Operator: [Indonesia and Nomura]. This morning, 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 your line will be on mute throughout this call. If you wish to ask a question during the Q&A session, you can use the raise hand function or submit a question via the Q&A box. Please be advised that this session is being recorded today, 6 November 2026. Without further ado, I am handing the floor to our moderator, Erwin Wijaya from Verdhana. Erwin, the floor is yours. Thank you.
Erwin Wijaya: Thank you, Sunny. Good morning, ladies and gentlemen. My name is Erwin Wijaya from Verdhana Sekuritas, and I will be the moderator for today's call. I would like to thank you all for joining PT Sarana Menara Nusantara, Q3 earnings conference call, and we appreciate your participations and interest of the company. Joining with us to`day from the management is Pak Hartono Tanuwidjaja, our director and Chief of Group IR. The agenda for today's call will begin with opening remarks from Pak Hartono, then review the company's operational and financial performance, and then followed by a Q&A session. Before we pass the floor to Pak Hartono, I would like to remind everyone who would like to ask questions, you can either submit your questions through the Q&A chat box or send it to me directly or use the raise hand functions to ask your questions directly to Pak Hartono.
Erwin Wijaya: Without further ado, I would like to pass the floor to Pak Hartono. Go ahead, Pak.
Hartono Tanuwidjaja: Okay. Good morning, everyone. Glad to be back having this earning call again. Thank you for Verdhana Nomura, especially to Pak Erwin, Pak Raymond, who helped us organizing this call. Thank you for everyone who joining this meeting this morning. Okay. Happy, can you move the slides? We start with page 3. Okay. Before that. This slide is the same with the previous deck in the Q2 earnings call. Just want to highlight that Sarana Menara now has moved from traditional tower provider, now becoming the digital infrastructure platform. If you can see that our tower now close to 37 towers, and our fiber exceed 200,000 kilometer, which is quite a move from previous quarter.
Hartono Tanuwidjaja: We also want to highlight that our business model is a defensive one, which is resilient from the turbulence of the economic from the industry, because we have a long-term contract, non-cancellable with the blue chip customer. Number 3, we want to highlight also that our infrastructure, our main infrastructure, which is tower and fiber, is a multi-use, which mean that it can generate more than one revenue stream, i.e., there is a synergy, very high synergy within tower and fiber. We will go through this in the following slides. Number 4, we want also to highlight that we are an investment-grade company. So, translated that our cost of fund is very competitive among our peers, which is very important to our business, which is the interest is largely cost of goods sold for our company. Next, Happy. This slide telling us that we are competitive against our peer.
Hartono Tanuwidjaja: As I repeat once again that our scalable tower and fiber footprint, which is resulted very efficient in the OpEx and also will be helpful when we roll out for the another CapEx. Revenue visibility, meaning that our revenue is very stable, predictable, supported with the long-term contract, recurring one. So, it is very, I should say, it is very neat for this current circumstances. Again, this is, I repeat once again, that multi-use infrastructure. So, our tower and fiber works very closely to deliver the high synergy. Capital access, we investment-grade rating. Next, Happy. This telling us the structure. If you see in the right-hand side of this page, it is a tower close to 37,000, more than 200,000 fiber footprint supported by VSAT. We have the 5 C-band transponder.
Hartono Tanuwidjaja: Again, that is supported again with our managed service company, which is our subsidiary, to deliver the multiple revenue stream, which is tower revenue, FTTT, FTTH, connectivity solution, and adjacent business revenue, which is we will go on the next page more detail about this. So, I want to highlight also in here why we put this diagram. Let us say tower, what is the related tower with the FTTH, let us say, or connectivity? This FTTH and connectivity needs a place or, yeah, need a POP to deliver the services. Now, comparing to our peers, which is maybe they have to rent to the certain rukos or small offices to store the active equipment and maintain as a POP. So, our POP is located in our tower. Totally no tower.
