Sarana Menara Nusantara (TOWR IJ)

FY24 inline earnings: Tower Weakness to Persist, but Fiber Remains the Bright Spot

 

  • In line 4Q24 earnings; margin dipped on lower EBITDA, but resilient topline and support from other income.
  • Tower rev’s drag to extend into FY25 as XLSmart decommissions kick in; TOWR pivots toward fiber connectivity and ISP-driven B2B growth.
  • Maintain Buy on robust fiber outlook but lower TP on estimates cut and valuation adjustment.

 

TOWR FY24 Earnings In Line with Estimates; Softer 4Q Margins

TOWR booked 4Q24 net profit of Rp888bn (+5.5%qoq, +7.3%yoy), supported by steady revenue of Rp3.29tr (-0.3%qoq, +8.8%yoy) and forex/other income gains, offset by lower EBITDA of Rp2.75tr (-2.1%qoq, +7.5%yoy). EBITDA margin softened in 4Q24, bringing FY24 NP to Rp3.3tr (+2.5%yoy), well in line with our est. (102.6%). FY24 NP was broadly in line with consensus (98.8%), with EBITDA margin declining to 84% (-100bps yoy) as anticipated but higher D&A and finance costs weighed in in the result.

 

Potential FY25 tower revenue drag shifting to XLSmart decommissions

4Q24 tower revenue dipped -1.6%qoq, with only 29 new towers and a net 130 tenancy reduction, mainly due to 159 colocation exits from IOH’s relocation. For FY24, we estimate ~1,600 new towers and ~1,700 colocation losses (adjusted for IBST), mostly IOH-related. While IOH relocations should ease in FY25, management expects fresh headwinds from XLSmart decommissions.

 

Swift pivot to Connectivity revenue, supporting ISP Fixed BB rollouts

4Q24 non-tower revenue rose +2.5%qoq, driven by FTTH home connection growth—primarily from IOH. Fixed internet remains the key driver, with TOWR/iForte leveraging its fiber infra. Despite XL Axiata pausing its FTTH rollout amid its merger and LINK acquisition, TOWR is quickly pivoting to service ISPs and monetize its backhaul fiber network to support B2B growth.

 

Maintain Buy, but lower TP on estimate cut and valuation adjustments

We maintain Buy on TOWR, supported by its early positioning in fiber investments, although growth should moderate to 3–4% in 2025. Connectivity revenue remains robust, with mgmt. guiding for 20%yoy growth—though this will likely weigh on margins, with FY25 EBITDA margin guided at 83%. We tweak FY25–27F ests by 0.1/-6.4/-12.2% and lower TP to Rp870, now based on a blended DCF and 8.9x EV/EBITDA 5-yr average approach (our TP implies 8.1x for 2025). Key risk stems from deeper-than-expected XLSmart decommissions.

 

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