TOWR - Building strong fiber footprint

TOWR - Building strong fiber footprint Sarana Menara Nusantara (TOWR)'s 9M23 top-line and EBITDA generally beat KBVS'/consensus at 74.8%-75.6% thanks to strong growth of non-tower business and manageable core cost. 3Q23 net profit grew 7.4% qoq to IDR866 bn amidst lower cost of finance qoq. Tower leasing revenue decreased 1.3% qoq/2.5% yoy in 3Q23/9M23 to IDR2.11 tn/IDR6.30 tn on the back of lower monthly lease rate/ tenant by -2.2% qoq in 3Q23 to IDR12.9 mn. This was despite higher tenancy ratio that escalated to 1.81x in 3Q23. (Source: Company, KBVS Research Team) Comment: We believe that non-tower to continue becoming TOWR's backbone going forward, especially fiber through FTTT and FTTH that has started to book revenue of IDR82 bn in 9M23. Management targets to build its FTTH footprint to 2mn homepasses. However, we expect high interest rate environment could pose risks to TOWR's bottom-line. Reiterate our BUY call with higher target price of IDR1,450 as we have rolled forward our DCF-based valuation on our WACC assumption. Our target price implies 10.5x ’24 EV/EBITDA. Note that at current price, TOWR is trading at 8.0x forward EV/EBITDA, rather appealing at slightly above -1SD 5-year historical mean