Hartono Tanuwidjaja: So meaning that we do not have to pay the rent. That is a very good example, this diagram, why tower supported also the FTTH and connectivity business. Next, Happy. We go to the business model, start with tower, this slide, and the following page for fiber. I think many of us fully understand about tower business, but I go through again very quick. This is a build-to-suit model, which is non-speculative, which we receive the order from MNO to build a tower in a certain area. It is a long-term contract, mainly 10 years, sometimes 12 years, non-cancelable. During this 10 years contract, initial contract, actually, we got our money back with quite decent IRR. This is the start of the tower. Now, what is interesting is the co-location. One tower can host more than one tenancy.
Hartono Tanuwidjaja: As you know that in the next page, in the following page, we will talk about the tenancy ratio, which is the measurement in our tower industry. Co-location is when the major profit is coming for us, because in co-location, we do not need to spend CapEx anymore, which is maybe very little if we need the strengthening, but the lease rate is similar to the anchor tenant. This is the game for tower, which is the share assets. The tenant, just repeat once again that our tenant is a multinational operator, telecommunication operator, which is Telkomsel, XL, and Indosat, which is known as a blue chip company. 10 years master lease with non-cancelable one, which is predictive cash flow for us, supporting the non-speculative CapEx spending.
Hartono Tanuwidjaja: In the last bullet of this box, actually, I want to highlight that in the tower lease, there is a certain portion is for the OpEx subject to the annual price escalation. This helps us to protect our margin from the inflation. Next. This time, I want to highlight again about the fiber business model, which is, I repeat once again, because this is quite new for the presentation deck. It started previous quarter. This diagram, I want to highlight that one fiber optic, if you see in the middle, there is a fiber optic, and then inside the fiber optic, there is plenty of cores. In one fiber optic with the multiple core inside. There are 12 cores in one fiber optic, 24 cores, 48 cores, even 96 cores.
Hartono Tanuwidjaja: When we deploy our fiber, depending on the area, and then this is a strategic decision that we sometimes we deploy quite many cores in the certain area. Let us say in this case, 48 cores, because we believe that the needs can be utilized for future requirement. In this diagram, I show that one cable actually can service three multiple products. The first one, fiber to the tower. We go through one by one, the business model, start with the fiber to the tower. This is similar with the tower, pretty similar, I should say. Same customer, which is operator company, Indosat, XL, Telkomsel, and some small operator. It is a build-to-suit for the long-term non-cancelable contract, usually 10 to 14 years. Non-speculative CapEx spending. Again, within the initial contract of terms, we got our money back with our investment with the decent IRR.
Hartono Tanuwidjaja: However, I want to highlight this fiber to the tower, the pricing actually IDR per kilometer per month for 2 cores only. So remember when I said that we deploy 12 to 48 cores. So we got our money back in the initial contract with a decent IRR, plus the extra cores that we can utilize for the future needs. So this is the game. Again, similar with the tower, this is also can be multiple use for one fiber optic, which is we will go through on the following page. Now, move to the second one, fiber to the home, and sometime we say this is home internet. In our company, we have two business model for fiber to the home. The first one is the, which is the main one, is a B2B, the wholesale model.
Hartono Tanuwidjaja: The second one is the small portion, is a B2C or B2B2C, which is 2C is run by our subsidiaries. So I want to touch on the B2B first, what does it mean? Again, similar to the fiber to the tower, similar with the tower business model, this is a build-to-suit one, ordered by the XL and Indosat in this case. So we build the infrastructure to the home for them, and they are the one actually to sell it. So the business model is we got paid by the number of home connect they can sell. However, this B2B is structured as exclusive for them. Meaning that if we build 600,000 home pass or 1 million home pass for them, this is dedicated for them. So we cannot sell it to other ISP. So this is an exclusive, 10 to 12 years contract.
