Let it be bigger

TOWR (through iForte) has acquired 90.1%of IBST shares at IDR 2,813/share; to complete the acquisition, iForte will conduct a mandatory tender offer in the near future. IBST's 1Q24 financial results were quite underwhelming, with net loss of IDR 932 bn, compared to the IDR 17 bn net profit in 1Q23. However, we found out that many of IBST's expenses in 1Q24 were one-off expenses, which would not be repeated in the upcoming quarters. The acquisition will expand TOWR's tower portfolio to over 34,300 towers with almost 58,000
tenants, increase its fiber optic line to 200k km, and provide additional EBITDA of IDR 700 bn. Maintain BUY recommendation with TP of IDR 1,150.

Interesting finding on IBST 1Q24 results

Boards resignation = Golden parachutes? All members of IBST's BoC (3 persons) and BoD (2 persons) resigned on the day the transaction was completed. In 1Q24, IBST booked salaries and employee welfare expenses of IDR 64.2 bn (+115% yoy), higher than the company's 1H23 salary expense of IDR 60.6 bn.
Spike in salary expense isn't reflected in cash payment. Cash paid to employees was recorded at IDR 34.5 bn (+15.6% yoy), which has not fully reflected the spike in salary expenses, which practically doubled; it was probably summed up and paid in 2Q24 and IBST retained lower level of cash just before the company's acquisition by TOWR.
Huge other expenses of IDR 826 bn on provision for impairment losses on contract,credit, and assets. Despite the fact that impairment tests should be done regularly, we believe the company will no longer need to spend such huge provision expenses in the future.
Major revision on fixed asset and equity numbers. In its FY23 report, IBST reported IDR 8 tn of non-current assets and IDR 6.3 tn of total equity. In its 1Q24 financial report, the company revised the numbers to IDR 5.7 tn of non-current assets and IDR 4 tn of equity. The major revision came from fixed assets that were previously recorded at a revalued amount; the valuation was changed to acquisition cost (amount).
Amendment to lease agreement: The majority of IBST's lease agreement will expire in >1Y to 5Y (66.8%) and >5Y (16.6%). With most of IBST's revenue comes from FREN (65.7%), there are concerns of high churn rate and relocation risks once EXCL- FREN complete their merger. TOWR's management has not shared further details regarding the T&C of IBST acquisition. However, in Jun-2024, IBST and Smart Telecom signed an amendment for its tower infrastructure lease, including fiber optic network, with the extension of the lease period for ten years.

TOWR - Welcoming the New Member

TOWR - Welcoming the New Member

16 July 2024 - 07.00am

TOWR - Welcoming the New Member

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