Menara Bersama Nusantara: Attractive valuation (Buy; Rp10,000; TP Rp15,000; TOWR IJ) - DBS Vickers

• Revised up FY11F/12F new tower adds and tenancies
• Lowered EBITDA margin assumptions; FY11F/12F EBITDA revised by 0%/+3%
• Maintain BUY for ~50% potential upside.

FY11F/12F EBITDA revised by 0%/+3%. Sarana (TOWR) had 5,072 towers at end 2010 against our 4,950 forecast. But its tenancy ratio was only 1.66x against our 1.7x, which offset the positive impact of higher tower numbers. Our checks indicate strong order flows from Telkomsel and XL. As such, we raised new tower assumptions for 2011 to 1,150 with 2,033 tenants for 2011 against 550 towers and 1,485 tenants, previously. For 2012, we project 1,000 new towers and 1,994 tenants against 480 towers and 1,462 tenants, previously. However, we cut FY11F EBITDA margin to 83% (from over 85% earlier) as tenancy ratio would not rise much due to a significantly larger tower portfolio. EBITDA margin might improve in 2012 due to rising tenancy ratio, although we have conservatively assumed flat margins.

Trading at ~40 discount to US peers. Potential sale of towers by mobile operators in 2011 could lead to stronger growth of its tower portfolio than we project. TOWR’s 2010 net debt to EBITDA of 3.8x is reasonable. Our DCF-based target price is Rp15,000 (WACC 11.5%, terminal growth 4%), implying 50% potential upside. TOWR is trading at ~11x FY11F EV/EBITDA while offering 20% EBITDA CAGR over FY11F-13F. This is at ~40% discount to US peers, which are trading at average of 16x despite weaker growth prospects.