Neutral on tower sector as positive macro indicators may be offset by merger impact
We maintain a NEUTRAL outlook on the tower sector. Despite positive macroeconomic indicators, such as lower interest rates, tower companies still face challenges. MNOs are slicing their capex pie to fund more projects, while the pie's size remains unchanged. Additionally, we anticipate a slowdown in tower revenue growth due to EXCL-FREN merger, whose effect may appear in 4Q25 through 2026. Our top pick is TOWR, as we believe the company will benefit the most from lower rates and diversified business portfolio. We have BUY rating for TOWR (TP: IDR 1,050) and MTEL (TP: IDR 790), and SELL rating for TBIG (TP: IDR 1,800).

Another merger = Repeating the cycle
EXCL and FREN have officially announced their merger plan, with EXCL as surviving entity, rebranded as XLSmart. Looking back at IOH's merger (effective in January 2022), towercos experienced slowdowns or even negative growth in tenancy after the merger. The newly merged entity will likely a) relocate redundant infrastructure to new locations, driving demand for new build-to-suit (B2S) and collocation opportunities, or b) choose not to renew expired tower leases in areas with limited growth potential. Therefore, tenancy ratios at existing towers are expected to decrease, while new B2S tenancies take time to grow. These impacts are expected to become more apparent in 3^rdand 4^thquarters following the merger. Since XLSmart's merger is expected to becoe effective on 15 April 2025, we anticipate that the effects of infrastructure restructuring will materialize in 4Q25 and beyond.

Tower Sector - Stay Neutral for Now

Tower Sector - Stay Neutral for Now

Selvi Ocktaviani

13 January 2025 - 08.14am

Tower Sector - Stay Neutral for Now

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