Hi, good afternoon, everyone. Thank you for dialing in and welcome to PT Sarana Menara Nusantara first half 2024 earnings call with Mandiri Sekuritas. My name is Henry Tedja, equity analyst from Mandiri Sekuritas and moderator for this call. We are very happy to have Pak Adam here, who will discuss in more details about the SMN's first half 2024 earnings results and also other business updates.
All participants will be in the listen only mode during the presentation. After the presentation, we will open the Q&A session. If you want to ask questions during the Q&A session, feel free to press the Raise Hand function on your Zoom apps or type your question in the Q&A box. Without further ado, I will hand over to Pak Adam to start the first half 2024 results discussion. Pak Adam, over to you, Pak.
Thank you, Henry. Thank you, everyone. Good afternoon. May all of you in good health and in a good mood, even though there has been a bit of a volatile geopolitical situation that we are seeing out of the Middle East. Hopefully, everything gets peaceful sooner than later. I am going to walk you through, firstly, the press release that we prepared and shared with people a couple of days back, to be sure that we are up to date with these numbers.
Revenue grew by 6.5% first half compared to the same period last year. EBITDA 4.5%. Net profit attributable to parent after taking into account minority interest sums to about 9.4% growth. Total tower 5.7%. Total tenant grew slower by 1%. Tenancy ratio, as a result, decreased, 1.8 to 1.72.
Total fiber grew strongly from 120,000 km approximately first half last year to become 140,000 km, year-over-year growth of about 16.6%. Fiber- to- the- tower growth is about 6.1%. Better revenue generating, that means the billing that we are doing on the fiber that we have sums to grow by about 11.4%.
Utilization ratio as a result grew from 181% to 190%. Fiber- to- the-H ome, homes passed assets, 464,000 grow by a good factor, 160% to 1.2 million homes passed. Home connect, which is the take-up rate, some people call it or the number of actual homes being using, comes to about 135,000, grow by about 255%. Connectivity activation still grows by accounts, is about 21% to 14,400.
I think I need to say this upfront, and you will hear me repeat again that these numbers are still excluding IBST, the company that we bought in July 2024, which is three months ago. Sorry. Yeah, three months ago. We are due to make payments on the mandatory tender offer on the remaining shares being offered to sell to us by the day after tomorrow, October 4th.
We have not included the IBST into this review yet, just to be clear. Whatever IBST is showing for the first half will not be reflected into SMN numbers because we will only be consolidating starting July 1st. You will only see IBST as part of Sarana by the time we release third quarter, which is likely to be end of October.
Now, the performance itself, the total second quarter from the tower segment shows the impact of relocation of tower lease contracts following the merger of Indosat Ooredoo Hutchison , which I think we have been talking about this for several quarters now. We've been spending CapEx on this, and as a result, we're getting new business, longer contract lease periods sometimes.
We expect since we've done probably 60% more, maybe 70% more, the impact will be the biggest in 2024 books. Which means we're spending CapEx to get the tower lease contract relocated to new locations without getting incremental run rate revenue for it. The entire process will be expected to be completed in the next 12- 24 months, even though there could be a chance it could be done fully by 2025.
Because given the size is smaller now than the current period or previous years. In addition, there was a public announcement here that PT XL Axiata Tbk is exploring a merger with PT Smartfren Telecom Tbk , and this may have an impact. We don't know the impact, how much that impact will be. We did make an announcement. We made an agreement with Sinar Mas Group that the leases under IBST will be a fresh 10 years.
So we expect little impact on non-renewals post XL Axiata and Smartfren merger. With XL Axiata itself under IBST the leases is about six years left in contract duration. Total towers reached 31,500, and total tenants sums to about 54,000. Tenancy ratio 1.72. On the other hand, business from non-tower grows impressively. Contribution to the total revenue reached 34%, up from 32% last quarter.
Revenue growth is quite good, as seen from all the segments grew by 18%, 11%, and more than 400%, respectively, for this segment. The largest contribution is fiber leasing, with total assets growing 16.6% that you see earlier on this table above, that we've come to the possession of about 140,000 km of fiber physical cable, that we seek to basically increase utilization for.
Fiber utilization also reached to 1.9, excluding fiber utilization resulting from synergies between fiber businesses within SMN Group. We try to use the excess capacity like we do with towers, right? Whatever excess capacity, especially with fiber, that we try to basically to be used for other types of fiber solution. Fiber- to- the- tower, cable hopefully can be used for FTTH, can be used for connectivity business.
Whatever we do, new capacity for FTTH can be used for other types of fiber businesses. So we try to do it like that, and hopefully ROE improves over time because we believe in densification the way we believe that tower collocation will benefit from densification of wireless networks.
Consolidated revenue, we talk about this. Our CEO mentioned that we managed to increase 9.4% profit in the midst of significant impact of Indosat Ooredoo Hutchison lease point relocation, which required a lot of capital expenditure and during high interest rate period. I think as of today, SRBI, the lending rate from banks like JIBOR is still quite high. BI rate just got cut by 25 basis points, but that only comes into play end of September, which is as recent as one or two weeks ago. At the same time, probably a bit earlier than the Federal Reserve rate cut.
We see more of this impact on our books on fourth quarter 2024 instead of third quarter. You have seen already what we have achieved so far second quarter this year. Our strategy remains healthy growth on infrastructure needed by the industry. The industry needs relocation, so we are accommodating that, coming into a win-win solution between us and the operator in question.
