher Tier-1 composition for TBIG reflects its business model of only erecting towers for Tier-1 players.

^ includes our estimate of ISAT’s contribution to TOWR. TOWR has stopped disclosing customers that contribute <10% of its revenue.

Figure 17: SUPR’s revenue breakdown by customers

Figure 18: TBIG’s revenue breakdown by customers

Figure 19: TOWR’s revenue breakdown by customers

Title:

Source:


Bakrie Tel 16.7%

Axis 12.7%

XL Axiata 22.5%

Telkomsel 12.2%

Tellkom Indo 10.8%

Hutchison 11.2%

First Media 4.4%

Indosat 4.9%

Smartfren 3.4%

Others 1.3%

Title:

Source:


Telkom Indo 10.3%

Telkomsel 30.9%

XL Axiata 11.3%

Btel 3.8%

Hutchison 10.4%

Smartfren 2.6%

Indosat 23.3%

Axis 5.5%

Others 1.8%

Title:

Source:


Telkomsel 16.0%

XL Axiata 16.8%

Hutchison 35.8%

Smartfren 9.0%

Others* 22.4%

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS * Include Axis, Bakrie Tel and Indosat


Build-to-suit only for the top 4 telcos. SUPR only constructs build-to-suit towers for the big three telcos (Telkom Indonesia/Telkomsel, Indosat and XL Axiata) and PT Hutchison Indonesia. It avoids doing so for non-Tier-1 telcos to reduce risk, as constructing towers involves a higher level of capital commitment. On the other hand, it constructs build-to-suit towers for Hutchison as it feels comfortable with its credit risk.

Accounting differences. There is a significant accounting difference between the two ITCs. While both STP and TBIG do not depreciate their towers and revalue them through the P&L, TOWR depreciates its towers over 20 years. This makes EV/EBITDA multiple the most suitable valuation metric to compare the three ITCs, in our view.

Margins and ROE. While SUPR has comparable EBITDA margins vs its larger peers, its core net profit margin (which adjusts for the asset revaluation) of 28% is lower than the 34-47% enjoyed by its larger peers. We attribute this to its higher net interest expense as a percentage of revenue and effective tax vs its peers. Because of its lower core net profit margin (which excludes exceptional items), SUPR’s core ROE is lower than its peers.


April 21, 2014

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5. RISKS AND CHALLENGES

5.1 Default risk of smaller telcos

The smaller telcos are significantly smaller than their Tier-1 counterparts, loss-making and likely FCF-negative. This may trigger a consolidation, which is good for ITCs, as the telcos remain going concerns. In the worst case and unlikely scenario, these telcos would fail.

BTEL has the highest credit risk. The highest-risk telco in our view is BTEL, which is a struggling CDMA-based operator. BTEL has been behind in making payments to all ITCs, including SUPR. The telco contributed 16% of SUPR’s 4Q13 revenues and we forecast it to fall to 9% by 2016 (Figure 20), as SUPR grows tenancies from other carriers.

SUPR has Rp250bn or Rp32 per share in receivables from BTEL. In Nov 13, Fitch Ratings and Standard and Poor’s downgraded the foreign and local currency ratings of BTEL to “near-default” and “default”, respectively, for failing to pay a US$21.8m coupon on a loan. Fitch said, “We believe that BTEL is unlikely to be able to source the liquidity needed to pay the coupon within the grace period and that the company will to have to restructure some, or all, of its debt obligations.”

Figure 20: Revenue contribution from BTEL to continue falling as revenues from other telcos rise and BTEL’s tenancies end

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Figure 21: BTEL’s tenancies with SUPR expiring

Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total

# of BTEL tenancies 4 4 10 84 563 44 0 0 2 711 SOURCES: CIMB, COMPANY REPORTS

5.2 Competition

SUPR has two main competitors:

1) Other ITOs. We gather that competition from the smaller ITCs is putting some pressure on prices, especially on collocation. However, larger ITOs are holding their ground on pricing, especially for built-to-suit towers where they have better pricing power because telcos favour dealing with larger ITOs as they have stronger financial resources and better track records. This weeds out the smaller players. In addition, the ITO industry is less fragmented, which gives the larger players better pricing power. The number of towers owned by the three largest ITOs has grown substantially (organically and inorganically) over the years. The number of towers owned by TOWR, TBIG and SUPR has


April 21, 2014

17

doubled from about 11.1k towers in 2011, representing about 55% of total ITOs in Indonesia, to 21.4k towers or an estimated 85% of total ITOs in 2013.

