Good afternoon, and welcome, everyone. Thank you for joining today's group conference call of PT Sarana Menara Nusantara Tbk, jointly organized by Verdhana Sekuritas Indonesia and Nomura. This afternoon, we are honored to have the management of Sarana Menara Nusantara with us to share the company update. Before we begin, please note that this call is by invitation only and strictly closed for the media. If you are a member of the media, please disconnect right now. Kindly be reminded that all lines will be on mute throughout this call. If you wish to request in during the Q&A session, you can either use the Raise Hand function or submit question via the Q&A box. Please be advised that this call is being recorded today, June 3rd, 2026. Without further ado, I hand over the call to our moderator, Erwin Wijaya from Verdhana Sekuritas . Erwin, you may go ahead. Thank you.
Thank you, Stani. Good afternoon, everyone. My name is Erwin Wijaya from Verdhana Sekuritas, and I will be the moderator for today's call. First of all, I would like to thank you all for joining PT Sarana Menara Nusantara first quarter 2026 earnings. We appreciate your participation and trust in the company. Joining with us today, we have management. We have Pak Hartono Tanuwidjaja as a Director and a Chief of Group IR, as well as Pak Adam Gifari , Advisor and Group of IR. The agenda for today's call will be as follows. We will begin with the opening remarks from the management and then the presentations of the first few results and the management outlook as well as followed by the Q&A sessions afterward.
Before we begin, I would like to remind all of us who would like to ask questions, you can either submit your questions through the Q&A chat box, send them directly to me, or use the Raise Hand button to ask your questions directly to management during the Q&A session. With that, I would like to pass over the mic to Pak Adam for the beginning of the presentation. Pak Adam, go ahead, sir.
Thank you, Erwin. Thank you, everyone, for taking the time and join our first quarter 2026 earnings call. This is the first slide. We just released two days ago, or yesterday to be exact, today is the third. We have our first quarter of financials, limited review by our auditors because we are in the midst of issuing IDR bonds. The first slide is basically telling you where we are today. Largest independent digital infrastructure in the country. We looked long and hard on this part, and we think this part of the slide is still very much relevant that we have 180,000+ of fiber optics physical cable in the country. We have 36,000 towers. People call us being the largest. That is true because we have more revenues than any other tower companies in Indonesia.
But we are number two in terms of number tower count, compared to Mitratel, our competitor. The fiber footprint that we have is probably number two compared to Telkom Group. If they combine all the fiber they have all together, that fiber count ranks as number two. But independently, because we can serve anybody, we can serve Telkom, we can serve the FWA , WiFi and MyRepublic, without having to worry about whether we have skin in the game in the fixed wireless game market. We still call ourselves independent. We can lease to anybody, our infrastructure. Number two, solid build-to-suit model for towers and fiber with long-term predictable cash flows and excess capacity for additional revenue stream. This statement still holds true after more than 15 years in the business.
We started with towers and starting in 2015 when we bought iForte more than 10 years ago, we thought fiber can be build-to-suit, can be with excess capacity, and we have probably the most build-to-suit fiber optics in Asia, at least. Because we do not take risk when we build new for our telco company's customers. We build fiber to the towers under build-to-suit contracts, 10-year contracts. When we build fiber to the home for provision of home passes for our broadband clients, it is also under build-to-suit contracts where we have multi-year contract, typically 10 years, under which we can recoup our investment.
Each of the towers and fiber optics we build for the build-to-suit has excess capacity, by which we can basically lease out the excess capacity to somebody else, the second tenant, if you will, or maybe use them for our own internal use, which we are doing today, and we can talk more about that later on specific slide. We can also have Pak Hartono with questions. Pak Hartono is actually CFO of iForte, and he has our M&A transactions for the group. If you look at companies like Fermion, Remala, he is the man running the deals, finding opportunities, and then eventually creating values out of each of the subsidiaries we acquire all those years, including the more recent is Remala. The bottom one is national and international investment-grade ratings. We are still in that one. Even though Indonesia is put into a negative watch from S&P.
But the only thing that limits our rating is actually the sovereign, not anything else. We still have a very strong cash flow generation and even Standard & Poor's is allowing us to have a bigger leverage allowance because the business nature of our company is actually leasing out fiber infrastructure under long-term contracts. That is pretty much resilient and the customers are dependent on our infrastructure being there and ready to use. To the far right at the top is stable return on investment of 8%. We are just here checking. This number is pretty much stable return on investment. Basically, you put up all the EBITDA you can think of the whole company, and then you add all the gross fixed assets and then the prepaid ground leases as no denominator, then you come up with 8%. So it is a very stable, resilient business model.