We always review operating expenses, capital expenditure on a per unit basis, tower, fiber, steel, ground leases, and especially interest costs. I think we can talk about this later in more detail, when we come to the slides. Again, we are repeating that we have not consolidated IBST which will only be consolidated during third quarter.
The IBST report that you saw was done in an audited manner to align accounting policies between us, the new owner, compared to the previous owner and management, and ensure assumptions that we use in acquisitions. This is to say that we look at towers, we look at fibers, and then whatever special relationship that IBST may have with the previous shareholder, we try to basically clean it up in the second quarter filing that we did as the new owner, new management.
We are hoping to see a better increment in performance by third quarter, especially for the first time in consolidating IBST . We mentioned already that after realizing all these numbers that we see as achievable as a new owner, we are still basically confident we can reach more than IDR 700 billion annualized EBITDA. Hopefully that gets realized sooner than later.
At least we have refinanced a lot of debt. It used to be 8.5%-9% borrowing costs per year. We have refinanced those and reaching around 6.5% borrowing costs. That is the press release that we just shared with people two days ago. Now let me walk through the presentation slides. Are you seeing this, Henry, or not? Or not yet? Maybe this one. Okay.
Yes.
Yeah, okay. We are the largest independent digital infrastructure companies in Indonesia, 31,500 towers. This is the fiber relating only to FTTT. Our return on investment, 8.4%, ROE approaching 20%. Still focusing a lot on build-to-suit CapEx spend as much as we can. Probably 90% of new business are build-to-suit model. Which is not many market is actually having build-to-suit fiber in most market like FTTT, FTTH that we do under build-to-suit contracts.
It is not available in most markets, especially the Western world. Investment grade ratings have been reconfirmed by both S&P Global Ratings and Fitch Ratings. I think Fitch Ratings as recent as last month, if I am not mistaken. PT Sarana Menara Nusantara share is included in all these indices. Now we have moved to MSCI Small Cap Index instead of the standard global index. Just highlighting some of the numbers here, IDR 1 billion liquidity amounts.
These are just a lot of the financiers want to lend to us. On top of this, we also have IDR 19 trillion bonds that we can immediately issue under shelf registration program that is already registered with Otoritas Jasa Keuangan. We have reached a 19% ROE. We have been a successful consolidator. We have done STP in March 2000.
The recent number that I saw from STP, the EBITDA margin is 93%, because we are basically treating that company as an incremental tower revenue, and we try to replicate that same strategy with IBST going forward. Industry is consolidating. I was just talking to Henry that PT Link Net Tbk can be up for sale, the fiber. Indosat Ooredoo Hutchison can be up for sale and could be some other tower names that could be up for sale also. We expect to hear more announcement going forward after this. Let's see.
How do I move to next slide? Next slide, please. How do I I want to move to next slide. How do I do that? Okay. We have towers. The split between towers in Java and ex-Java is still about 52%. Just to look at these numbers, Maluku and Papua are increasingly being penetrated. It used to be a much smaller number.
Sulawesi approaching Kalimantan here. Sumatra is relatively sparse compared to Java. But we are building a lot of fiber in the Island of Sumatra. Total towers 31,500. Again, excluding IBST . This is the fiber that we have. FTTT is about 1.9 utilization ratio. FTTH 17,000. Backbone is 19,800 km. As you can see here, Sumatra gaining traction when it comes to fiber presence, creating a big lead way compared to Bali, Kalimantan, and Sulawesi.
On the build strategy, we continue to build-to-suit towers and colocation. We want to expand our fiber optic network. We are putting FTTH now ahead of FTTT because FTTT, I think it's a function of wireless business. If people are still consolidating, I say we see opportunity a lot with FTTH, and we continue to employ liquid balance sheet for strategic acquisition or expansion.
We added, during the past 12 months, 1,700 towers, 19,700 km of revenue-generating fiber, 2,500 activations, and home connects of about almost 100,000. Yeah. 750 home passes. We managed to protect our investment grade. So it's important for us, because it's, again, access to cheap capital is important for this type of business that we have. Tenancy ratio 1.72. 52% of towers located in Java, the rest being ex-Java.
We are hoping to see more of the needs of additional services as managed service and batteries. I think this will be a function of efficiency, better reliance on network availability. Fiber-to-the-Tower. Again, this is a summation. It's about close to 200,000 revenue-generating fiber by end of June.
Activation has summed to about 14,400. FTTH has reached 1.2 million home passes assets with 135,000 home connect with a 11% penetration rate. This is CapEx on towers. This is high because, again, a lot of relocation that we are doing. If you remove this 1.8, I think this huge part of the CapEx for towers is relating to relocations, yeah.
Tenancy ratios, the blue ones for towers, has decreased because we basically relocate the towers with two tenants, Indosat and Hutchison, and then relocate to new locations with new towers with the same tenants, so tenancy ratio comes down. However, we are seeing a marked increase in utilization ratio under Fiber-to-the-Tower segment.
We continue to be busy on the activations for connectivity business, as you can see here, growing nicely. FTTT revenue-generating fiber also grows still quite interestingly. FTTH is not here yet because it's a low base. It's a lower base. Tower revenue 6.7% from non-tower segment, 49%, EBITDA 11%. AFFO, which is mostly deducting EBITDA with interest expense, sums to about 10% figure, yeah.
