Sarana Menara Nusantara (TOWR IJ)

Emerging from the Trough

• EXCL merger is potentially value-accretive for TOWR, as no churn and contract tenor reset to 12 years offset the 8% cut in lease rate.
• MNOs' 5G investment directly benefits FTTT, where TOWR leads peers at 67% fiberization though still below regional levels.
• We initiate Buy on TOWR with TP of Rp610 (implying 6.6x EV/ EBITDA); DATA consolidation could add further upside.

EXCL merger impact largely contained

TOWR has largely mitigated site churn risk following the EXCL merger through a mutually beneficial agreement. Under the agreement, TOWR retains EXCL's sites with no churn while extending the remaining contract tenor to 12 years from around 7 years previously. In return, TOWR agreed to a downward repricing of EXCL's monthly lease rates, resulting in an effective lease rate decline of 7.5% from FY25. The operational impact has thus far been limited, with TOWR's adjusted net collocations declining by only 552 between 2Q25 and 2Q26, equivalent to less than 10% of the EXCL overlap we estimate within its portfolio.

Superior fiberization vs. peers to capture 5G upgrade cycle

With the MNOs raising their FY26 capex guidance amid 5G upgrade cycle, we expect the more immediate benefit to tower companies to come from upgrading connectivity through FTTT. Legacy microwave links deliver only ~700 Mbps, whereas fiber backhaul offers 10-40 Gbps, aligning with the 1-5 Gbps per site that 5G base stations require against roughly 200 Mbps for 3G and 4G. TOWR's tower fiberization reached 67% by 1H26, superior to Indonesian peers’ average of 50-60%, though still below the more mature markets (e.g. Thailand at 90% and Malaysia at 80%).

Initiate with Buy rating with a DCF-based TP of Rp610

We initiate coverage with a Buy rating and a DCF-based TP of Rp610, implying 6.6x FY26F EV/EBITDA, as we see the EXCL consolidation-driven churn headwinds easing, underpinned by the accretive negotiation with EXCL and the start of the 5G investment cycle. Our reverse DCF underscores that the stock is conservatively priced, with the market embedding a terminal growth rate of -2.2%, versus our earnings CAGR of 7.9% over FY26-30F. The potential consolidation of DATA could add a further 3.8% upside to our valuation. Key risks are a shortfall in FWA orders, which currently rely solely on WIFI, and higher interest costs given that half of TOWR's debt is floating rate.

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