TBIG - Outlook to stay modest

TBIG’s growth likely to remain flattish for ‘22F and ‘23F, as a result from ongoing consolidations in telco and towers. This could also lead to lower rate renegotiation and tenancy additions. On the other hand, TBIG is unlikely to be impacted by high interest rate as we highlight downward trend for its finance costs. Maintain BUY, with a price target of IDR3,100, implying 16.0x 2023 EV/EBITDA, while it is trading at 13.3x or below +1SD 5-year historical mean. Soft earnings result TBIG's 3Q22 earnings came in at IDR397bn, decreasing 3.4% qoq. This translates into 9M22 net profit of IDR1.22tn, accounting for 61.0%/70.3% of ours/ consensus. The soft bottomline was mostly driven by declined 3Q22 revenue by 2.6% qoq of IDR1.62tn due to expiration of sale and leaseback contract with IOH in August 2022. However, TBIG's cost of revenue was also down 5.9% qoq in 3Q22, lifting GPM to 69.9% from 68.8% in 2Q22. Nevertheless, cash cost was up 6.5% qoq in 3Q22, also reflected by lower EBITDA margin from 87.4% in 2Q22 to 86.2% in 3Q22, while 9M22 EBITDA at IDR4.28tn, representing 72.1%/72.8% of ours/consensus. Despite higher interest rate environment, TBIG finance expense lowered in 3Q22 by 5.9% qoq/15.1% yoy. TBIG’s net gearing was improved in 9M22 at 2.14x, boosted by higher equity post treasury stock sales. Moderate tenancy growth in 3Q22 TBIG's tenancies reached 40,691 in 3Q22, while it also managed to add 290 net tower sites qoq to 21,666, bringing to 1.88x. The figure is lower than 2Q22 of 1.89x and 3Q21 of 1.90x. We see a slowing trend of net tenancy additions throughout 9M22 on the back of one-off discontinuation of Sampoerna Telecom. Meanwhile, lower tenancy ratio in 3Q22 might have prompted higher cash cost per tenant by 5% qoq/ 7.1% yoy, implying lower scale of economies. TBIG’s lease rate slid by 3.6% qoq/5.0% yoy to IDR13.3 mn due to renewals. Eyes for organic growth As consolidations is ongoing in towers, TBIG's main growth driver will be derived from organic expansion. Therefore, we expect revenue growth to remain moderate for 2023. On the bright side, telco consolidation could bring more demand for lease as carriers strive to improve their services to retain subscribers. On the flip side, however, this could give TBIG's customers an upper hand to renegotiate lease rate. Amid high interest environment, we regard TBIG is profoundly well managed, since c.90% of debts are fixed rate, while it has options for interest rate swaps to cover floating rate for borrowings. Reiterate BUY as finance cost efficiency maintained Despite our lower forecast revisions, we reiterate BUY call with a DCF-based price target of IDR3,100 (previously: IDR3,500), implying 16.0x 2023 EV/EBITDA or below +2SD 5 yearhistorical mean. Our preference on TBIG is based on ability to achieve efficient finance costs and solid demand from carriers. Nevertheless several downside risks to our call, including lower-than-expected lease rate and tenant growth amid industry consolidation.