Danareksa Equity Snapshot – TBIG, 13 November 2018
November 13, 2018 09:39 WIB
Niko Margaronis

The 3Q18 results are encouraging with the top contributors to tenancy growth being the incumbent Telkomsel followed by XL Axiata. Revenues were only up by 4.5%qoq, however, given churn. TBIG postponed the consolidation of Gihon to 4Q18. TBIG missed 9M18 net profits estimates since its 9M18 revenues and consequently OP lagged behind. Due to the greater upside to our TP, we upgrade our call to BUY, noting that the company can organically add over 2,500 new tenancies in FY18.

Improvement over 2Q18 in terms of organic growth. The 3Q18 revenues reached Rp1.09 tn (+4.5%qoq, +5.3%yoy) driven entirely by organic growth. TBIG reported 2,350 additional gross tenancies (1,133 in 3Q alone) while on a net basis the additions were #1,857 ytd and #1,089 in 3Q, mostly from Telkomsel and XL Axiata. The 3Q18 EBITDA of Rp938 bn depicts similar growth (+4.5% qoq) with a stable EBITDA margin of 86.1%. The company booked higher 3Q18 interest expenses due to higher debt levels. Nonetheless, the 3Q18 net profits of Rp220 bn came in higher (+30.2% qoq, -20.1%yoy) on better operating performance and lower tax expenses.

Missed the net profits estimates, but the outlook looks better. TBIG’s revenues were 73.5% of our forecast and the consensus while the bottom line was only 66.5% of our estimates. Although the revenues are broadly in line, they are a bit behind since they did not include the planned financial consolidation of GHON which eventually took place on 1 Oct. On a ytd basis, TBIG reported new gross tenancies of 2,350 from new sites and collocations, but net adds of 1,857 ytd implying some tenancy contracts had ended and were not renewed (churned). The 3Q gross additions alone is impressive and in line with telco trends where operators are ramping up 4G LTE networks. Though we see churn accumulating, the revenues per tenancy has been stable. The company has provided guidance that normally ~3% of tenancies are up for renewal every year and even taking the extreme scenario in which all expiries are not renewed, we think the current demand trajectory is positive and that it should more than compensate for churn.

Financial engineering to improve the bottom line. TBIG’s debt covenant (hedged net debt/annual EBITDA) has gone up to 5.3x. The company plans to partially repay USD loans in 4Q18 and record higher EBITDA, meaning the number should come down. New debt bears a fixed interest rate of 8.5%, about 50bps lower than the latest effective interest cost.

Upgrade to BUY. TBIG shares have significantly de-rated on perceived worsening of tenancy prices, Telkomsel’s subdued orders and churn. Nonetheless, TBIG’s revenues/tenancy in 3Q18 were stable and Telkomsel was the top revenues contributor. Additionally, stronger demand should compensate for churn. We maintain our DCF valuation with a TP of Rp5,300, implying EV/EBITDA-19 of 10.7x and upgrade our recommendation to BUY. The stock is currently trading at 9.5x.

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