The ROE of 13.7% because reflecting recent right issue. But on a fundamental basis, return on investment is still at 8%. Then we see the credentials of the stocks included in multiple indices like LQ45, IDX 80, Kompas100, and then MSCI Small Cap Index. Then we have a strong ESG footprint thanks to our corporate secretary team. IDX ESG recognizes us. MSCI ESG Rating has given us an A. Sustainalytics 24.2, and then we also follow S&P CSA score of 40, which I think not many companies are being invited into participating. Next slide, please. So this slide talks about where we come up with our source of sustainability. Number one is capital, because in a world where we put up capital upfront and we invest big investment outlay, we need to have the best access to low cost of funding.
When we closed the books in March, we have IDR 1.6 billion of financing available to us, and this is in the form of offer from sheets or already executed loan agreements. But that is the kind of capital that the company has. But we have always been maintaining the position that we want to get the best deal out of the market, including the banks and capital markets here. And we have investment grade ratings, as I mentioned, with only the ceiling is the sovereign. Then number two, low-risk business, because we lease under long-term contracts, something that the big companies, the big MNOs who have merged into three companies these days, that they are relying on us. And then we have proven a possibility of long-term contracts, and those are irrevocable until today, including from the impact of mergers.
So we need to basically get an agreement between us, before people can change anything, the clauses. And number three, we are a very much ESG conscious management and company. Towers and fiber are also important to reduce digital debt, which play a key role in sustainability of a certain society. Number four, attractive industry structure because we think the industry has been consolidated. I have been in business for 20 years, and only now that I can say we have come to three players now, in 2025. The most recent one is XL Axiata and Smartfren merging in last year. And then we think we have a high barrier to entry because we have 36,000 towers. We cannot make it happen. It took that long for people to replace a company like ours with that kind of assets. And we have, number five, unique position as an asset class, reasonable valuation.
The share price has come down because of market forces, dynamic news flows. The fact of the matter is, fundamentally, we have been successfully consolidating, showing up in our numbers. We are responsible what we have bought, because we want to continue to basically own and extract values from those companies. Even though we are growing like this, we have a very strong EBITDA and FFO growth, with ROE of 13%, including the impact of right issue just last year. What we see going to the future is that we have strong free cash flow and low cost of capital. The market is moving. Yield is getting higher because of the war and certain market forces. But we think we still have the ability to basically extract the best value for the company.
When we think about where do we borrow from, we can borrow from banks because we know liquidity is there. Maybe the bond market is not so favorable, but at least we will have a bond program beyond June, July this year, that we can go back and tap additional capital from the market later on. Indonesia is largely a 4G country. I am sitting here in a hospital next to a window, but my 5G signal is only showing one bar at the moment. So [inaudible] was highlighting that my connection is not so good. But that is the reality. Indonesia does not have a 5G yet. It is more of a gimmicky. They are trying to use whatever they have today in spectrum and equipment for offering 5G, but it is not a true 5G yet.
If you feel like trying out 5G, you should try and go to Singapore, Japan, or maybe Switzerland. A pure 5G will feel like you are accessing WiFi, but you are sitting outdoor instead of indoor, but you are sitting outdoor. That is a true 5G. Feels like the speed is like a WiFi, but you are sitting outdoor. But today, we do not have that yet. We have been saying this, and we see the trend that MNOs increasingly need more services. Increasingly need more types of assets to lease from us, and we are doing that. We are leasing batteries. We are doing power as a service. We are leasing green energy to our multiple types of customers.
We like passive assets because with passive assets, we can invest long-term, and as we grow bigger, we can extract big, better economies of scale from which we can get better margins, et cetera. What is happening with Indonesia internet, we look to improve that together with our MNO clients. We see very strong demand for high-speed internet. Traffic is still growing strong double digit with the population average age is getting younger and younger. We are fortunate in Indonesia to be able to say that as opposed to many other countries in the world. Consolidation of MNOs should create better business case for 5G, which I strongly believe people need lower CapEx risk rather than if they are to compete with more number of players.
With three players today, I believe, we believe that all the MNOs will try to create bigger market share from the 5G market, given that the need for better and reliable internet on the wireless mobile is increasingly and more noticeable these days. One of the things that we also looked, and this is the chart that Mr. Raymond Kosasih of Verdhana highlighted many years ago, that the ratio of population per tower in Indonesia is still very high, which is needing more towers if you compare with that of U.S.A. and China. The number of towers when this was said a couple of years ago was still at 100,000. Today, we are talking about maybe 120,000 towers, and we haven't seen tenancy ratio increasing during the past three or five years.
We still believe that this metric is still relevant for the whole of Indonesian wireless mobile industry. Thank you, Pak Raymond Kosasih for highlighting this, and we're still using in our discussion with investors and analysts. Box C to the far right at the bottom there. We want to expand our product offerings. We want to be successful for it. We want to be sure that we have economies of scale. We are opening up branches, right, Pak Hartono? We are opening up branches in various cities across Indonesia, not only in Java, but we want to be closer to where our customers are. These are especially for connectivity customers. We want to also be sure that Protelindo, and other types of fiber, people can also use those offices as well. So create a synergy that our next competitor cannot replicate, in terms of synergies.