2) Telcos. ITCs face competition from telcos such as Indosat and XL Axiata, which also lease out their towers. However, we think that telco-owned towers do not pose a significant threat to ITCs because they are not seen to be independent and are considered a second-choice option. Telcos risk giving away their strategy by leasing from a competing telco, in our view. Competition is also limited by regulations restricting foreign ownership of private ITCs. Tenancy ratios among the telco-owned towers range from 1.1x to 1.7x, indicating an external tenancy rate of only 0.1-0.7x and much lower demand for their towers than for those of the ITOs.

5.3 Insourcing by telcos

This is a small risk in our view. Both XL and Indosat are saddled with high net debt/EBITDA of 3.5x (estimated proforma post-acquisition of Axis) and 2.4x, respectively. Hence, we expect them to continue outsourcing their tower requirements to reduce capex. Despite its solid finances, Telkomsel continues to outsource its tower requirements and has not flagged any changes to its business model.

5.4 Potential increase in land-lease rates given healthy domestic economic activity

ITCs are exposed to land prices and lease rates, which have increased significantly in recent years. ITCs mostly lease the land on which the towers are built (approximately 10 years).

6. FINANCIALS

6.1 Tenancy is key to ROI improvements

Rapid cash payback. A tower company with just one tenant has a six to seven year payback period. This is based on:

• The upfront outlay for a tower is typically Rp1.3bn (US$110k) for both the land and a 10-year lease of the land which is paid upfront. The gross profit is Rp166m p.a. (US$14k, comprising revenue of Rp203m p.a. (US$17.5k) per anchor tenant and EBITDA margin of 82%).

• The economics of a micro-cell pole is more attractive: capex of Rp700m-840m (US$60-70k) per pole including the cost of fibre optic linkage. However, it enjoys a higher lease of Rp230m p.a. (US$20k) compared to tower rentals.

The payback period is shorter when a collocation tenant comes on board. While collocation gross profits are similar to that of an anchor tenant, the additional capex is Rp150m (US$13k) for each new collocation tenant. Two tenants will halve the payback period, based on our estimates, while three tenants will shorten the payback period by a factor of three.

6.2 Forecast

Demand is expected to rise further. We project SUPR's FY13-FY16 EBITDA to surge at a CAGR of 30%, on the back of similar growth in revenue. This assumes 26% CAGR in tenancies over the same period. We estimate EBITDA margin to remain steady at 82-83%. We expect SUPR to add about 1.6k tenants/year in FY14-FY16 compared with 1.5k and 1.6k in the past two years (Figure 22), driven by demand from XL and Telkomsel. We assume rental rates remain steady at Rp203bn p.a. as the consolidation of ITOs helps increase the pricing power of the ITOs. Our forecast is conservative as we have merged our forecast for towers and micro-cell ples (which command higher rentals) and are not factoring DAS units into our forecast.

We gather that SUPR has an order of 300 built-to-suit towers and 200 collocation tenants. Earlier this year, the company acquired 118 towers from


April 21, 2014

18

Netware Multimedia which has 170 tenancies, bringing year-to-date new tenancies in hand to 678.

Figure 22: Key assumptions for SUPR

FYE Dec (Rp bn) 2012 2013 2014F 2015F 2016F

No of tenants 3,159 4,708 6,308 7,908 9,348

Growth (%) 105.3% 49.0% 34.0% 25.4% 18.2%

Total additions 1,620 1,549 1,600 1,600 1,440

Average anchor lease/year (Rp bn) 203 203 203 203 203

Average collocation lease/year (Rp bn) 203 203 203 203 203

No of towers 1,946 2,798 3,798 4,798 5,698

Tenancy ratio (x) 1.62 1.68 1.66 1.65 1.64 SOURCES: CIMB, COMPANY REPORTS

6.3 Dividends

SUPR does not have a dividend policy. We do not expect the company to pay any dividends in the foreseeable future as it plans to reinvest all its cash to fund its strong growth.

