Indonesia's Network Densification And Fiber Expansion Will Create Enduring Value

Key Takeaways

• Rapid fiber and non-tower expansion, alongside unique industry positioning, could enable Sarana to capture outsized growth and share in both connectivity revenue and new tower builds.
  
• Strong financial discipline and national footprint position Sarana to benefit from digital transformation trends, supporting higher margins, recurring revenues, and premium valuations.
  
• Shifts to new technologies, industry consolidation, and lower-margin growth segments threaten stable revenues, margin strength, and increase risks from tenant concentration, contract volatility, and high leverage.

Catalysts

Owns and operates telecommunication towers for wireless operators in Indonesia.

• While analyst consensus views Sarana's expansion into fiber and non-tower segments as a revenue driver, this likely understates the monetization potential; with accelerating enterprise and B2B demand, Sarana could see a structural step-change in fiber utilization and connectivity revenue far beyond current forecasts, driving outsized top-line growth.
  
• Analysts broadly agree that industry consolidation (such as XL/Smartfren and Indosat/Hutchison mergers) will bring opportunities, but the reduction to three main telco operators and Sarana's unique scale and operational expertise position it to take disproportionate share of new tower builds and network densification, potentially leading to above-consensus tenancy growth and margin expansion.
  
• The company's aggressive debt paydown following its rights issue and persistent investment-grade credit ratings are set to lower average funding costs, enhancing net margins and freeing up capacity for further accretive M&A in both tower and fiber assets, which could fuel EPS growth ahead of expectations.
  
• By leveraging its unrivaled national footprint, especially rapid expansion in historically under-penetrated markets like Papua, Sulawesi and Sumatra, Sarana stands to capitalize on the explosive rural and 5G network buildout wave, positioning the company for outperformance in long-term recurring revenues and cash flows.
  
• With the continued surge in mobile data, IoT, and cloud adoption-alongside government push for digital transformation-Sarana's unique build-to-suit, long-tenor contracts and cross-segment asset versatility will cement its role as critical infrastructure, underpinning multi-year visibility on rental income and supporting premium valuation multiples.

Sarana Menara Nusantara Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Sarana Menara Nusantara compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Sarana Menara Nusantara's revenue will grow by 6.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 26.1% today to 28.9% in 3 years time.
• The bullish analysts expect earnings to reach IDR 4468.8 billion (and earnings per share of IDR 79.13) by about August 2028, up from IDR 3382.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, up from 9.4x today. This future PE is greater than the current PE for the ID Telecom industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.27%, as per the Simply Wall St company report.

Sarana Menara Nusantara Future Earnings Per Share Growth

Risks

• Accelerating 5G and advanced wireless technologies may reduce long-term dependence on traditional macro towers, potentially diminishing Sarana Menara Nusantara's core rental revenues as tenants migrate to new network architectures.
  
• Tenant concentration risk is increasing due to ongoing industry consolidation, such as the XL Smartfren and Indosat-Hutchison mergers, which could result in renegotiated leases at lower rates, directly pressuring the company's top-line revenue and net margins.
  
• Non-tower segments such as fiber and connectivity are growing faster than the core tower business, but these businesses generate much lower EBITDA margins, which has already contributed to a decline in consolidated EBITDA margin from 85% to approximately 83% year-over-year, indicating a risk of margin compression and lower return on equity over time.
  
• Network-sharing agreements between telecom operators, as well as short-term contracts for the growing enterprise connectivity segment (typically six to twelve months versus ten years for towers), may lead to increased volatility and unpredictability in occupancy rates and revenue growth, undermining the company's ability to secure stable, long-term income streams.
  
• High leverage and substantial ongoing capital expenditure requirements remain material risks; if sector growth or occupancy rates soften-as suggested by the declining tenancy ratios and muted new tower orders-this could exacerbate debt-servicing costs and limit future earnings growth.

Valuation

• The assumed bullish price target for Sarana Menara Nusantara is IDR1301.07, which represents two standard deviations above the consensus price target of IDR897.5. This valuation is based on what can be assumed as the expectations of Sarana Menara Nusantara's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR1400.0, and the most bearish reporting a price target of just IDR700.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be IDR15465.5 billion, earnings will come to IDR4468.8 billion, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 13.3%.
• Given the current share price of IDR635.0, the bullish analyst price target of IDR1301.07 is 51.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.