Of course, strategy will be driven by evolving the needs of customers. We will discuss more about this, especially with regards to first quarter, what happens to our tower revenue, and our fiber revenue. As the last point at the bottom, C3 here that we see fixed mobile convergence is happening and mobile is increasing. We see the last result of Telkomsel, for instance, or Telkom Group. Broadband revenue because of competition. We think over time there will be further consolidation in that home broadband market. We'll be around that basically to provide a lot of fiber for people who want to do this into the future. Of course, 5G that we can discuss later on. Next slide, please. We are splitting our business model, tower and fiber under build to suit assets.
This slide talks about predictable revenue because when we build fiber to the towers, connecting towers to towers for backhaul, and SLS towers that we have as our bread and butter. This slide basically represents about 80% of TOWR consolidated revenue. So including towers, fiber for FTTP, fiber for FTTH, that we build for home passes. It's all built to suit. So we have a very steady revenue stream, and that's where you see we have a stable return on investment. What we need to make sure when we invest something, the nominator at the top, the EBITDA number has to be accretive. The denominator has to be efficient. We try to basically use our other existing assets to be sure that we have a very strong denominator for us to reach a sustainable return on investment of 8%.
Dependent tenants, because we have the most towers for customers like Indosat or customers like XL Axiata. We basically probably 40%, 50%, 60% of the towers they use in the country belong to us. We need to be sure that they need us, we also need them. It is a very strong linkage between the two companies. Whenever they move around, we want to be sure that we are also serving them. Upside from additional revenue, this is surely talking about using existing assets for co-locations or using existing fiber for additional co-leasing. Not to mention other types of businesses that we can talk on the next slide. High barrier to entry because it took us almost 20 years to build up 180,000 km of fiber, 36,000 towers. We are not small. We are private sector. We are not small.
We took all these years for us to build together with our customers and our team members management. Fast-growing industry, the usage is growing double digit. 5G, the markets are looking for it, the customers are looking for it. Infrastructure providers such as us are looking for it. Investors are also looking for it. When 5G is going to happen. I think we were in that meeting for Hartono, right? I think 10 days ago with investors from Singapore. We think it could be second half of this year, but we have not seen anything. We are seeing that it is almost two years that we have this new administration, so we are hopeful that something could happen sooner than later. Next slide, please. This is our connectivity business. Basically, the remainder 20% of what we have in our consolidated revenue is coming from connectivity.
This segment has been growing double digit for the past five, seven years. It is a very strong growth contributor for the whole TOWR. Of course, we try to grow the other segment as well. Because we have the most independent infrastructure in Indonesia, we have the large capability to reinvest, and we have the capability to expand. We can offer to internet service providers, which are hundreds of them in Indonesia. Some of them we bought, like PT Media Antar Nusa, Varnion, Remala more recently, to basically work together with them.
In Bahasa, we call them like "Ujung tombak." They are the ones who create market ahead of us, and whenever they need support in terms of new fiber, we will be behind them to build them for them, rather than we compete with each other, but we would rather grow together with them, aligning our interests if we become co-owners in several of the joint ventures in Indonesia. Large addressable market, we have one to five years contracts with large target market, including corporates, SMEs, and households through subsidiaries. Remala, iForte, Varnion, PT Media Antar Nusa in Sumatra. Because we have the most and we have the best interest in the market to basically utilize our existing asset, these guys, the subsidiaries, will be doing it for us. Not to mention also our own iForte will be utilizing our existing fiber to this new market.
This is connectivity, and then when we talk about connectivity in future quarters, this is the type of business, this is the type of segment that we are talking about, ladies and gentlemen. Next slide. This is where we have towers, 36,500 towers. Java is easily 52%, 53%. Java has never been diluted below 50%, as far as I can remember. That shows clearly even though the other markets outside of Java, when people say it is growing faster than Java. But in our books, the tower count in Java has never been below 50% of our total towers. That means Java is still an important market. Even in downtown Jakarta, we are still building towers, even though it is not easy, but the need is there. We are hearing from the working levels of operators that they see black spots in dense areas in Jakarta.
I think, I have been saying this, we have been saying this, and then I think still relevant today, is for these MNOs, these operators to come up with a nice monetization path. Once they see what they have invested before, see a good monetization path, then they can reinvest more. Whenever they invest more to get more revenues, they need to see better pricing, better monetization path. That is what we have been waiting for. I think the market is seeing for a good three consecutive quarters, price have been increasing, including Telkomsel, Indosat, and XL Smartfren. We are very much cautiously optimistic that people will need more towers and fiber eventually. Because once the market is consolidated into three players only, then people would want to be able to basically monetize better what they have already invested, including for the merger cost themselves.