Slower than EBITDA growth because still interest rate is considered still high in the second quarter this year, and only expect to see a marked decrease in 4Q 2024 after the rate cuts. Contracted revenue IDR 74 trillion. A bit of increase from last quarter. Similar number with end of 2023 in December, which I think this IDR 74 trillion is the largest number in the market among peer comparisons.
Leverage remains at 4.3x. Don't forget, yeah, we are getting a lot. We are expanding. We are incurring a lot of CapEx for relocations, but yet we managed to basically maintain the leverage at 4.3x. Gross debt reach about IDR 46 trillion. Interest coverage ratio 3.8. Average interest cost is about 6.3. I remember the same number last quarter was about 6.4%, and we have not seen the rate cut yet in Q2 .
The same thing with 3Q, because the rate cut has only happened at the end of 3Q. So the market impact will be in 4Q 2024 on this average interest cost. I'm not going to talk again about results since we have gone through. This is the cash flow collection, IDR 7 trillion, and we expect annual collections about IDR 12 trillion. CapEx plus OpEx is about IDR 4.7 trillion. Interest expense is IDR 1.4 trillion.
This number being similar to what we spent in cash out for interest and debt servicing. We end up with cash surplus from operations, and then we got loan proceed to pay for CapEx. Dividend, IDR 28 billion, and then acquisition is IDR 263. Cash ending is about IDR 2.4 trillion. It's a bit high because we were preparing to pay for IBST the following day.
The cut-off date of this reporting is on June 30th, and we were paying for 90% of IBST the following day, July 1st. So the cash balance is reflected on this cash flow statement. Revenue grew by about 6.7% year-on-year, 2.5% quarter-on-quarter. EBITDA 1.7% quarter-on-quarter, and then 4.6% year-on-year. Net income 13%, if you compare only the second quarter to second quarter of the 2024 with that of last year, and then net income quarter-on-quarter 10%.
There's a decline in tower revenue here under revenue analysis. Fiber-to-the-Tower grew by about 18%, connectivity 11%, FTTH a low base, 460%, and then consolidated about 6.5% to reach IDR 6.1 trillion for the six months ended in June 2024. These are the operational data. Towers 5.7%, reaching 31,500 towers. Tenants still stable, about 54,000, so relatively flat at 1.0x.
Fiber-to-the-Tower, 11%. Connectivity, 21% in terms of activations or account. FTTH, 255% from a low base. This is talking about financial profile. This page was part of particular interest for people when Rupiah was IDR 16,000. We basically have locked in the rate that we can pay back the USD debt maturing in 2028 and 2029 at the FX rate of IDR 15,000 per dollar. Those are relevant for these two borrowing.
We also entered into Japanese yen. Similarly, we have also locked in the price that we shall pay back the bank providing us the loan in Rupiah. The exchange rate has been fixed from today until for the time we need to make payments, we are already covered. Okay. That's it. Handing back over to you, Henry.
Yeah, sure. Thank you, Adam, for the presentation. Now we will move to the Q&A session. A kind reminder to all participants, if you want to ask questions, feel free to press the raise hand function on your Zoom apps or type your question in the Q&A box. Pak, perhaps allow me to start with two questions, Pak, from my end. First, we understand that you've been discussing about all the growth trends in the fiber and also in the tower, Pak.
Perhaps could you share more colors, Pak, in terms of the order trend or the order outlook? How do you see both the fiber and tower orders or demand after the XL Axiata and Smartfren merger discussion, going to third quarter, fourth quarter? How do you see the trends so far? Do you see some slowdown in both tower and fiber order? Perhaps you can share some color on that, Pak. That would be my first question.
Okay.
The second question, Pak, perhaps regarding the latest announcement about the rights issue, Pak. If you don't mind, could you share some rationale of having this rights issue? Mathematically speaking, this rights issue provides the EPS dilution to the shareholder, instead of the patient. So what is the rationale of having this rights issue, Pak, instead of, let's say, if you want to do some interest cost savings, why don't you do some kind of refinancing with all the bonds and all the loans that you have right now?
Yeah.
So perhaps those two questions first, Pak. Thank you.
Okay. The number one on XL Axiata and Smartfren potential merger and what is the impact on us. Yes, as we have said in the press release. Even though they are still in the discussion stage, they are already trying to basically emulate similar assumptions for the merger scenario. That results in rather slower organic growth from the side of XL Axiata and Smartfren as a result.
This goes for towers and fiber. We heard a timeline that is quite aggressive for that announcement for the merger, but we have not heard anything. That may drag down, and then as a result, impacting our side of the XL and Smartfren contribution to the organic business. On the biggest expected growth on the fiber is actually for this year is coming from FTTH, Henry.
I think earlier this year, I was sharing that the amount of FTTH should be around 25,000 to 30,000 additional for the year 2024. I think we have reached about half of that by June. But the larger increase, when we closed December 2023, we accumulated about 800K home passes, and we expect to double that by year-end, 1.6 to 1.8 home passes.
At the beginning of the year, we were thinking, since Indosat has not decided on their FTTH strategy, we thought the accumulated number of 1.6, 1.8 by year-end 2024 will be purely from XL Axiata. But now the mix has changed. Fortunately, that somewhere during the past six months, Indosat has started to roll out its FTTH strategy. So what is slowing down coming from XL Axiata has been made up by the growth in FTTH order from Indosat.
