Growth story: FWA, 5G and Fiber Optic

Following a period of subdued demand and stagnant growth in new tower additions—driven by MNOs mergers and a non-conducive market environment—the tower sector is now seeing renewed opportunities in:

Fixed Wireless Access (FWA) deployment. TOWR has secured a commitment for 2,000 collocations from a single operator in the 1.4 GHz frequency band and is currently in ongoing discussions with another. Because operators are burdened by annual frequency usage fees, rapidly expanding their coverage footprint and accelerating network deployment have become critical strategies for monetization.

5G acceleration. MNOs that were recently awarded the new 700 MHz and 2.6 GHz spectrums are obligated to: a) expand 4G coverage to a total of 538 villages and regencies designated by the Ministry of Digital Communication, and b) accelerate 5G coverage to reach 51% of the national population within the next five years. Currently, 75,931 regencies (90.7% of the total) are already covered by 4G, leaving limited room for further growth. In contrast, 5G coverage remains in its early stages. XL's Smart 5G is present in 50 cities and regencies (23% coverage), while Telkomsel covers 107 cities and regencies. Despite the exponential growth of 5G BTS, each operator owned fewer than 15,000 5G BTS as of June 2026. Consequently, MNOs are significantly upgrading their 2026 capex plans—ISAT by +IDR 10tn (to IDR 23tn) and EXCL by +IDR 5tn (to IDR 20tn)—primarily to fund network expansion.

Fiber optic. Serving as a primary growth driver, fiber optic expansion is supported by: a) MNOs' efforts to improve network quality to accommodate surging data traffic, b) the push to enhance overall customer experience, c) rising demand from enterprise customers for comprehensive connectivity solutions, and d) improving utilization rates of FTTH networks. TOWR is well-positioned to capitalize on this trend, leveraging its fiber optic portfolio to generate multiple revenue streams (FTTT, connectivity, and FTTH). We project these three services combined will achieve 6% growth and contribute 32% of TOWR's 2027F revenue.

Maintain BUY with a target price of IDR 800/sh

2Q26 results. The company delivered strong revenue growth (+14.6% yoy and +2.6% qoq), primarily driven by the recent consolidation of Bach Multi Global (BACH). A milder impact from the XL-Smart integration helped keep tower leasing revenues remarkably stable (+2.4% yoy and +0.6% qoq) throughout the quarter. Operationally, the company added 320 towers and 295 new tenants qoq, maintaining a resilient tenancy ratio of 1.65x. The EBITDA margin did experience a 150 bps qoq contraction to 76.7%, stemming from a higher revenue contribution from the lower-margin non-tower business segments. Nevertheless, the bottom line was well-maintained at IDR 916 billion (+8.0% YoY, despite a modest -2.6% qoq dip), achieving a solid net profit margin (NPM) of 25%.

Revised projections: We have updated our financial projections for 2026–2027F to reflect recent developments. Compared to our previous estimates: a) top-line revenue projections are adjusted upward by 14% and 19%, respectively, factoring in the consolidation of BACH and DATA, while also capturing the upside potential from FWA deployments and heightened MNO capex allocations; b) bottom-line earnings projections are increased by 8% and 6%, respectively, even after incorporating higher modeled interest rate expenses.

We maintain our BUY recommendation with target price of IDR 800/sh, which implies 7.6x EV/EBITDA for 2027F. Our target price derived from 5 years DCF with the assumption of 9.6% (prev: 9%) discount rate . TOWR is currently trading at 6.3x EV/EBITDA 2026F, below -1SD of its 5Y band.

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Management Team

26 January 2024 - 02.25pm

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