Telekomunikasi Indonesia: Hold; Rp7,100; TP Rp7,700; TLKM IJ Telkom’s subsidiary Mitratel planning IPO in 2012 - DBS

What ' s new?
It was reported in Investor Daily today that Mitratel, a wholly owned subsidiary of PT Telkom, has sealed Rp1tr loan facility from PT Bank Rakyat (BRI). The loan will be used to partly finance the construction of 1,800 towers. The total cost for the 1,800 towers is Rp2.5tr. With this expansion, Mitratel’s towers will total to 3,000 by end of this year, versus only 270 towers as at end 2010. With 3,000 towers, Mitratel’s President Director, Edy Irianto believes that it would be a good capital base for Mitratel to go on IPO by 2012.
Mitratel is also planning to takeover 16,000 Telkomsel towers. Yet, this plan is pending approval from SingTel as it owns 35% stake in Telkomsel.
Meanwhile, Telkom is still assessing several options to buy back Telkomsel share from SingTel.

Our view
· Mitratel has disclosed its intention for IPO in the past given the attractive valuations of 10-15x EV/EBITDA enjoyed by independent tower players.
· While 3K towers should be good enough for IPO, Mitratel is looking to be the biggest tower company. This requires them to take over Telkomsel’s towers, a cause of contention between Telkom and SingTel. Telkom’s proposal to buy back Telkomsel’s 35% stake from SingTel also raises questions over the relationship between Telkom and SingTel.
· Overall, Mitratel’s IPO should be value-accretive for Telkom, although there is no certainty on the timing.

No change to our target price and recommendation