Just to give you a bit of color on how the things are split. So towers, we expect a stable number of tenants, as you can see from what we have achieved so far. So whatever natural churn that we expect is to be offset by organic growth coming from somewhere, probably Indosat or maybe Telkom themselves.
Or maybe some numbers from XL Axiata itself and Smartfren, but not as big as we hope that it's going to be like more than offset the churn itself, right? As you know, every year, we typically have a churn about 1%-2% from various reasons, from all reasons, right? Failure to renew ground leases or maybe micromanaging last-minute changes in the network configuration because they want to target higher revenue markets. So that can lead to churn by the somewhere else.
That may have an impact on our numbers, and you may see it as a churn. For towers, I think we continue to spend that for Indosat. Hopefully, we are performing quite well under FTTH because I think Indosat wants to be aggressive on the FTTH side organically, since they are only starting. Similarly, they want to defend whatever they have achieved in becoming a strong number two in the wireless business.
It is just that at the start of the year, we were also hoping for more exuberant estimates for ARPU coming from the industry, including investors, analysts, as well as the companies themselves, the telcos. But we have not seen that yet. Hopefully, similarly, we were let down by the fact that interest rate would remain higher for longer, which we did not expect in January 2024, but that happened.
The statement came out in May 2024. Now we are seeing totally different verbatims coming from the Fed chair. Hopefully, things can change for the better in the next coming quarters, Henry. Hopefully that is helpful for you. For number two, I think, the equity raise, I think we have considered this since June 2022.
I think in the Bloomberg article, our CEO, Pak Aming, mentioned that anything that is alternative financing that we can get in favor of the company, it can be in the form of lower cost of funding, can be equity, can be debt. I think 2024, the difference is that rates are lower. We see basically opportunity to basically add equity during more benign time, lower inflation, lower interest rates than before, Henry. That is the thinking.
Sorry, Pak. Perhaps one follow-up question on that, Pak. You mentioned about during this declining interest rate times and et cetera. That makes me think or perhaps trigger me to a follow-up question on why should we have this rights issue instead of the debt refinancing because we know in the next, let us say, three months or six months, we will have a lower interest rate as well, right? That will affect the debt financing as well. That will lower the cost of debt. It just triggers why do you exercise this rights issue instead of the refinancing.
If you look at the way we perform on the interest rate reduction during the 2Q compared to 1Q, I think we have done a lot. We think there's still room for the banks, for the rate to be cut. However, we're not that confident that the banks will readily cut their lending rate to us. So, if we think the embedded cost of doing rights issue is better for us, I think we will do that. That's the thought process, Henry.
Okay, sure. Thanks. I think we'll open to the floor now. I think we have a question here from Ranjan Sharma. Ranjan, you can unmute yourself.
Thanks, Henry. Thank you, Pak Adam.
Hi.
Thanks for your time.
Hi.
I have a few questions. Maybe I can take them one by one. Firstly, on the FTTH side, where are you rolling out the network? Which geographies?
A lot of East Java also. Sulawesi, Sumatra. I think, people want to try to avoid market where they are number three or number four player when they come into an area or a housing complex. They want to be number one, number two when they come there. We are helping them in that regard. We are seeing pockets of opportunities in Java as well. But I think Sulawesi is a good market to start, usually.
Is it on the same basis that you had shared earlier that-
Yeah
it's on a minimum guarantee basis that they will pay you for at least an X, like a minimum number of houses passed?
Yeah. The typical contract is like that, so that number tends to be there. The minimum revenue increases over time.
Okay. So basically your cost of build is covered?
Yes.
Okay.
It's a build-to-suit. The way we designed this is working together with the said MNOs whenever they want to go FTTH. We're not going by ourself. What we do for them, help them identify where the pockets of potential revenues pick up, and then they decide for themselves. Then we design how the cable will be rolled out, and as much as possible, we try to do synergies in terms of asset synergies with our existing fiber as much as possible, Ranjan.
Okay. Why now? Because, had these been lucrative households to cover, the telcos would have targeted these opportunities much earlier, right? The wireless industry revenue has not been growing much.
The biggest player when we started this in 2022 was only, not only the biggest, the only MNO doing FTTH was only Telkom Indonesia when we started this early 2022, Ranjan. The opportunity came our way in April 2022, I remember. Then we started doing this. It takes much longer lead time to execute because it is a much more complex process than just building dark fiber under Fiber-to-the-Tower or building towers.
Then we try to do this build-to-suit as opposed to going out on a limb and be on a CapEx risk kind of situation. So we follow where the market wants to be and what is the size that they want to have, Ranjan. So when XL Axiata started this, they go by the millions. I think we are approaching one million now with XL Axiata.
Now Indosat Ooredoo Hutchison starting with about 600,000 home passes. Hopefully, as we achieve more during the timelines provided to us, we are able to get more orders. So the driver for this is the need, the execution, the decision by the operators to go fixed mobile convergence strategy, which I think only started two years ago, 2024, Ranjan.
Yeah. No, I understand that. I was trying to understand whether you have been able to deliver any major cost savings, because that is the reason why there was no infrastructure in the first place, right? The consumers could not pay for the build.
