Mitratel (MTEL IJ)

Resilient Growth and Strategic Advantages Amid Telco Consolidation

• We project +7% yoy FY24 revenue growth, with a positive medium-term outlook, demonstrating resilience amid ongoing telco consolidation.
• MTEL pioneering solutions can be critical for MNOs cost-efficient RAN deployment, enhancing the appeal for MTEL’s 20,000 sites in ex-Java. 
• We maintain our Buy rating. We fine-tuned our FY24-26F estimates, but our DCF-based TP of Rp960 is unchanged.   

Resilient amid new telco M&A; potentially benefiting from ex-Java rollouts   

We project ~7%yoy organic revenue growth for MTEL in FY24, aligned with its guidance (high-single-digit growth). This projection implies a sequential 4% qoq revenue uplift in 3Q and 4Q, driven by strong contributions from Telkom projects, TSEL, ISAT tenancies & FTTT. While we anticipate some earnings volatility within the sector due to the XL-SF merger, MTEL’s revenue exposure to the two operators is relatively minimal, at 12%/3%, compared to its larger peers. Instead, we expect MTEL to capitalize on the post-merger potential, as we foresee rigorous rollouts in ex-Java.

MTEL’s sites could prove critical for lower cost deployment by MNOs

Mitratel is fulfilling 82 new site orders in IKN, riding on the momentum trend in Kalimantan. It proactively introduces an antenna sharing solution in IKN, allowing MNOs to optimize their opex/capex resources when adopted at scale for 4G/5G. A McKinsey report suggests 30-40%+ savings when MNOs share the costs for their network equipment. Moreover, Mitratel extends its proposition with Starlink and HAPS systems, promising expanded coverage in remote areas. This could result in a 10-20% upside in new subs, in our view.

Appealing case for ROE expansion via inorganic growth

We assume lower interest costs for MTEL in FY24, driven by a reduced ND and a 7% interest rate (7.4% previously excl. M&A effects). As of 2Q24, MTEL maintains the lowest ND/EBITDA of 2.2x in the sector, is therefore well positioned to pursue small-scale acquisitions identified for FY24. We see potential upside for MTEL’s ROE through increased leverage in these scenarios: a) the sale of IOH’s fiber assets, b) Telkom’s fiber portfolio optimizations among its subsidiaries.

Strong market position and undemanding valuation support our BUY rating

We maintain our Buy rating on MTEL on the potential ROE upside, resilient growth profile, and valuation upsides from interest rate cuts. We fine-tuned our FY24-26F estimates but our DCF-based TP of Rp960 is unchanged (implying 12.6x EV/EBITDA, inline with the sector median of 12.7x, vs. current 9.2x). IOH and XL-SF prolonged site relocations pose the main downside risks.

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