Starlink Competition And Indonesia Densification Will Shrink Leasing Demand

AN
AnalystLowTarget
AnalystLowTarget
Not Invested
Consensus Narrative from 14 Analysts
Published
29 Jul 25
Updated
29 Jul 25
AnalystLowTarget's Fair Value
Rp680.00
8.8% undervalued intrinsic discount
29 Jul
Rp620.00
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1Y
-23.9%
7D
-8.1%

Author's Valuation

Rp680.0

8.8% undervalued intrinsic discount

AnalystLowTarget Fair Value

Key Takeaways

  • Widespread adoption of alternative connectivity and industry consolidation threaten core tower leasing revenues, while regulatory and market shifts heighten risks to long-term growth.
  • Rising costs from aging infrastructure, land use challenges, and low revenue growth expectations will compress margins, limiting free cash flow and earnings expansion.
  • Predictable, inflation-protected contracts and robust infrastructure create stable recurring revenues and strong margins, while industry trends and prudent financial management support resilient long-term growth.

Catalysts

About Sarana Menara Nusantara
    Owns and operates telecommunication towers for wireless operators in Indonesia.
What are the underlying business or industry changes driving this perspective?
  • The rapid advancement and adoption of satellite-based internet and alternative connectivity solutions such as Starlink pose a serious long-term threat to Sarana Menara Nusantara's core business, as declining reliance on terrestrial towers would erode future tower leasing demand and directly pressure revenue and earnings growth.
  • Indonesia's ongoing urban densification and evolving land use is expected to tighten permitting, increase regulatory complexity, and heighten local opposition to tower placements, ultimately raising site acquisition and compliance costs, which will compress margins and diminish returns on invested capital over the long run.
  • The company's high dependence on a few major mobile operator tenants exposes it to significant risks: industry consolidation, such as the XLS and IOH mergers, is already leading to tower lease churn-management is now projecting a loss of around 700 leases this year-with further potential for non-renewals or pricing pressure, which threatens revenue stability and could weigh on EBITDA growth for multiple years.
  • Ongoing shifts in wireless network deployment, including a move towards network sharing agreements and small cell deployments, are reducing the need for new macro towers, capping the addressable market and limiting organic revenue growth, while also leading to increased competitive pricing pressure and reduced topline expansion.
  • As infrastructure ages and technological demands rise, Sarana Menara Nusantara will face steadily rising capital expenditure and maintenance costs, yet the company is guiding for only low single-digit annual revenue growth; this dynamic, combined with the need to support redundant assets post-merger and lower utilization rates, is set to drive net margin contraction and limit growth in free cash flow and earnings per share going forward.

Sarana Menara Nusantara Earnings and Revenue Growth

Sarana Menara Nusantara Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Sarana Menara Nusantara compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Sarana Menara Nusantara's revenue will grow by 1.8% annually over the next 3 years.
  • The bearish analysts assume that profit margins will increase from 25.9% today to 28.5% in 3 years time.
  • The bearish analysts expect earnings to reach IDR 3877.9 billion (and earnings per share of IDR 63.05) by about July 2028, up from IDR 3340.9 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 bearish analyst cohort, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 10.1x today. This future PE is lower than the current PE for the ID Telecom industry at 20.7x.
  • 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 13.05%, as per the Simply Wall St company report.

Sarana Menara Nusantara Future Earnings Per Share Growth

Sarana Menara Nusantara Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Sarana Menara Nusantara benefits from long-term, non-cancellable, inflation-linked contracts with major mobile operators, ensuring significant visibility and predictability for future revenue and cash flows. This steady contracted revenue base-currently at IDR 74.1 trillion-supports resilient earnings, even during industry slowdowns.
  • The company's diversified infrastructure platform includes 35,500 towers and 265,500 kilometers of fiber, much of it built under long-tenure build-to-suit agreements, which supports both high utilization and recurring lease revenues. High utilization of existing assets helps maintain attractive EBITDA and net profit margins over the long term.
  • The secular growth in Indonesia for mobile data consumption, urban digitalization, and upcoming 5G investments is likely to drive continued demand for tower and fiber infrastructure, supporting Sarana Menara Nusantara's ability to add tenants and increase site utilization, leading to higher recurring revenues and stable growth in earnings.
  • Industry consolidation is expected to make mobile operators more rational in pricing and infrastructure usage, ultimately leading to healthier network OpEx spending and better tenancy and lease renewal prospects for major tower companies. This trend is aided by Sarana Menara Nusantara's proven track record in managing past client mergers without major impairment to margins or contract stability.
  • Investment-grade credit ratings, prudent capital management, and consistently high return on equity (near 16%) allow Sarana Menara Nusantara to access low-cost funding for acquisitions or network expansion. This financial flexibility enhances free cash flow, supports potential share buybacks and dividends, and helps protect net margins even amid periods of flat organic revenue growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

  • The assumed bearish price target for Sarana Menara Nusantara is IDR680.0, which represents the lowest price target estimate amongst analysts. 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 more bearish 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 IDR680.0.
  • In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be IDR13613.1 billion, earnings will come to IDR3877.9 billion, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 13.1%.
  • Given the current share price of IDR675.0, the bearish analyst price target of IDR680.0 is 0.7% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  • 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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