Future FTTH And FTTT Initiatives Will Expand Fiber Connectivity

Key Takeaways

• M&A in fiber and digital-driven tenancy strategies boost revenue and economies of scale amid a favorable interest rate climate.
  
• Fiber segment expansion enhances Sarana Menara Nusantara's connectivity, customer base, and inorganic growth prospects, improving overall earnings.
  
• High leverage and market volatility pose financial risks, while currency fluctuations and interest rate changes could affect revenue growth and financial stability.

Catalysts

Owns and operates telecommunication towers for wireless operators in Indonesia.

• The consolidation of IBST is expected to drive operational synergies and improve net profit contributions, which could enhance overall earnings for Sarana Menara Nusantara.
  
• Ongoing growth and expansion in the fiber segment, especially fiber-to-the-home (FTTH) and fiber-to-the-tower (FTTT) initiatives, are projected to boost revenue through increased connectivity and customer base.
  
• Favorable interest rate environments could reduce borrowing costs, thereby improving net margins and enhancing cash flow management.
  
• Strategies to increase tenancy ratios by leveraging digital tools and marketing insights could lead to higher revenues and improve economies of scale on existing towers.
  
• Potential for further M&A activity, particularly in the fiber segment, offers opportunities for inorganic growth, which could significantly impact future revenue and earnings positively.

Sarana Menara Nusantara Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sarana Menara Nusantara's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.3% today to 27.8% in 3 years time.
• Analysts expect earnings to reach IDR 4062.0 billion (and earnings per share of IDR 78.27) by about February 2028, up from IDR 3274.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as IDR3481.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from 9.1x today. This future PE is lower than the current PE for the ID Telecom industry at 24.8x.
• 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 13.25%, as per the Simply Wall St company report.

Sarana Menara Nusantara Future Earnings Per Share Growth

Risks

• The consolidation of IBST has resulted in a lower tenancy ratio, which could impact future revenue growth if not improved.
  
• The company experiences market volatility and currency risks due to fluctuations in the Indonesian market and rupiah depreciation, which could affect net margins and earnings.
  
• Interest rate uncertainties from potential rate cuts or increases in U.S. rates can impact the company's cost of debt, potentially affecting net income and financial stability.
  
• High levels of leverage, with a current debt ratio of 4.35x, could strain financial resources and affect profit margins if market conditions change or financing costs increase.
  
• Non-recurring acquisition-related goodwill increases pose a risk of potential impairment charges, which could negatively impact future earnings and the balance sheet.

Valuation

• The analysts have a consensus price target of IDR1094.688 for Sarana Menara Nusantara based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR1780.0, and the most bearish reporting a price target of just IDR700.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR14635.2 billion, earnings will come to IDR4062.0 billion, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 13.3%.
  
• Given the current share price of IDR595.0, the analyst price target of IDR1094.69 is 45.6% 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.