They will be likely to compete more on quality than on price. That has happened for the past almost 20 years now in the business. Next slide. This should show the fiber where we have fiber, but on my screen, it is showing as blank page of white. I do not know what happened. Maybe it is my connection. But I think what we can show here is that the fiber has been all over the place, more than just Java, Sumatra. But we are seeing markets like Kalimantan, Sulawesi, and eastern part of Indonesia also needing some fiber. The share screen is off. Is that correct?
Yes, Pak. Let me check on the presentation first.
Okay. Sorry, ladies and gentlemen. While we wait, I think a bit of a move a bit forward compared with the flow of the presentation is that we are seeing that for 2026, the growth will still be mostly from Connectivity business, right, Pak Hartono, correct me if I'm wrong.
Yes.
Yes. Basically, we see certain reservations still out of MNOs before they invest big time into the mobile network equipment that they need to invest in. We understand fully where they are coming from. The recent war, increased oil prices, high inflation, and now we are seeing weaker rupiah also could hamper the ability of MNOs to charge more of the customers because a lot of the increase in cost, a lot of whatever they have in additional income will need to go elsewhere before they can spend more on mobile top-ups. Okay, this is fiber optics. Thank you, Stani, for coming back. Sumatra is already 46,000, and then Java is 107,000. Bali Nusa Tenggara 7,000, Kalimantan 7,000, Sulawesi is 12,000.
The most difficult part is the purple one, right, Pak Hartono, when we try to build to the farther eastern part of Indonesia, given the nature that is involving subsidy cables. We need to be sure when we do that we have a scalable targeted market when we go to those parts of Indonesia. We are still working on that, and we will surely come back to you once we see something. It's multiple types of islands, so it's not easy to be frank here. Next slide.
Maybe, Pak Adam, I want to add something for this slide.
Yeah.
Can we go back one previous slide?
Yeah.
Just to highlight that, as mentioned, we have close to 200,000 km fiber optic across all Indonesia. With this 200,000-km fiber optic generate multiple revenue stream. It can be used for fiber to the tower, can be used for the fiber to the home, and also can be used for our connectivity business. This is the beauty of our fiber optic, which have the multiple-
Yeah
revenue stream.
Yeah.
It is similar like tower ratio in tower.
Yeah.
So like that.
Yeah.
On top of it, I just want to highlight again what Pak Adam said that tower, fiber to the home, FTTB, this is a non-speculative business, which is a build-to-suit model that we only invest, we spend CapEx whenever there is an order from our MNO. So, there is always a day one return on it. That is what Pak Adam trying to say, that this is a build-to-suit model, which is generate a stable cash for long-term contract, non-cancelable with a blue-chip customer. Based on that, on top of that, we see that how to more utilize those assets. That is why we come up with what Pak Adam said, we acquire a local ISP, like Nusanet in Medan, which is strong connection in Sumatra Utara, Varnion in the Bali.
We have also Remala, which also to speed up our utilization of this fiber optic to go to the B2C. While iForte, also utilizing this fiber optic through our connectivity, the B2B connectivity. So iForte is focusing on the B2B, while the B2C is through our subsidiary. Because we see that B2C is quite a unique one. We just need a local knowledge because the ISP that we acquire is now in their local presence, so will be easier for them to speed up the utilization of our fiber optic. But also don't forget that connectivity, which is B2B or B2C, it needs a POP, right? Points of Presence. So we have also the advantage of that because we put the POPs in our tower, which is we don't need to pay the ground lease.
That is another good thing on us that we can actually very efficient in the CapEx and OpEx.
Yeah.
That is my addition on Pak Adam.
Thank you, Pak Hartono. That is the strong advantage that we have compared to our next competitor. Be it they are running a pure tower business or be it they are running a fiber leasing business, but they do not usually in the same position with ours that we have both and in a sizable manner that we basically can marry the locations of where we have fiber and towers in many kinds of occasions in order for us to save costs. Think of it this way, if we can save costs whenever we expand because we have towers in that same locations, and we have a very efficient cost of capital and a very high economies of scale, then we should be better off than the next competitor. It is just a matter of us maintaining the discipline while waiting for the industry to rebound.
Because at the end of the day, it is all about bottom line efficiency from various types of inputs and outputs. That is where we are today, basically as a sizable infrastructure provider in the country. Okay. Shall we move to the next slide?
Yes.
Yes. Okay. We have added for our build strategy, we added 1,066 towers for the past 12 months. We added 19,000 km of revenue-generating fiber, and this goes towards higher utilization ratio. Then we added 9,093 activations. That is where we measure connectivity business. And we added 107,000 home passes, and we added almost 45,000 home connects. Then we protect investment grade, and we maintain investment grade, and then we expect the same dividend payment for the shareholders as part of our return policy. We budgeted the same dividend as last year until we see maybe there is a higher, better different business case than we had expected in 2026. But we expect to continue to operate the business as efficient as possible.
