Tower Bersama, Tower Grab, CLSA

The TBIG/ISAT tower deal is attractive with interests aligned and a major
boost for the company‟s growth trajectory. The US$406m acquisition
price (US$162k/tower) implies an EV/EBITDA multiple of 8x and a day-1
ROIC of 9% comfortably covers the cost of capital. However the material
value creation will occur on ramping up the current 1.3 tenancy ratio on
these new towers to 2.0 or above. Our modelling of the deal shows there
is a further 20% upside to our current DCF valuation. TBIG is one of the
best ways to play the lower cost capital thematic in Indonesia. BUY.

An attractive deal- win-win for both parties with interests aligned
TBIG’s purchase of 2,500 towers from ISAT for US$406m (US$162k/tower) is
attractive. Financed with a mixture of debt (84%) and equity (16%) ISAT will
get a 5% direct stake in TBIG. The added US$113m earn-out also allows ISAT
to share in co-location upside, aligning interests and giving TBIG a strong
position in future ISAT tower sales. Acquired towers have ISAT as the anchor
but there are also 3rdparty co-locations giving a tenancy ratio at acquisition of
1.3. The end game is to increase this to drive value creation.
Transaction EV/EBITDA multiple of 8x and 9% ROIC
In our calculations we estimate that the transaction price implies an
EV/EBITDA of 8x and day-1 ROIC of 9% - not including any upside from
future co-locations. This compares favourably to TBIG which currently trades
at 13x 12 EV/EBITDA. The 9% ROIC also comfortably covers TBIG’s cost of
fixed USD debt capital at around 6.5-7%. However if TBIG can execute on
ramping up the co-location ratio to 2.0x (the ROIC goes up to 16%).
Further 20% upside from the transaction
While we expect the transaction to be completed by 2Q12 (we will push
through model changes post deal completion) we have run the analysis to see
what impact the deal has on valuation. We see ~20% further upside to our
DCF valuation. Based on current share price levels this would give total
upside on the stock post the deals completion in the range of 40-45%
Key „lower cost of capital‟ play with material operating leverage
TBIG remains one of the best ways to play the lower cost of capital thematic
in Indo with bond-yields continuing to fall following the investment grade
rating. Interest cost is by-far the largest cost in the business (~35% of
sales). TBIG also has material operating leverage and a larger tower portfolio
in which to ramp-up tenancy ratios, driving long-term value creation.

Download file : TBIG Tower Grap