Solusi Energi Digital (WIFI IJ)

Strategically-positioned with potentially big contracts

We believe Surge is strategically positioned to capitalize on the current ICT trends through enabling connectivity and backhaul capacity to large business customers. Surge enjoys significant competitive advantages from its potential to offer access to low hanging fruit end-users with fast network deployment. Surge projects its revenues to potentially reach ~Rp1+ trillion in 2024 with steady margins, which we see as plausible.

Competitive edge with Kereta Api: a) fast rollouts. Surge’s competitive edge lies in its revenues sharing deal with PT Kereta Api Indonesia (KAI). Through the deal, Surge is able to offer attractive locations to both big MNOs and small ISPs with 5,764kms of fiber surrounding Java laid on the tracks of KAI and the highways of Jasa Marga. With cables deployed Surge minimizes site acquisition and construction costs. Surge’s assets are also highly scalable making it an attractive partner for MNOs, Hyperscale DCs and ISPs seeking cost-effective infra solutions with room to grow in the long term. b) proximity to low hanging fruit. The close proximity to a large number of households (11.4 million within a 1km radius and 20.0 million within a 5km radius) provides a substantial market opportunity for network expansion, especially for MNOs and ISPs.

At the right time in the right market. Surge can generate revenues by leasing out network core through 3 different routes (railway-highway-roadside fiber), providing affordable bandwidth for ISPs, colocation & CDN services through its Edge Data Centers (currently present in 55 locations), interconnection for HDC big customers, provide BTS poles to MNOs for fixed wireless services and cellular services, as well as FTTH. Thus, we believe Surge is likely to secure more long-term contracts with MNOs and ISPs to propel Surge to Rp1+ trillion annual revenues in the near-term.

Fundraising and Growth Potential. Surge plans to issue new shares (4 new / for 5 existing shares, at Rp270) to support bandwidth expansion and geographical growth. The commitment of the principal owner and ongoing negotiations with potential strategic investors indicate strong confidence in Surge. Moreover, despite the rights issue with potential proceeds of ~Rp490bn, from our back of the envelope proforma, Surge’s ROIC can increase to the 2-digit level in 2024 if sales rise closer to Rp1 trillion. The management is also confident that EPS may reach the previous level of Rp28 in 2022.

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