We noted the inflation push from the recent conflict in the Middle East, for instance, or weaker rupiah, but we continue to manage as much as we can as part of the task of the management. Next slide, please. Towers, we have 36,500 towers. We have 1.66 tenancy ratios. We expect this year a slight increase because the churn that we had expected from last year's big merger, IOH, to have subsided in 2025 and then 2026, which is a matter of executing the remainder couple of hundreds for IOH. For XL Axiata, we expect much less impact on our tenancy ratios, given XL Axiata has a much less location that they need to move into. We expect to have less number of new towers to be built under XL Axiata merger compared to that of IOH merger.
We try to accommodate the relocation into our existing towers as much as we can. That's a positive from this merger. XL Axiata merger will be the last merger that we expect compared to, we cannot say the same five years ago, but we can say with high confidence that this merger of the MNOs into three players now is the last. We continue to see cautiously optimistic that monetization of their investment is continuing to be improving from the increased prices. Number of towers located in Java is 53%. As I mentioned, I have not seen this 53% being lower than 50% for as long as I can remember. Fiber to the towers, we have revenue-generating fiber by end of March of almost 240,000 km. If you divide 237,000 with 180,000, then you come up with 1.7, 1.8 utilization ratio.
Network focus to support surging data traffic. We have long-term contracts also under our FTTH and FTTP. Connectivity, we have 26,740 activations. Fiber to the home reaches 1.8 million home passes with almost 290,000 home connects, 15.8% penetration rate, which is markedly higher than last quarter of 12%. It's an improvement. We are happy for our customers and as a provider, we want to see them succeed. Let's move to the next slide. This is our CapEx spend. At the far right, you see in March, we spent IDR 571 billion of CapEx for the tower segment in blue, and then IDR 552 billion for non-towers. Don't forget the IDR 571 billion is inclusive of ground lease payment that we prepay upfront to renew our right to use the ground under the towers with most of our landlords.
At the bottom there, we have a tenancy ratio of 1.66. We are hopeful there's an inch of increase of this tenancy ratio given the Fixed Wireless Access guys are expanding Surge. It's looking to lease our towers, and they seem to be executing. Utilization ratio of the fiber is 1.89, and this is including our subsidies. That's good given that also XL Axiata need reallocation of what they pay us into fiber so that we see a higher utilization ratio on fiber. But as we can discuss in later slides, we see a slight negative on our tower revenue in the first quarter. Next slide, please. This is our track record of consistent growth. At the bottom there, the box you see number of towers, almost 35,000. The tenants is 60,700.
Fiber to the tower kilometer generating revenue, almost 240,000, which is an increase from December 2024. Activations under connectivity, we increased about 800 accounts. We have been very busy, and the team is very busy under connectivity to get more customers. We are hopeful that they continue to do so given that we have a sheer amount of fiber in the country. Next slide. This is the chart that we were talking about. The tower revenue is down a bit, and we expect this to be the last meaningful impact on our tower revenue from XL Axiata because we have entered long-term contracts, refreshed long-term contracts with XL Axiata, so they can continue to use our towers with existing prices as reflected in the first quarter. Revenue from non-tower increased to IDR 6 trillion from IDR 4.6 trillion. IDR 6 trillion is the annualized number.
The IDR 6 trillion increase is actually because we consolidated a subsidiary that we have been owning 30% of for the past years. We discussed with auditors, and we were able to consolidate the subsidiary, namely, BAF Multi Global. Starting January 8th, we consolidated that company. So we booked revenues, we booked their EBITDA. EBITDA is still growing, even though the margin is a bit lesser because BAF Multi Global is basically a contracting company, so they have a lower margin. As you can see, the absolute number of EBITDA is growing. FFO is also growing. So the split of revenue may be impacted because of XL Axiata, but as you can see, the EBITDA and FFO continues to grow. Next slide. This is our leverage. Gross debt is 4.45. I think last year, this number used to be 55.
We raised capital through right issue of 5.5. So we've actually paid more debt than we raised in equity from shareholders just last year. So kudos to management who have been very strict in cash management, in collections, finding out what is missing in the contract that is still within our rights to collect. Net debt to EBITDA is about I don't see the number here, but it should be around 3.8x. Oh, it's 3.9x at the top there. So a slight increase. Interest coverage ratio, 4.8x Average interest rate is 5.5% as of March. Next slide. Gross revenue, 10.8% year-on-year increase. Gross income, 4.8. Operating income, 3.3%. Profit before tax increased by 24.5% because of less finance charges, including that of [inaudible] . We have a less amount of charge under others. So that comes to about profit before tax increase of 24.5%.
