(Bloomberg) -- Indonesian billionaire brothers Michael Hartono and Budi Hartono, who built their fortunes by selling cigarettes and providing banking services, are now turning their focus on telecom.
PT Sarana Menara Nusantara, backed by Hartonos’ Djarum Group, is open to acquisitions to consolidate its leadership position in the cellular tower business, according to Vice President Director Adam Gifari. Sarana has cash or cash equivalent of about 2.3 trillion rupiah ($167 million) for any purchase, he said.
Indonesia’s rising number of smartphone users and the emergence of e-commerce unicorns such as PT Tokopedia and PT Go-Jek Indonesia are driving demand for high-speed data in the world’s fourth-most populous country. The archipelago lags countries such as China and India in tower density, offering growth opportunities for local companies. Sarana bought smaller rival PT Komet Infra Nusantara last month, its second purchase in two years.
“We’re open to do more deals like that as we are supported by a strong base of shareholders, the Hartono family,” Gifari said in an interview on April 9. “You will likely hear our name if there’s an opportunity to buy tower companies or tower portfolio in Indonesia.”
Djarum Group owns more than 50 percent of Sarana and the Kudus-based company also counts T. Rowe Price Group Inc. and Lone Pine Capital LLC as shareholders. Hartono brothers, through their holdings in PT Bank Central Asia and the tobacco business, are together worth almost $25 billion, according to the Bloomberg Billionaires Index.
Sarana will pay 1.4 trillion rupiah to Komet Infra, which will add about 1,400 towers and 2,000 tenants, the company said on March 26. The company acquired the tower business of PT XL Axiata two years ago.
Valuation
Sarana shares ended unchanged in Jakarta on Wednesday, after gaining as much as 2.3 percent in intraday trading. The company’s enterprise to estimated EBITDA ratio is 8.3, below the five-year average multiple of 12.1, according to data compiled by Bloomberg.
The tower businesses in Indonesia offer earnings margins of more than 85 percent before interest, taxes, depreciation and amortization, the result of a ban on foreign direct investment in the sector and typically long-term tenancy contracts with mobile phone service providers, according to PT Ciptadana Sekuritas Asia. The outlook for tower companies remains positive as demand for mobile internet services will continue to grow, according to Niko Margaronis, an analyst at Ciptadana.
Internet users in Southeast Asia’s largest economy will swell to as much as 70 percent of the population by 2019 from almost 55 percent, or 143 million users, last year, according to data from an association of internet service providers.
The country has about 100,000 towers for its more than 250 million population, while China has 1.95 million units for its 1.4 billion people, according to Indra Gunawan, chief sales and marketing officer at PT Profesional Telekomunikasi Indonesia, a unit of Sarana.
“Mathematically the ratio should reach that level. But we need to take into account the geographic feature of Indonesia. In some mountainous area and with the number of islands, we might need more towers to cover our population.” Gunawan said. “The demand for mobile data will drive requirement for capacity, and therefore our growth into the future.”
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