Hartono Tanuwidjaja: Hand-in-hand with the exclusivity that we got a guaranteed minimum home connect guaranteed from them. So this is, if you see, this business model is pretty similar with the tower and the fiber to the tower. It is a predictable cash because there is secured by the minimum payment every month from them. Within the contract also, we got the money back with the decent IRR, the same, because that is the nature of our company as a infrastructure provider. Now, the beauty is, because we have the massive fiber optic footprint, remember in the following one, previous one, when I am talking the fiber to the tower, we have the extra cores inside the fiber optic, right? So for the certain area, depending on the area, we can use that extra core or available cores from the other products.
Hartono Tanuwidjaja: Meaning that our CapEx will be lower and then faster to deliver. That is the first fiber to the tower scheme, which is B2B. Also, we have the B2C one. Initially, we are only focusing on the B2B. However, this B2C is run by our subsidiary, because iForte, in this case, the DNA is for the B2B only. That is why when we want to the B2C market, it is run by our subsidiaries like Varnion, Nusanet, Remala. But again, that is one also the reason that we acquired this small ISP, actually to faster the utilization of our massive fiber optic footprint.
Hartono Tanuwidjaja: Want to highlight also on this B2C, we concentrate on the exclusive area, like exclusive high-rise building, exclusive, let's say, in the certain complex or like this Grand Indonesia or Menara BCA, and also C- and D market, which is, this is a specialty of Remala, which is they can be very efficient. That's why they can target that C- and D market. That's fiber to the home. Sorry, I forget to highlight also about the fiber to the tower. Fiber to the tower, maybe for the person who just joining this call today, fiber to the tower, actually this is connecting a tower with the fiber, replacing the old microwave, as a backhaul. In the old days, they use microwave to connecting between the sites, the tower, to deliver the bandwidth.
Hartono Tanuwidjaja: However, because the increasing in the bandwidth requirement, the microwave cannot keep up with the higher bandwidth requirement, so they replace with the fiber optic to connecting the tower. That's actually the business of the fiber to the tower. Now, I move to the third one, which is the connectivity solution. This connectivity solution, we deliver our service as a dedicated internet. I want to highlight this is a dedicated internet, not a broadband business. That's why our customer is a B2B, which is the enterprise. This is different with the fiber to the home, which is a broadband business here. Again, this connectivity solution is growing fast to help our revenue growth. Just want to share that in the last 5 to 6 years time, our CAGR revenue growth for this connectivity business is always more than 20%.
Hartono Tanuwidjaja: Again, I want to highlight that why this connectivity business can grow that rapidly. This is because of the extra cores of our fiber optic resulted of the previous business, like fiber to the tower and fiber to the home. So we can penetrate to the certain areas, certain cities with the cheaper CapEx in front, and also with the faster delivery. So you can see this is what it means that one fiber optic can deliver three different revenue stream. Next, Happy. This is the portfolio of our tower. Across the most of the island, Sabang to Merauke, so from Java, Sumatra, Kalimantan, Sulawesi, Maluku, and Papua. Now, if you see in the right-hand top one, there's a box about the tenancy ratio. This is what I said before that one tower can be leased for more than one customer.
Hartono Tanuwidjaja: That's why we said as a anchor tenant for the first one and the co-location for the following tenant. So 1.67 tenancy ratio, meaning that with the 36,958 towers, there is a tenancy for more than 61,000. In the bottom right-hand side, you see the trend of our tower and tenancy. This is interesting if you see from the early 2007, maybe at that time, I don't know, I have not been in this industry at that time. I heard that the MNO can exceed more than 10, and now actually only 3. But even that, you see that TOWR is survive, can always keep up with the industry consolidation. If you see in the today's that we still manage to have the tenancy ratio for 1.67. Next. Sorry.