Net income grew at 17.2%. EBITDA, 3.8%. I think this reflects the fact that we are really working very hard, and first quarter is typically a more difficult quarter than full year because a full year number of quarterly numbers, usually we sum up whatever outstanding we have not been able to collect during the past three quarters of the year, and we manage to do that in the fourth quarter. So first quarter is basically a fresh start for the management to break into in 2026. Next slide. I think we can skip this one. Next slide. Cash beginning, IDR 648 billion. Collection, IDR 4.388 trillion. Capital Expenditure of IDR 0.8 trillion. Cash surplus, IDR 2.1 trillion. Interest, IDR 645 billion Loan proceed, only borrowing, IDR 735 billion. We have a cash ending of IDR 2.2 trillion. Next. Revenue, we increased year-on-year, 10.8%. Quarter-over-quarter, a decrease of a slight 2.2%. EBITDA, - 5.4% quarter-over-quarter.
Year-on-year grew by 3.8%. Net income grew 17.4% year-over-year. Quarter-over-quarter is -15% because, again, whatever we try to collect in a year usually happens in the last quarter of the year, typically. Next slide. Tower revenue analysis, - 4.1%. Connectivity, high-growth booking, connectivity for 44%. Fiber to the tower, 3.7%. Fiber to the home is 2.8%. Others is growing faster, 100%. This includes BAF Multi Global, BMG, as well as green energy power generation and other subsidiaries, basically. All in all, we grew the company by revenue 10.8%. Next. Towers summary operational data. We grew 1,000 towers or 3% during the past 12 months. Tenancy, we grew 4.6% as part of the restructuring of A reseller into original tenants. So we grew that number of towers tenancy by 4.6%. Fiber to the tower grew 8.7%. Connectivity 51%, and FTTH is 56%. Next.
Oh, this is the part that makes me smile every time, given that the rupiah is now approaching what, 18,000. Right, Pak Hartono? We did these three boxes in red under which we borrowed in dollars and we hedge. At the time, we're still able to hedge at 15,000 by the time we pay down the debt, which respectively first half of 2027, first half of 2028, and then first half of 2029. The rest is basically in rupiah. Japanese yen we also have, but most of them are basically implemented cost hedge. So we are still protected as well. I think this is the last slide. I apologize for talking too long. It's 45 minutes into the call. So I'm handing it back over to Erwin. Thank you, everyone.
All right. Thank you, Pak Dam, for the comprehensive presentation. Ladies and gentlemen, we will now begin our Q&A session. As a reminder, please submit your questions through the chat box, or you can use the Raise Hand button to talk directly to the management. So we have received quite a number of questions, Pak. First line of questions come from Sabrina Prima. So there are three questions. The first one is the tower lease rate. So, we know that the average lease rate has declined to approximately IDR 11 million per tenant per month. The lowest historically ever, and more in line with the prevailing industry rates. Could you elaborate on the key drivers behind this trend? Is that decline primarily attributable to new contracts being signed at a lower lease rate?
If so, given the new contracts should still represent a relatively small portion of the overall portfolio compared to the legacy contracts.
Yeah.
Maybe you can start with that.
Okay. Let me try to address one by one if possible. The deal with XLSmart is the last and the first that we think can do because we agreed to that because of this merger, and we want to see them successful as well, number one. Number two, they are a very big customer of ours, and they also treat us as a very big vendor. We kind of need each other to be sure that the numbers work. But as long as for us, we see other types of revenue stream coming from XL Axiata today currently to replace that shortfall or into the future, we think that is fine. The decrease is probably from 11 to 10.5. Right, Pak Hartono? Correct me if I am wrong, but that decrease is manageable.
We do not expect to see another merger like this happening ever again in Indonesian telcos. That is where we are coming from. Pak Hartono, do you think you should add anything more?
Yes. Pak Dam, that is correct. Yes.
Yeah.
We see XL Smart is our anchor tenant for tower and also for the fiber. We try to support them during the merger. This decrease also compensated with the reset of the contract period. Everything actually is reset. For another roughly 10 years' time. Yes, we are experiencing a little bit down on the revenue, but we have a longer contracted revenue with them, which, we believe that will be favorable to us across the year. That's my comment, Pak Dam, additional for this tower lease rate.
Yes. I think that's a very good point. I think we want to have sustainable operations after the merger. We want to see them successful. Once they are successful, which we think they will, then the roll-out of 5G and then better services for the whole country will require them to lease more infrastructure. Even before that, we already have the commitment for other types of businesses coming our way. We don't intend on this to be a new practice in the market, but because of this merger only.
Yeah.
Yeah.
Sorry, one more question, Pak Dam. Yes, it's compensated with the longer contracted revenue. We receive another order also for the fiber optics.