Yes, we have been delivering cost savings on our part. The numbers really varies as to how much FTTH assets on a per-kilometer basis can basically overlap that of FTTT, for instance. So we do not have a number, unfortunately, but surely there is synergies between the two segments, helping out, rolling out, in terms of speed to roll out as well as cost savings. Whatever the end customer price that they want to have, each of these, it is up to them because they are the one marketing. We only ask for a portion that would recoup our investment.
Got it. If I look at your lease rates on the tower side, these seem to be under pressure for a number of quarters. What do you see in the industry in terms of competition? Is there any lease rate pressure or where do you see your own lease rates stabilizing?
I think the way we price this, try to make this as a bulk kind of arrangement between the fiber and the towers. We are not basically trying to win ourself on the towers. It is already very good margins anyway, but if we can try utilize this situation and then get more fiber orders, we will do that, Ranjan.
Okay.
I think what is important for us is to grow this fiber even more, and if we can do that while increasing our ROE, increasing our profit margin, for instance, or make it stable, I think we should be okay.
Got it. That brings me to my last question. Thank you so much for your time and your patience.
Mm-hmm. No worries.
If I look at your margins as well, EBITDA margins have been under pressure for a number of quarters now.
Oh, yeah.
Why is that the case, and where do you see that stabilizing?
The tower margin is about high 80%. The non-tower margin is about low 70s to mid-70s EBITDA margin. It's just that the growth in non-tower is faster than the growth in the tower itself. As a result, blended, the EBITDA margin is lower. That's the explanation, Ranjan. What we do here is, on the CapEx spend basis, protect the balance sheet, preserve CapEx outflow in such a way that is very efficient, that we deliver values to ourselves, internally. ROE is increased by way of CapEx savings and OpEx savings between the segments that we have.
Got it. Thank you.
I think this strategy is not available for most of tower companies in the space, because we're probably the only one independent fiber provider that we can market our fiber to anybody. It can be for other types of fiber or any other types of fiber solution that the market may need. That's the competitive edge that we have compared to the others.
The other guys, they're probably lacking in fiber size, number one, and the other guys, probably they are focused more on the Fiber-to-the-Tower, but not so much on FTTH, which is done on a separate box within their group. But in our case, we can use as much of the fiber that we have for multipurpose kind of fiber solutions.
Got it. Thank you.
Thank you, Ranjan.
Okay. Thank you, Pak, and thank you, Ranjan. I think we have next question here from Arthur Pineda. You can unmute yourself.
Hi. Thanks for the opportunity. Several questions as well, please. Firstly, with regard to the IBST consolidation. I'm just wondering, how do you expect this to impact your P&L? Because when I'm looking at IBST, the profitability has been declining.
It swung to the loss level over the last two quarters. Is there a kitchen sinking there prior to consolidation, or is this a trend that we should expect going forward because of the accounting alignments?
Yeah.
I'll start there first, then I'll go to the next questions.
Yeah. Since you used the word kitchen sink, let's stick with that. Yes, kitchen sink is happening, especially 2Q. I think in the press release we mentioned that the reason why we audit the books of IBST 2Q, prior to consolidation on July 1st, we want to see better alignment of accounting policies to our accounting policies, depreciation, collection, aging, et cetera.
Number two, the assumption that we use when we buy the company is being realized closer to reality in the books of 2Q. You have seen in IBST books write-offs, cleanups, which were not part of our assumptions when we were evaluating the acquisitions. The moment we took over the board in August 2024, the audit process has been like that.
We expect, I think in the press release also separately, two weeks ago if I'm not mistaken, we mentioned that we expect to achieve a clean EBITDA of a minimum IDR 700 billion per year annualized. That may be achieved starting Q4 2024, and full realization will start in January 2025. Does that help you?
Understood. Yes.
Yeah.
Thank you. Second question I had is, it's a bit of a housekeeping question. In terms of your tax rate that's been going up, what's been driving that, and where should we see that for the balance of the year?
I think we see a bit of a with the tax office, if you have a case that you have to go to the tax court, for instance, you have to make payments for it, and then we accrue for it, and then we only refresh it later on. That's one possibility, the ups and down in tax rate of the company. There's also employee compensation increase in taxation.
Whatever in nature that employees are receiving will be taxed on a higher bracket. I think that's the most impact that we saw. I think, on our end, we know towers are final tax. Whatever revenue that we get, we will be taxed on a 10% basis. However, on a non-tower, the tax base is on a non-final basis. So we try to be as efficient as much as we can to achieve a more efficient tax structure.
I'm just wondering, in the context of the IBST acquisition, given they've been posting losses, is there any benefit that you can take from that?
Oh, yeah. I have here Pak Daniel. Daniel Kosasih, our Chief of Reporting. Pak Daniel, can you comment on that, please? On the tax losses of IBST. Are you there? Let me get back to you if Daniel is not responding.
No worries.
Yeah.
Okay. Maybe-
I will text you or email you on that one. What is the main theme about the tax losses that Because there is tax books and there is, which is called fiscal books when dealing with the tax office, and there is also commercial books. So we need to check on that, whether the commercial reporting that we have done after the audit, that we can use for tax purposes in dealing with the tax office. Yeah.
Understood. Appreciate you getting that-
That is the part that-
to me though.
