Tower Bersama: Growth spree ahead (Buy; Rp2,225; TP Rp3,200; TBIG IJ) - DBS Vickers

• FY11F/12F EBITDA revised by +3% each following larger-than-expected tower portfolio in 2010
• TBIG enjoys lowest gearing and offers strongest growth in the sector
• BUY for ~40% potential upside

FY11F/12F EBITDA raised by 3% each. TBIG had 2,035 towers at end 2010 versus our 1,880 projection, thanks to stronger organic growth and acquisitions. Tower tenancy ratio was 1.8x, a notch below our 1.85x estimate. Our checks indicate strong order flows from Telkomsel and XL. We still assume TBIG would add 850 towers and 1,360 tenants in 2011, and 770 towers and 1,425 tenants in 2012. However, we cut FY11F EBITDA margin assumption to 76% (from 78% earlier) as tower tenancy ratio could slip to 1.74x in FY11F due to a significantly larger tower portfolio. EBITDA margin could improve in 2012 led by rising tenancy ratio, although we have conservatively assumed flat margins.

Lower gearing to support stronger growth. Potential sale of towers by mobile operators in 2011 could lead to stronger growth of TBIG’s tower portfolio than we are projecting. 2010 net debt to pro-forma EBITDA of 2.3x is lowest in the sector and offers ample room to raise debt to acquire more towers. Our DCF-based target price is Rp3,200 (WACC 11.5%, terminal growth 4%), implying over 40% potential upside. TBIG is trading at ~13x FY11F EV/EBITDA while offering 24% EBITDA CAGR over FY11F-13F. This implies ~20% discount to its US peers, which are trading at average of 16x FY11F EV/EBITDA despite weaker growth prospects.