Yeah. Mm-hmm.
Overall, we see that this is quite favorable for us for this deal.
Yeah.
All right.
Yeah.
Thank you, Pak.
Yeah.
Moving on to the next part of the questions with regards to the connectivity business. Could you provide more colors on the connectivity business model and its revenue recognition mechanisms? We looked at the average revenue per activations has been relatively volatile from quarter to quarter. What are the key factors driving this fluctuation?
Okay, I try to take this, Pak Dam. Yes, the connectivity business model is we have more than 6,000 customers, B2B customers. The business model is not like tower or fiber, which is IDR per kilometer per month. This is based on bandwidth.
Yeah.
This is dedicated internet for the corporate enterprise.
Yeah.
It is measured by bandwidth. Let's say 100 MB is how much per month, like IDR 5 million, IDR 10 million.
Yeah.
Yes, this varies from one customer to another customer. It can be as low as IDR 5 million to IDR 7 million, but also some customers can generate more than IDR 100 million per activation. It really depends on that deal by deal basis.
Got it. Thank you. Moving on to the last part of the question, it is about FTTH penetrations. The penetration rate for FTTH is at all-time high right now. We observed that while penetration continues to increase, both quarterly and yearly FTTH revenue have declined. Could you help us understand the reasons behind the disconnect? In addition, how is the FTTH service typically priced and monetized from the customer's perspective?
I also take this, Adam.
Yeah.
Yes, FTTH currently we have more than 1.8 million home passes. I can separate this between two boxes. One is B2B business, which is we built the home pass at around 1.8 million home pass for XL Axiata and Indosat. They are the one actually who sell into the market to the B2C. It is a wholesale for us. This is a long-term contract with the minimum payment. There is a minimum guaranteed because it is a built-to-suit model. They pay us based on the home connect, but with the minimum penetration rate.
Yes, the penetration rate is increasing a little bit from quarter to quarter, but the revenue is flattish because, like I said, this is still below the minimum commitment from them, minimum penetration guarantee rate from the XL Axiata and Indosat.
Got it.
1.8 million, which counts more than 95%, is based on that, the whole wholesale business. The rest is B2C, which is run by our subsidiaries.
Right. Thank you.
Hope it is answered.
Yeah. Moving on to the next questions. I will try to compile questions sent by anonymous attendees. The first question is, can you share how the current exchange rate impacts your business? Does the revenue receive always use the latest foreign exchange?
I think from my recollection, our only exposure to foreign exchange is only on interest expense. That is very small because the bulk of our borrowing is on rupiah when we pay interest only. The principle is basically hedged under the loan that we showed on the previous pages. There are other types of dollar exposure that we have, but this is also relatively small because we pay CapEx mostly in local currency actually, when we buy for fiber, for steel, stuff like that. As far as I can remember, actually, our exposure is very small. Correct me if I am wrong, Pak Hartono.
Yes, Adam. I agree that the implication is quite minor at the time. This mainly because of two things. First, yes, some of our component actually we purchase in IDR, but actually, the raw material is the U.S. dollar also. But luckily that we locked the price actually before the war. DWDM, fiber optic, early this year, we see that we have provided with our enough stock.
Yeah.
Luckily that we have the stock with the old price. So the impact is pretty small, as we can say.
Thank you. Moving on to the next question. How has the trend of the lease rate been? Can you share what is your current payback period or IRR for towers and fibers? Any target of towers or tenants growth in the next several years?
We built a bottoms-up model for each of year's expected results. We based the numbers on feedback that we hear from markets, because we do not see the next year of 2027 from today. We try to forecast as much as we can from the team of a year from customers. This year, I think for top line, from usually IDR 13 trillion, we are seeing we achieving IDR 14 trillion of revenues. EBITDA to be mid-70s% or 78%. The bottom line, we will have to wait until where we see interest rate and exchange rate, for instance, because translation processes from accounting.
Got it. Thank you.
I add more lines, Adam.
Yeah.
In term of the top line, yeah. For tower FTTT and FTTH. When I say FTTH here, it is a wholesale business. More than 95% of our portfolio is a wholesale business for FTTH. This is a customer-driven business. So we rely on the XL Axiata, Indosat or Telkomsel to lease from us. But we see that in terms of ARPU, it is getting better from them. So hopefully, it makes them more capable or more CapEx-driven in the future to grow the business. That is for tower FTTT and FTTH. But do not forget also, we still believe that tower is still important in the future. So regardless about what kind of technology you have, you still need tower to transmit that. That is our belief. In term of the additional tower for Indonesia, we see two separate growth. One is new area like Adam said, Sumatra, Kalimantan, Sulawesi still need more towers.
Even for Java, actually, they need more dense tower later on. We hope that in the midterm, the tower business will pick up again. That is why.
