Tower Bersama Infrastructure: Buy; Rp2,375; TP Rp3,200; TBIG IJ - DBS Vickers

Proxy to data growth in Indonesia
· Prime locations allow Tower Bersama (TBI) to secure premium rentals for towers from top-tier clients.
· Low gearing should enable TBI to acquire a bigger tower portfolio when the opportunity arises.
· Offers highest EBITDA growth in the sector; Initiate coverage with BUY rating and Rp3,200 TP, implying >33% upside potential over next 12 months

Indonesia is perfect for tower business to thrive. FY11F should be a record year in terms of new tenancies secured by independent tower operators as mobile operators in Indonesia embrace tower-leasing model finally. Tower operators enjoy high operating leverage by leasing one tower to multiple tenants without large increase in costs. Another key attraction is the predictable future income, as mobile operators lock-in tenancy for 10-20 years to avoid network disruptions. The tower business in Indonesia offers higher ROI than in the US and India , as the segment is closed to foreign players.

Tier-1 clientele and low gearing differentiate TBI. As second largest independent tower operators, TBI fetches premium rentals (10-15% higher) and more tenants per tower leveraging on its early mover advantage. With over 62% of its revenue from Tier-1 mobile operators, TBI has a premium clientele. FY10F net debt-to-EBITDA of only 2.5x is lowest among listed tower operators globally and leaves much room to borrow to grow its tower portfolio.

DCF-based Rp3,200 TP (WACC 11.5%, terminal growth 4%). Our TP translates to 16x FY11F EBITDA, the average valuation of its US peers. This is well justified by TBI’s higher EBITDA growth (FY10F-12F CAGR of 42% versus 14%

average) and lower gearing (FY10 net-debt to EBITDA of 2.5x versus 5.0) than its US peers. This also explains TBI’s premium valuation compared to its local peer.