6.4 Gearing, covenants and currency exposure

Financial covenants. SUPR’s net debt/latest annualised quarter (LQA) EBITDA is 3.11, excluding a shareholder loan of Rp471bn. It is acceptable for ITCs to have high gearing levels given their secured cashflows. As such, we believe that their high-gearing capital structure reflects the cashflow profile of the business (high upfront capex, followed by strong recurring FCF generation with little downside risk to earnings and cashflows). SUPR's key debt covenants are:

1. maximum net debt/ LQA EBITDA of 4.0x.

2. SUPR enjoys a lower interest rate if net debt/LQA EBITDA ratio falls below 3.5x and 2.5x, as summarised in Figure 23 below.

Figure 23: SUPR's debt covenants and cost of borrowing

USD Loan IDR Loan

>3.5x 3M LIBOR + 4% 3M JIBOR + 4.5%

2.5x to 3.5x 3M LIBOR + 3.5% 3M JIBOR + 4%

<2.5x 3M LIBOR + 3% 3M JIBOR + 3.5%

Net debt/LQA

EBITDA (x)


Currency exposure hedged. The company's revenues and liabilities are broadly hedged, except for a small net US$ denominated revenue from Hutchison, which comprised 4% of FY13 revenues. SUPR's entire US$ borrowings are hedged while half of its rupiah loans are hedged to a fixed rate of 12.45%, with the balance on floating rate.


April 21, 2014

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7. VALUATION AND RECOMMENDATION

DCF valuation. Our end-2014 target price for SUPR is Rp10,200 based on a 15-year DCF (Figure 24), discounted with a WACC of 11.5% (Figure 25) and long-term growth rate of 4.7%, which we believe is the long-term inflation rate. We believe that DCF is the most suitable given the highly visible and secured earnings of the business model. To be prudent in our DCF valuation, we exclude revenues from Bakrie Telecom as we are unsure if SUPR will be able to collect from the ailing telco.

EV/EBITDA comparison. Given that SUPR does not depreciate its towers, we think that its P/Es are not comparable with its peers. Hence, we believe an EV/EBITDA valuation multiple is the most suitable basis of comparison.

As illustrated in Figure 26, TBIG and TOWR have traded in a tight 12-mth forward rolling EV/EBITDA band of 12-14x, whereas SUPR’s was 9-11x. TBIG and TOWR’s current prices imply 12-month forward EV/EBITDAs of 13.2x and 13.5x, respectively vs. SUPR’s of 10.2x. At its current price, SUPR’s CY14 EV/EBITDA is 24% below the average of TBIG and TOWR. Given SUPR’s superior growth, the declining contribution from BTEL and rising revenue quality, we think that the valuation gap should narrow further.

Stronger-growth alternative to the sector. We initiate our coverage of SUPR with an Add recommendation as we think that the outlook for SUPR is very robust, with telcos racing to expand their 3G coverage and capacity. This is coupled with lower risks associated with the ITC industry vs. the telco industry. Lastly, SUPR offers a higher revenue growth profile than its peers. A likely re-rating catalyst is strong earnings growth.