Yeah, I will get back to you .
Thank you. Last question. On the revenue exposure on the tower side, I am just wondering, if you look at your contracted revenues, what percentage would be exposed to potential consolidation?
I think for Smartfren is a smallish part of our. I think Smartfren is about 5% before IBST. 5% of our revenue is coming from Smartfren. That is why it is not showing up as the top contributor to the consolidated revenue. However, under IBST, we managed to basically ask the group to get the approval from Sinar Mas , Smartfren, to extend that to 10 years. We are pretty much not worried about that portfolio.
The XL side, co-location tenants under IBST, the average life is at least six years. So still a bit of time before we see any impact. As a result, we do not expect as big as Indosat Hutchison merger, obviously. Not to mention the fact that we have built a lot of new towers for IOH, which is now a strong number two operator. Whatever towers that we have built for IOH could become a workable location for them to relocate after the XL and Smartfren merger. That is my assumption at this stage.
No disclosures in terms of what overlaps there are with regard to footprints?
The reason why we do not know, because we need to have a new board at Smartfren and let them decide what they want to do. We have not been able to pinpoint IOH, for instance, as recent as two years ago. Only after they form a new board that they come up with a number of 7,000 leases. With Smartfren, we do not have a number yet.
Understood.
Yeah.
Thank you very much.
Thank you.
Thank you, Arthur. Then our next question here from Sabrina. Sabrina, I think you can unmute yourself.
Hello, Henry. Thank you. Hi, Pak Adam.
Hi.
Congrats on the result.
Thank you.
I have a question here. Could you provide an update on Indosat tower relocations and whether we should anticipate any further churns in the coming quarters, Pak? Maybe I'll stop here.
Okay. One of the reasons the weaker performance on the towers is actually a weaker-than-expected performance on the IOH side. The site that we had expected to have more renewals, there were lesser renewals than we had expected. But still within the 1% that we mentioned to markets of annual churn rate. I think that should reflect somewhat the dynamic in the industry, in the telecom market that we see.
I was mentioning to people in this call that early part of the year, Indosat was very exuberant discussing about positive dynamics on the ARPU side. But now we are in the second quarter, or third quarter yet. We have not seen improvement on that part yet. So that may have an impact on the renewals of tower leases that we had expected to be stronger and turns out to be weaker. Fortunately, whatever slower on the tower side is being offset by the FTTH growth, Sabrina.
Maybe a follow-up question on that. I recall that in first quarter, I think 50% for the relocation of the towers have been identified. Is there any-
Which one? What's the number that you mentioned? Sorry.
50%. I think first quarter you mentioned that, and then is there any progress from that figure as of now?
By year-end 2024, by my estimate, I think we should have found the locations and then found the solutions for, and then executing for it sums to about 60%-70%. Even more than that, probably, closer to 80%. The remainder 20% should be conducted within the next one or two years.
Okay. We-
I am talking about end of 2024, yeah. Because today we are now in September, October yet, yeah. We have identified work together, getting confirmed the relocation would be achieving about 70%-80% of total leases that needs to be relocated, and the remainder to be done in the next one or two years. Hopefully, it gets done in one year, frankly speaking. By end of 2024, everything will be done.
Okay. On my second question, you mentioned the extension of the contract for Smartfren post-IBST acquisition, right?
Yeah.
Any adjustments on the lease rates or is it maintained as is?
I think we are seeing market rate, yeah. I do not remember the particular of those deal because that depends on the height of the towers itself. We do not expect like, we just look at whatever the value of EBITDA that we can get from this, and then focus on how much that we can pay.
Then we come to about around 8 x EBITDA, 8.5 x EBITDA after adjusting for net cash and everything, and then take it from there, basically. We do not look at particular leases to be at what level. We just look, care about because we have seen in our portfolio itself, Towerindo on the tower segment alone is still delivering very high EBITDA margin because of scale, right? This IBST is going to be increasing even more to that economies of scale.
We do not look at the line by line, what kind of revenue that we expect to get. What we did was whatever revenue that has been signed by old IBST management, try to get that extended. Then extract EBITDA from that IBST in the next six months, if not earlier.
Okay. On the IBST acquisition, how much is the overlapping sites between Smartfren and XL Axiata?
Can you repeat again? How much what?
You have acquired IBST towers, right?
Yeah.
How much of the overlapping sites are between Smartfren and XL Axiata post the acquisition?
We don't look at that either, focus on that either, because the contracts are still long-dated, Sabrina. If they move to another site needing relocation, our revenue is protected. As I mentioned, we worked with the sellers, the Sinar Mas , that we can basically obtain a fresh 10 years on those leases under IBST leases, under IBST towers.
By the time they need relocation, it's just like a relocation offsite. Hopefully whatever thousands and thousands of towers that we have built for IOH relocation can be used for Smartfren and XL Axiata post-merger for their need for relocations rather than building anew. That's why we don't pay particularly about overlaps at this stage.
Okay. Probably my last question. For the Maluku and Papua orders, they are mainly coming from which MNOs? Just curious about it.
Indosat. That part of Indonesia, the eastern part, Halmahera, is Indosat.
Okay, so you are seeing Indosat is getting more aggressive in expanding to the eastern part?
Yes.
Compared to
East Java and including eastern part of Java, yeah.
Okay. Got it. Thank you, Pak.
Okay.
