5G Rollout And Indonesian Urbanization Will Fuel Network Asset Expansion

Key Takeaways

• Ongoing 5G rollout and urbanization are expected to drive sustained demand for tower and fiber infrastructure, boosting recurring revenue and occupancy rates.
  
• Strategic fiber expansion, debt reduction, and sector consolidation position SMN for diversified growth, margin improvement, and stable long-term earnings.
  
• Shifting to lower-margin segments, sector consolidation, short contracts, and high leverage heighten risks of revenue volatility, profit compression, and asset underutilization.

Catalysts

Owns and operates telecommunication towers for wireless operators in Indonesia.

• The nationwide rollout of 5G technology over the coming decade, together with Indonesia's ongoing surge in mobile data consumption (driven by video streaming, social media, and IoT), is expected to drive a sustained need for expanded tower and fiber infrastructure-supporting long-term growth in SMN's tenancy ratios and lease revenue.
  
• Urbanization and the expanding middle class in Indonesia will require network densification and additional tower coverage, likely resulting in higher occupancy and co-location rates on SMN's tower and fiber assets, translating to stable and growing recurring revenue.
  
• The company's proactive expansion into fiber-and the ability to offer integrated tower and fiber products-positions SMN to capture market share from both mobile operators and enterprise customers, diversifying and boosting revenue streams while supporting margin resilience as fiber penetration and utilization rates rise.
  
• Debt reduction and disciplined capital management, with proceeds from the rights issue being used to pay down debt and reduce interest expenses, are expected to improve net margins, strengthen the balance sheet, and enhance return on equity over time.
  
• Telco sector consolidation in Indonesia (moving to three main operators) should support more sustainable pricing and reduce competitive pressures, increasing the stability of SMN's long-term multi-year contracts and providing both revenue visibility and predictability in future earnings.

Sarana Menara Nusantara Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sarana Menara Nusantara's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.1% today to 29.2% in 3 years time.
• Analysts expect earnings to reach IDR 4214.8 billion (and earnings per share of IDR 71.31) by about September 2028, up from IDR 3382.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as IDR3733.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, up from 8.8x today. This future PE is lower than the current PE for the ID Telecom industry at 22.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.43%, as per the Simply Wall St company report.

Sarana Menara Nusantara Future Earnings Per Share Growth

Risks

• Declining tenancy ratios (from 1.64 to 1.61) and muted tower/fiber order growth from mobile operators could pressure long-term occupancy and lease revenues, especially if consolidation among Indonesia's telco operators leads to overlapping infrastructure and fewer independent lease agreements.
  
• Increasing share of revenue from non-tower segments (e.g., fiber, FTTH, connectivity), where EBITDA margins are notably lower (evidenced by consolidated EBITDA margin dropping from 85% to 83.2%), may compress overall profitability and reduce future net margins as growth shifts toward these segments.
  
• High customer concentration and short-term (6-12 month) contracts in the connectivity segment-compared to 10-year tower/fiber contracts-expose the company to churn risk and revenue volatility, especially if large enterprise or government clients do not renew, directly impacting revenue predictability and EBITDA stability.
  
• Ongoing sector consolidation (e.g., XL/Smartfren, Indosat/Hutchison mergers) can drive rationalization of tower assets, risking asset write-downs, reduced utilization, and pricing pressure if merged entities optimize their network footprints, threatening both future revenue growth and return on invested capital.
  
• Despite deleveraging efforts, high leverage (net debt/EBITDA of 4.6x, targeted near 4.1x) and reliance on acquisition-driven growth increase exposure to refinancing risks and potential interest expense escalation, which may erode net earnings, especially if cost of funds rises or integration synergies from acquisitions like IBST and Remala fail to materialize as expected.

Valuation

• The analysts have a consensus price target of IDR870.714 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 IDR1200.0, 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 IDR14436.0 billion, earnings will come to IDR4214.8 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 13.4%.
• Given the current share price of IDR595.0, the analyst price target of IDR870.71 is 31.7% 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.