April 21, 2014

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Figure 24: Discounted cashflow

Terminal

Year Ending Dec Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Dec-25 Dec-26 Dec-27 Dec-28 Dec-28

No of tower tenants 5,397 7,001 8,445 9,895 11,419 13,262 14,586 15,866 17,146 18,428 19,708 20,988 22,268 23,068 23,868

Growth (%) 44.4% 29.7% 20.6% 17.2% 15.4% 16.1% 10.0% 8.8% 8.1% 7.5% 6.9% 6.5% 6.1% 3.6% 3.5%

Net additions 1,659 1,604 1,444 1,450 1,524 1,843 1,324 1,280 1,280 1,282 1,280 1,280 1,280 800 800

Avg anchor lease/year (US$ k) 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9 16.9

No of towers 3,798 4,798 5,698 6,598 7,498 8,298 9,098 9,898 10,698 11,498 12,298 13,098 13,898 14,398 14,898

Tenancy ratio (x) 1.42 1.46 1.48 1.50 1.52 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60

Revenue (excl Btel) 984 1,335 1,662 1,972 2,289 2,649 2,989 3,272 3,550 3,829 4,108 4,387 4,666 4,897 5,079 5,324

Operating EBIT (excl Btel) 682 938 1,195 1,438 1,687 1,983 2,263 2,484 2,724 2,946 3,176 3,404 3,632 3,824 3,981 4,173

less: Adjusted Cash Tax (57) (71) (88) (104) (125) (141) (164) (191) (222) (251) (281) (313) (345) (372) (400) (419)

NOPLAT 625 867 1,107 1,333 1,562 1,843 2,100 2,294 2,503 2,695 2,894 3,091 3,287 3,452 3,581 3,754

Add: Depreciation 135 142 158 172 188 202 216 231 222 232 234 238 241 241 235 246

Add: Non cash costs - - - - - - - - - - - - - - - -

less: Working Capital (79) (93) (87) (82) (82) (76) (72) (74) (74) (74) (74) (74) (74) (62) (49) (51)

less: Capex (1,625) (1,674) (1,551) (1,598) (1,646) (1,507) (1,552) (1,599) (1,647) (1,696) (1,747) (1,799) (1,853) (1,193) (1,229) (1,288)

Operating FCF (944) (758) (374) (175) 22 462 692 852 1,004 1,157 1,307 1,455 1,601 2,438 2,538 2,661

Discounted Value (944) (680) (301) (126) 14 268 360 398 421 435 441 440 434 593 554 580

Discounting factor 1.00 1.11 1.24 1.39 1.55 1.72 1.92 2.14 2.39 2.66 2.97 3.31 3.69 4.11 4.58 4.58

Entity Value and Claims:

Explicit Forecasts

Terminal Valuation

Value of Core operations

Add: Listed Investments

Add: Other Investments

Add: Cash

Less: Bank & Other Debt

Less: Minorities

Total equity value (end-CY14)

Current No. Shares (m)

Equity value/share (Rp) 10,211

3,436

-

8,110

794.3

Rp bn

2,306

8,715

11,021

525


Figure 25: Assumed WACC

Comments

Risk Free Rate 8.0% YTM of 10 year Indonesian govt rupiah bond

Real Rate 3.3%

Implied Inflation 4.8% Long term inflation rate

Equity beta 0.60 Premium to TBIG's Bloomberg raw beta of 0.53 given its poor trading liquidity

Equity RP 7.90%

Cost of equity 12.7%

Debt premium 3.5%

Cost of debt 8.6%

Statutory tax rate 25.0%

Target D/DE 30.4% Based on market value of equity

WACC 11.5% SOURCES: CIMB, COMPANY REPORTS


April 21, 2014

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Figure 26: 12-mth forward rolling EV/EBITDA (x) Figure 27: Discount of SUPR's 12-mth forward rolling EV/EBITDA vs. average of TBIG and TOWR

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Figure 28: Sector Comparisons

PriceTarget

Price

(local

curr)

(local

curr)CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015

Tower Bersama Infrastructure TBIG IJ Hold 6,375 6,300 2,677 20.4 15.9 17.6% 22.5% 21.3% 13.6 11.4 0.0% 0.0%

Solusi Tunas Pratama SUPR IJ Add 8,350 10,200 581 20.6 16.2 26.3% 12.4% 13.6% 11.6 9.5 0.0% 0.0%

Sarana Menara Nusantara TOWR IJ not rated 3,800 na 3,371 31.4 27.1 72.7% 26.4% 25.0% 14.8 12.7 na na