Hartono Tanuwidjaja: By the way, I want to highlight also in the left-hand bottom box, from 36,000 towers, 66% already connected by fiber. This is in the future will be quite important, according to me, because they start talking about the tower AI ready now. Because whatever you want to do with AI, you need a fiber, right? So, we will be valuable if our tower already fiberized. So, we can be connected to the bandwidth and then can do many things related to AI, which is we see that it will come very soon. Next. This is the fiber portfolio, fiber business. So in the top, it is a Fiber-to-the-Tower. We can book more than 230,000 kilometer bill. As I said previously that the business model is IDR per kilometer per month.
Hartono Tanuwidjaja: So, meaning this one meaning that we can bill every month is a run rate, a recurring more than 234,000. So the utilization ratio represent the similar nature about the tenancy ratio in tower. Fiber-to-the-Home, now we print more than 2.7 million home pass with the penetration rate. Again, this is the operational metrics for the Fiber-to-the-Home, which is the home pass, home connect, and then penetration rate. It is a similar just to measure that how effective the asset generating revenue. In this case, it is 18%. I want to highlight also, we just entered this Fiber-to-the-Home not many years ago. So it needs time for mature. So we expect this penetration rate is keep going up. In the bottom one, it is a connectivity. So we serve almost 6,000 enterprise customer.
Hartono Tanuwidjaja: In the left-hand bottom box, it said that supported by 806 POP. I said to deliver this connectivity solutions and the Fiber-to-the-Home, we need a POP to store our DWDM, the active equipment like DWDM, the OLT, ONT. So we need a POP that which mainly our location is in the tower. So, will be a cost OpEx efficiency for us comparing to our peer. We also have the submarine cable connecting our major island. So we have Java to Batam to Singapore, Java to Sumatra, Java to Kalimantan. So this we see that the subsea cable is very important to reach to the new area to support our growth in the future. Next. This page telling us about the adjacent business. So we know the tower in the start with the right-hand top one, the tower business.
Hartono Tanuwidjaja: We walked through that before, previously. Fiber connectivity solution, software as a service. If you see there is a Flipo, Caponet, Megalos, and HRIS. This is a legacy when we acquire our subsidiaries company. So they have this before we acquired them, which is very helpful. This is a very complement to the connectivity solution. So if you sell only the internet, this is more and more becoming a commodity. So we have to pack it, we have to blend it with other services to become more sticky to us. So also want to highlight that we also operate or we close to 9,000 white label ATM. This is a joint venture with Seven Bank, Seven Bank Japan. So this is backed by Alto as a switching company. Energy solution. We start our business with the rooftop solar panel.
Hartono Tanuwidjaja: We also look very carefully on the IPP about this opportunity, yeah, genset solution. Mainly, this is from our subsidiary, Bach Multi Global. So, together with the project and managed service division, this is related mainly to Bach. So, Bach Multi Global Company want to share the story why we enter to this business, yeah. Around 4 to 5 years ago, our tower, we use a multiple vendor to maintain the towers. I think around 5 to 8 vendors, yeah. So, every year we try to seek efficiency by negotiating the price down until a certain time we see this is already bottom, and we keep trying to find the cost reduction of it. So, we're thinking about to give to one of them only. So, there is a volume game, which is we give them at that time maybe 25,000 tower, yeah.
Hartono Tanuwidjaja: So, we did a beauty contest among the vendor at that time. So, the winner or the best at that time is Bach, yeah, Bach Multi Global, BMG. So, we give all the orders to one company, BMG, and then we're thinking that it will be necessary for us to have a control to that company because all our operation is depending on them. That's actually the logic why we enter or why we acquire this Bach, yeah, BMG. AI, artificial intelligence at data center. Now, we now have several small data center. I should say this is very small data center, like in the rukos. It's not really a data center as you see, like for instance, DCI or Bitera. This is actually to serve our connectivity solution. So, our 6,000 enterprise customer, many of them actually need data center.