Thank you. The next question is how does management think about capital allocation priorities, buyback at current valuations versus increasing dividend payout or reducing debt or acquiring or building more towers and fibers, Adam?
This year, instead of concentrating on the growth, we are disciplined on the CapEx and OpEx. We see more like interest cost also, we keep trying to lower it by various initiatives, like Adam said, that we are raising IDR bond and also negotiate with the banks also for the lower rate if possible. So, we are quite disciplined with CapEx, OpEx, and leave that actually for better debt repayment schedule. In terms of
Yes
dividend and buyback. Buyback, I think we have done it in the first quarter, Adam?
Yeah.
Yeah.
Yeah. We have some, yeah.
Yeah. We-
We bought some.
We see the mix of it, which give the best result for our stakeholders. The tagline is we are very disciplined on CapEx and OpEx to support our revenue growth.
Thank you. That brings us to the next questions. One participant asked that your CapEx is actually bigger than your depreciation, but your EBITDA growth doesn't seem to keep up with the additional CapEx and depreciation. At what point do you think your ROIC and ROE will bottom?
I think it's a function of higher asset utilization. I think what is missing from tower segment is higher CapEx spend by the customers that would require them to lease more towers, i.e., a higher colocation tenancy ratio on our towers. That is what is missing. I think we have seen for the past five years consolidations that led to basically a stagnant number of tenants or even lower tenancy ratios because we are allowing for new towers to be built for one of the mergers. But I think once we see a rebound in tenancy ratio because people need to compete on quality under, obviously 5G in the future and more fiber utilization, we see better ROIC because we have a lot of assets already to be utilized.
All right. Thank you.
Also, Erwin.
Oh, yeah.
Adam, this CapEx, I think it also relates with the merger of IOH. Two years ago, we spent CapEx to build to suit for them to relocate.
Yeah.
We have spent more CapEx to maintain our revenue with them. It also relates to that.
Yeah.
All right.
But that one repeats under XL Axiata merger because we expect to build much less number of towers for XL Axiata merger than IOH merger.
Yeah.
Yeah.
Thank you. Maybe this is going to be the last question. This is the line of questions comes from Clinton Kozali and another participant asking about the plan that iForte or Surge plan to roll out about 1,800 FWA sites before calendar. Could you share the current run rate of FWA tenant additions and the outlook for FWA tenant peak growth for TOWR in 2026?
From last number we heard, before Lebaran we saw 400, but today we are seeing more than 1,000 number of leases that they look to lease from us. We could see some more also coming from FWA [inaudible] .
Yeah.
Yeah.
Also, adding to Adam's comment for this and my rep. For sure, they need to roll out quickly to return their investment because I heard that their OpEx also to maintain the spectrum is very high.
Yeah.
They need to roll out massively as soon as possible to get to the economic scale of the business. That is one thing. Second thing is also that, I heard that, like Adam said, that recently they just finished the VRM and then ready to launch another batch of rollout. We do not know yet what is the impact to us, the order. That is number two. Number three, also, I want to emphasize that for this MyRep and Surge is, we try to discipline ourselves that we provide the colo only. Meaning-
Yeah
we do not build-
Build
a tower for them.
Yeah.
That-
Right
we maximize the existing tower, 37,000 tower that we have at the moment.
Yes. So that is where we are coming from with the higher tenancy ratio, Erwin.
All right. Got it. All right. I think that wraps up the whole Q&A session. Thank you, ladies and gentlemen, for your participation. I will hand over the mic to the management for the closing remarks. Thank you, bye.
Pak Hartono, I would like to say something.
Yes, please.
Pak Erwin and everyone, I would like to say that this will be my last earnings call with you guys representing the company. In future quarters, we will be in the good hands of Pak Hartono, already with me for several quarters already now. I want to spend more time with my family, and that's the only reason why. Don't be a stranger when you guys meet me in Jakarta or in Singapore for that matter.
No. Okay.
Hartono for you.
Yeah. Also, not only in Singapore and Jakarta, but I think you will be more time in London, Pak.
London also. London also. My number hasn't changed.
All right.
Thank you, Adam. Thank you for assisting.
Thank you, everyone.
All right. Best of luck, Adam, and thank you, Pak Hartono, as well.
Yeah. Thank you.
Thank you.
Verdhana for organizing this call.
Thank you, Verdhana.
Thank you, Pak. That marks the end of our session. I will hand over the session again to Stani. Thank you.
Thank you so much, Erwin. Thank you so much, Pak Hartono, and thank you so much, Pak Adam. Sir, best of luck for you, Pak.
Thank you.
Okay. Thank you very much, ladies and gentlemen. This does end our session.
Yeah.
You may now disconnect. Thank you and have a great day, everyone.
Best of luck, Pak Adam.
Thank you.
Thank you.
Thank you.
Thank you. Bye-bye.
Bye.