Indonesia tower average 24.1 19.7 38.9% 20.4% 20.0% 13.3 11.2 0% 0%

Bharti Infratel Ltd BHIN IN Add 195 201 6,115 23.7 20.4 5.8% 8.9% 10.0% 7.2 6.6 2.9% 3.3%

Gtl Infrastructure Ltd GTLI IN not rated 1.90 na 4,383 na na na na na na na na na

American Tower Corp AMT US not rated 82.65 na 32,701 38.7 30.5 2503.3% 19.5% 24.5% 18.4 16.8 na na

Crown Castle Intl Corp CCI US not rated 73.92 na 24,674 62.4 45.2 59.0% 5.8% 5.3% 17.6 16.6 na na

Tower industry average 32.9 25.9 447.5% 15.9% 16.6% 13.9 12.3 na na

Note: Solusi Tunas Pratama and Tower Bersama do not depreciate towers

Indosat ISAT IJ Reduce 3,855 3,600 1,834 39.1 27.1 4.5% 3.0% 4.3% 3.7 3.3 1.0% 1.5%

Telekomunikasi Indonesia TLKM IJ Add 2,325 2,900 20,515 14.5 13.6 4.7% 27.5% 26.9% 4.5 4.2 3.6% 3.8%

XL Axiata EXCL IJ Add 4,850 5,600 3,623 16.1 13.6 2.5% 14.9% 16.0% 5.6 5.0 2.5% 2.9%

Indonesia telco weighted average 15.4 14.1 4.4% 20.7% 21.0% 4.5 4.2 3.3% 3.5%

Recurring ROE

(%) *EV/EBITDA (x)

Dividend Yield

(%)Company

Bloomberg

TickerRecom.

Market

Cap

(US$ m)

Core P/E (x)3-year

EBITDA

CAGR

(%) *

SOURCES: CIMB, BLOOMBERG


April 21, 2014

22

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Score Range: 90 – 100 80 – 89 70 – 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

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April 21, 2014

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authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”); (c) are persons falling within Article 49 (2) (a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

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Rating Distribution (%) Investment Banking clients (%)

Outperform/Buy/Trading Buy/Add 52.6% 5.9%

Neutral/Hold 31.7% 5.4%

Underperform/Sell/Trading Sell/Reduce 15.7% 5.2%

Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2014

1358 companies under coverage for quarter ended on 31 March 2014

Spitzer Chart for stock being researched ( 2 year data )

Solusi Tunas Pratama (SUPR IJ)

3,800

4,800

5,800

6,800

7,800

8,800

9,800

Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13

Price Close

As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any recommendations stated in this report.

CIMB Recommendation Framework #1 Stock Ratings Definition Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. Sector Ratings Definition Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation. Country Ratings Definition Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 * Outperform The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. Neutral The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.


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Underperform The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. Trading Buy The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months. Trading Sell The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months. * This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 ** Outperform Expected positive total returns of 10% or more over the next 12 months. Neutral Expected total returns of between -10% and +10% over the next 12 months. Underperform Expected negative total returns of 10% or more over the next 12 months. Trading Buy Expected positive total returns of 10% or more over the next 3 months. Trading Sell Expected negative total returns of 10% or more over the next 3 months. ** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013. AAV – Good, ADVANC - Excellent, AMATA - Very Good, ANAN – Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH – Good, BCP - Excellent, BEC - Very Good, BGH - not available, BJC – Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET – Very Good, CENTEL – Very Good, CK - Excellent, CPALL - Very Good, CPF – Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO – Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY – Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Excellent, ITD – Very Good, IVL - Excellent, JAS – Very Good, KAMART – not available, KBANK - Excellent, KKP – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR – Very Good, MAKRO – Very Good, MCOT - Excellent, MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS – Excellent, SAMART – Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI – Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP - Excellent, THAI - Excellent, THCOM – Excellent, TICON – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW – Excellent, TUF - Very Good, VGI – Excellent, WORK – Good.

telco - tower indonesia april 21, 2014 apr-13 jul-13 oct...

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