Okay. Thank you, Sabrina. I think we have next question here from Vera.
Hi, Henry. Thank you. Hi, Pak Adam.
Hi.
This is Vera from MNC. Just one question from my end, Pak Adam. Considering the consolidation of IBST effective for July 1st and also the stable tenants growth, can we get the number of what is the tenancy ratio and utilization ratio target for this year and, if possible, maybe next year as well? Thank you, Pak.
Thank you, Vera. I think 90%, if not 95%, of what we do is build-to-suit. Identification of colocation potential that is beneficial for clients, it is up to them. We just follow up what we think should be ideal for them in order to make an equitable network, superior quality, for instance, between one operator to another, for instance. We do all those exercises with them. But they are the ones basically identifying where the locations are, and then we do not know.
The reason why we do not know can be by the time there is a change in the speed of a merger, there could be a chance that PT Telekomunikasi Selular or Indosat want to basically be more aggressive in expanding their network rather than wait, because there is a moment of slowness on the part of XL Axiata and Smartfren during the merger. That could be a possibility as well.
What we do every year, Vera, is to devise a budget, and this is based on talking with operators at the start of the year, what they want to do, and then we try to build estimate on that. At the moment, we don't have a number for 2025.
Okay. Thank you, Pak Adam.
Thank you.
Okay. Thank you, Vera. Pak, I think we have also questions from the chat box here. The first one is from Nico, which related to your leverage ratio for the net debt, maybe that 4.3 x. Regarding the commentary from Fitch as well, is that the level sustainable for the rating agencies, and what is the maximum leverage acceptable for them? The rating will change under which conditions? Will it change if you raise your equity fee?
At the moment, we are at 4.3x. The rating agencies has seen the increase. I think they're quite comfortable by the way we've done, we have executed efficiency programs on the CapEx, OpEx, as well as interest costs.
So far we are okay on the rating side. I don't have a number for anyone to give, given that they are also taking into account industry dynamics, competition. So far everything is quite stable on our end. There's not a set net leverage trigger that I have in mind to share with people, given they also take into account various factors.
Okay. Noted, Pak. I think Nico is on the floor as well. Let me unmute Nico.
Okay.
Yeah. Thank you. Thank you, Henry. Thank you, Pak Adam. Interesting conversation that you had. You mentioned about Can you hear me?
Yeah. Loud and clear.
Yeah. Thanks. You mentioned about some potential targets. I am assuming that you do the fundraising also. So in order for you to have headroom to perform M&A, further M&A, you mentioned Link Net. I understand maybe the synergy is there. But is the Indosat assets the backbone? Is it one of your targets? Maybe you can share with us the potential synergies coming out of this. Thanks.
Okay. Thank you. Just to clarify, I was just naming some of the deals that have been mentioned in the media, in the newsrooms. I think I saw Link Net, and then fiber assets, and then Indosat fiber assets, right? I am not going to speculate which one that we are going to buy. That is clarification number one. Clarification number two, I think we have disclosed in the newspaper, as part of our compliance with the stock market and regulators, is that we will use the money to pay down debt.
Then, we may or may not go into embark into acquisitions in whatever names that I have mentioned or being heard in the market. Yeah, Nico. Just to clarify. But I think, the reason why we choose to pay down debt is just to evaluate, right? We can choose to just grow organically, as far as I know. That is where we are today, Nico. Not to jump ahead, like two steps from where we are today.
Thanks, Pak Adam.
Thank you.
Maybe one last question maybe from me. How much is the revenue contribution, which is beyond the MNOs? Maybe enterprises or-
Yeah. That's a good question.
Please confirm if there's a spike up, yeah, in terms of revenue contribution from other parties. Yeah.
Maybe as one of the proxies that you can look for to answer your questions, try to look up connectivity. That's quite likely to be non-operators.
Yes. I saw that number is going up, yeah?
Yeah.
Business connections.
Yeah. Business connections. The clients include governments, the banks, universities, hospitals, needing multi types of internet connections using fiber or otherwise.
All right.
Okay?
Okay. Yeah. Thank you.
Okay. Hopefully, that's helpful.
Thank you, Nico. I think we have next question here, Pak, from the chat box, from Jundi. Do you expect our tower rental rate to decline further? Are you expanding FTTH too aggressively when the penetration rate is still low? That's two questions. I think the last one here, Pak, let me read it as well. Will family be a standby buyer of rights issue not subscribed by public or will there be a new strategic investor?
I think for number one, we look at total towers and non-towers. We have always been consolidating the two segments. The reason why we separate them, just to show that the non-tower segment has been growing as the need of the market is growing on that side. The wireless is experiencing consolidation as we speak, right? When we go into new business venture, say with Indosat, right?
When they need FTTH, as long as we see volumes there for incremental fiber, right, we don't mind to basically talk about business sense about new pricing on the towers itself. If there is volume, if there is talks about extended contracts, if there's talks about batteries, managed service, we don't mind basically to mix all them together. If you are a bank, say a Bank Mandiri does all these things, right? Or JP Morgan does all these things.
We don't mind cutting down our lending rate to a big customer of ours if we get the underwriting business or bond issuance deals with the said company, for instance. You may see these kind of dynamics happening on our books as well, when it comes to your question. Does that help you?
Yeah, I think so, Pak.
Okay.