Hartono Tanuwidjaja: That's why this is actually a package to our connectivity solution. Cloud computing solution. We start, just want to highlight that we have lightened the four units server of H200 as a trial. So, we have that in our, one in our POP. This is very important. It's a NVIDIA GPU. So, we understand this business is very complement to our business, so we want to stay close and then learn it from it. So, we have power or to already RFS the four server of H200 in Jakarta. I believe this is one of the first machines arrived in Jakarta, yeah, H200, yeah, because we imported last year. Now, the last one is IoT. This is related to one of our subsidiary, Integrasia.
Hartono Tanuwidjaja: So, their specialty is, they start their business as a system integrator, and then lately, it's more related to the IoT, with the sensor, water sensor, electric sensor. Yeah. So, that's the whole, I should say, how many? Nine division of TOWR, yeah. So, I touch base each of them quickly. Next, Happy. Next. Now, this is our nine-month performance. If you see our revenue grow 14%, this is quite remarkable. Now, nine months exceed that IDR 11 trillion. In the following page, we can see the breakdown of it, the bridging how to arrive from IDR 9.6 trillion to IDR 11 trillion. The EBITDA grow, I should say, healthily, more than IDR 400 billion year on year, and net income also more than IDR 200 billion. I want to highlight this net income, yeah. We know that the interest rate now is increasing.
Hartono Tanuwidjaja: In Q3, we see that our interest expense is going up. I will touch base in the following page. There is a section for this interest. Next, Happy. This is the revenue by segment. This is actually the trailing from IDR 9 trillion in 2025 to IDR 11 trillion in 2026 by segment. Tower, yes, it decreased, slightly decreased 3%. This is mainly because of the XLSmart consolidation. At that time, early this year or end of last year, we come to the agreement with them that we agreed about the slightly discount on the lease price. However, followed by a reset of the tenure, so everything, all the tenancy become 12 years from early this year, sweetened also by the orders for the fiber business, FTTH. It is a package deal, and no churn for the tower.
Hartono Tanuwidjaja: They can relocate to our existing tower as a co-lo. Yes, there is a guaranteed that we need to build-to-suit for them, but only a couple hundred only. We feel we are very happy with the result of the negotiation with XLSmart. This is a win-win, I think, between XLSmart and us. FTTT growing 2.8%, FTTH 4.6%, and connectivity 40%. The big one actually from the adjacent business, this is consolidation of BMG starting early this year. However, I want to highlight also, even we take out the BMG, the adjacent business, we still growing close to 3%. I said that tower business, FTTT, FTTH connectivity is our core business, the differentiation with our adjacent business. Our core business still growing steadily.
Hartono Tanuwidjaja: We know that it is a challenging month for this industry because the consolidation of XL and Smartfren coming quite early, because in the last three years also, IOH, with Hutch. This is the breakdown about the revenue by segment. This is already growing 14% year-on-year. Next. This is nine months bridge EBITDA from IDR 8 trillion to close to IDR 8.5 trillion. Next, Happy. This is want to share the remaining contracted revenue that close to IDR 100 trillion. If you see this jump from IDR 75 trillion to IDR 100 trillion in 2024 to 2025, this is what I said as a result our discussion with XLSmart. We give them a slightly price discount on the tower lease price, but they give us the longer reset the contracted tenure. So, it is back our remaining contracted revenue exceed IDR 100 trillion at that time.
Hartono Tanuwidjaja: If you see in the right-hand bottom, there is a comment that this is approximately 7.3x on the yearly revenue. Meaning that if we do nothing, it guarantees our current revenue for the next seven years. This is also what we said is a very stable business, because everything is contracted, non-cancelable with the bonafide customer. Next. This is our balance sheet. If you see now, our financing costs for nine months reaching 5.87%. I put also some This is new things for this slide. I add also the movement of Indonesia and BI Rate as a comparable, how to see that our how efficient our funding cost is. Now, I want to highlight that this, even the nine months is 5.87%, but if you see only for Q3, yes, it increased, I think, slightly above 6%. If you see only Q3 only.
Hartono Tanuwidjaja: Now, the middle box telling us our leverage. We are now sitting on close to 3.9x net debt to EBITDA. This is comfortable for us. It is quite comfortable because our covenant with our bank is 5 times. There is also a note that our loan, which is IDR 45 trillion compared to the contracted revenue, IDR 97 trillion. This is to say or to see from the other angle that contracted revenue comparing to our loan. The third column is, I want to highlight that if you see now, the fixed rate loan is already exceeding 55%. That is our initiative to mitigate the exposure of the increasing on the interest rate. Strategically, we move some of our loan from floating rate base to the fixed rate base.
Hartono Tanuwidjaja: In the bottom one, I want to share also that we still have around IDR 84 billion loan in foreign currency, but it is fully hedged, so there is no exposure of the FX movement. Next. The rating. We maintain our BBB- with the S&P and BBB for Fitch. There is an ESG rating score also there, MSCI ESG. A tier, 23.78 is a medium risk one. Frankly speaking, I do not too understand in detail. I am still learning about this MSCI, about this ESG rating. If there is any question about this, maybe I need time to get back to you if there is any. Next. This is only the supporting numbers. Next. It is our balance sheet. Now, again, this is one of the most page, is the cash flow.
Hartono Tanuwidjaja: For the first 9 months in 2026, we print free cash flow more than IDR 8.3 trillion. We use for 3 buckets to maintain the CapEx spending to maintain the growth and to maintain the existing business, like ground lease. It is a combination to maintain for the existing tower, also for the new tower. We spend IDR 5.5 trillion on this. The second box, we service our debt, IDR 2 trillion, and then in the last one is the dividend payout. We want to highlight, yes, this is quite high in the CapEx spending, but do not forget, this is also including the final purchase shares from BMG and Remala. Even with this spending to pay the debt and the interest, also give the dividend, this can be served by our internal free cash flow.
Hartono Tanuwidjaja: That is what it means, the comment that IDR 8.3 trillion operating cash surplus fully funds the reinvestment, debt obligation, and shareholder return. That is the key highlight of this page. Next. This is just want to quick walkthrough about this page. This is our ESG performance. Next. Next. Next. Next. I think that is all what I can share to all of you this morning. Erwin, I get back to you on this.
Erwin Wijaya: Thank you, Pak Tono, for the comprehensive presentation. We will now begin with the Q&A session. As a reminder, all participants can either submit your questions through the Q&A chat box or send it directly to me, or you can use the raise hand functions to talk directly to Pak Tono. We have a few couple questions, Pak, that have been sent in, but let me begin with a few questions from our end. I noticed that the recent revenue growth has pretty much been growing or dominated by the connectivity and the adjacent businesses. How sustainable is this growth trajectory going forward? You also mentioned that the company is trying to tap into the FTTH. Does the company intend to enter that fully or just providing that as a passive infrastructures?
Hartono Tanuwidjaja: Yeah. I believe this FTTH wholesale model, Erwin, yeah, wholesale model which is we provide, we build home passes for them to sell exclusive. I think the only one in Because I really get involved in the beginning of this era about the FTTH back in 2020, yeah. At that time, this is our creation of the business scheme. I don't think there is any other company providing this similar structure or similar business scheme, yeah. Usually, they build and then they engage with the several ISP. We call it a multi-ISP as a co-location.
Hartono Tanuwidjaja: We don't believe at that time, or I should say that we believe this model that we implement, which is the wholesale model with the predicted guaranteed IRR, is more suitable to our company, which is, yeah, if you see that our core company, FTTH company, it's the same DNA that we are infra, so we are more happy to have a more predictable IRR returns.
Erwin Wijaya: Okay. You see this new business connectivity and adjacent businesses can be sustainable in the coming times?
Hartono Tanuwidjaja: Okay. About the connectivity business, the 9 months growth is 40%, right?
Erwin Wijaya: Correct.