I think, sorry, Pak. The third question from Jundi, I think regarding the rights issue, Pak.
Oh, okay. The question about who is going to be the standby buyer?
Yep.
I do not have an answer at this stage. We are due to release more details in due course to the market. Yeah. I think the eGMS remains on October 25th, and hopefully, before that, I think we will be able to share more information. It is just that not today, Henry.
Okay. Noted. Pak, I think we still have two more questions. Pak, do you mind if-
It is okay, go ahead.
Okay, sure. I think, we have another question from Salfi here. Could you please share the latest operational number of PT Inti Bangun Sejahtera Tbk, in terms of the number of towers and also the total tenants?
Previously, you mentioned about IDR 700 billion EBITDA contribution from PT Inti Bangun Sejahtera Tbk. PT Inti Bangun Sejahtera Tbk EBITDA was IDR 210 billion in the first half. So annualize those numbers will be around, IDR 400 billion -IDR 450 billion for the full year 2024. So how long will it take to-
What is this IDR 450 billion?
The annualized numbers of the EBITDA for the PT Inti Bangun Sejahtera Tbk from the first half.
Oh, yeah.
Yeah, numbers.
Yeah. I think I saw somewhere in the chat box, somebody asking about how should we treat the first half result of PT Inti Bangun Sejahtera Tbk with regards to PT Sarana Menara Nusantara Tbk's books. Let me repeat. You will not see IBST numbers for the first half anywhere in Sarana's results. Yeah.
So including revenues, EBITDA, losses, write-offs, it is not going to be part of Sarana's book. We will only consolidate the books that we have deemed in accordance to our accounting standard and our assumptions as a new owner during the M&A buying opportunity starting July 1st, 2024. So namely third quarter that you will be able to see. So you cannot annualize anything under IBST published books. Does that help?
Yes, Pak. I think so.
Yeah.
Yeah. I think next question here in the chat box as well, Pak. Sorry, I think there are two questions here. The first one is, "Can you share the number of site relocation have planned by Indosat Ooredoo Hutchison and the majority relocation in the Java or ex-Java area?" The second question is, "Can you share the average CapEx to build tower and fiber optic in the ex-Java or the Java currently?
Yeah. I think I mentioned about 20%-30% left for us to relocate under IOH relationship. Yeah. I did mention that. Whether the relocation takes place in Java or non-Java, we call them donor and then recipient towers. The donor will be the one moving away, the leases moving away from the tower, and then the recipient will be the towers getting the leases moved into that new tower.
The relationship between donor and recipient, I don't remember seeing them as has to be in the same island, for instance. In Java, you can move to non-Java or vice versa. What we care is we protect the cash flows, the customers is happy, and then we grow from there together after the relocation is done. Does that help you?
Yeah, Pak. I think so. Perhaps on the CapEx, Pak.
CapEx. Okay. I'm going to tell you what the market rate. For fiber is about, I think Fiber-to-the-Tower CapEx is about $5,000 per kilometer, including pole. On Fiber- to- the- Home, I think CapEx is about $100-$110 for homes pass.
Okay, got it, Pak. Sorry, Pak. Perhaps last question here, Pak.
Sure.
I think I skipped this one. That one will be from Melvin. Do you expect to refinance some or all of the debt from IBST using your strong credit rating and lower financing costs?
It's been done, Melvin. Thank you for the question, Melvin. It's been done. I think we bought the company in July 1st, and then we refinance, I think within six weeks after we own the company. Borrowing costs initially from 8.5% to 9%, we already refinanced that to 6.5%. You will see those numbers in the third quarter results as well.
Okay.
For IBST. Yeah. IBST. Yeah.
Okay.
I think I remember there was a question whether we see increase in earnings from IBST consolidated to Sarana. I think yes, we see incremental EPS, even though we have not realized all the synergies, even though not significant enough on earnings from IBST. But we expect to, as this is a stable company and then we can identify pockets of savings and efficiency. I think we should be able to realize better earnings profile coming from IBST towards Sarana results.
Okay, got it, Pak. I think that's clear.
Yeah. If you look at first half, it's a lot of reds. But run rate, I think we should be able to see starting with a positive number.
Okay. Got it, Pak. Yeah, I think our time is up, and we have to wrap up the call. Before I hand over back to Pak Adam for the closing remark, on behalf of Mandiri Sekuritas, we'd like to express our gratitude to Pak Adam for having us, and also the participants as well that joined the call to the end. Hope we can get useful insights from this call. Yeah, Pak Adam, back to you for the closing remark.
Thank you so much for the questions, interest for the company. Very good questions. I think we try to basically execute where the artists coming from. Telco's wireless business is consolidating. We see to see a rebound on the ARPU side, as we have mentioned every quarter. I think what we expect to see a continuous growth is on the connectivity as well as on the FTTH side.
Given that FTTH is a relatively new segment for a lot of people, including the MNOs themselves, who have not been in the FTTH business, and only starting like 2 years or one year ago. Connectivity is a market very big that we think a lot of potentials there. What we offer is a quality network, reliable network with very good service levels that we can deliver to the customers. I think that's it. Henry.
Okay. Thank you so much, Pak, for your time.
Thank you.
Thank you, everyone.
Have a good day, have a good evening.
Yep.
Goodbye.
Take care. Bye-bye.
Okay. Bye-bye.