Hartono Tanuwidjaja: That is including if we normalize with because it started consolidating Remala into the picture.
Erwin Wijaya: Yeah
Hartono Tanuwidjaja: For 3 months, if we normalize that, I think our organic growth of connectivity still exceeds 20%. That is what I said that in the last 5 years, the CAGR of revenue growth for connectivity exceeds 20%.
Erwin Wijaya: Okay.
Hartono Tanuwidjaja: We believe the upcoming, there is still a good chance to still maintain this increase. You see that more cities that before we see are small cities, tier 4 cities that we do not want to come in first. Now we see that the requirement for bandwidth is there now because everyone is now using the internet or the IoT. So we believe that the growth is still there. Even I understand that the competition will be tough, as usual, but we believe with this, our strength, unique asset that we have, like before we said that we can come to the market with the more cost-effective CapEx and the more efficient OpEx. We believe that we can compete with the market in the coming years.
Erwin Wijaya: All right. Thank you, Pak, for the explanations. Now moving on to the floor, Pak, we have some questions. The first question is that, what are the EBITDA margins for each segment? Is there something that you can share with us, knowing that the incremental EBITDA margin on the IDR 1.4 trillion of revenue growth is about 32%, while the group EBITDA margin declines slightly to about 77%. Can you share with us or can you provide the standalone EBITDA margin for each segment, Pak?
Hartono Tanuwidjaja: Yeah. Again, this is quite tricky, the question, because let's say I start with the familiar one, tower. If someone asks me how is the EBITDA margin for tower? It really relates to the co-location, the tenancy ratio.
Erwin Wijaya: Correct.
Hartono Tanuwidjaja: Because the higher tenancy ratio, the higher EBITDA margin.
Erwin Wijaya: Yeah.
Hartono Tanuwidjaja: Yeah. The same also happens for the FTTT and FTTH. FTTT depending on the utilization ratio. The higher utilization ratio, the higher EBITDA margin. For fiber to the home, similar, the higher penetration rate is the higher EBITDA margin, because most of the OpEx is, I should say, a fixed OpEx. So the increase in revenue, a big portion will go straight to EBITDA. What I can share that FTTT with this current utilization ratio, and we believe we can maintain even, hopefully, we can get a higher utilization ratio of the FTTT. I think the EBITDA margin is similar to the tower.
Erwin Wijaya: Okay.
Hartono Tanuwidjaja: It is similar to the tower. Do not forget also that in the FTTH, there is no ground lease, Erwin.
Erwin Wijaya: Yeah.
Hartono Tanuwidjaja: You see in the tower, there is a ground lease, right? But for the FTTH, there is no ground lease. For the FTTH, really depending on the penetration rate. Growing up, if with the penetration rate 18%, how many percent EBITDA margin? 20%. How many EBITDA margin? So this is a moving numbers, Erwin. So it is really hard to give the comment on this, yeah? However, like I said, our approach always most to the IRR, yeah?
Erwin Wijaya: Yeah.
Hartono Tanuwidjaja: Before I said this is a build-to-suit one, most of it build-to-suit one with a non-cancelable, so with spending CapEx, with the measured IRR within the initial contract.
Erwin Wijaya: All right. Thank you, Pak. Now moving on to the next questions. What is the hedging rate of a non-IDR debt, and what level are they hedged up to?
Hartono Tanuwidjaja: Yeah, it is a fully protected IDR 15,000. It is a USD to IDR at 15,000. So it is really safe.
Erwin Wijaya: Okay. All right, Pak. Thank you. I think we have one more question. Looking at the current stock price, do you have any plans of doing buybacks more aggressively, Pak?
Hartono Tanuwidjaja: We are currently in the middle of the buyback program, right? We announced that we launched a buyback program, I think, if I am not mistaken, IDR 500 billion, yeah? Yeah, IDR 500 billion, Pak. Yeah, IDR 500 billion. Until IDR 500 billion. Yeah, until IDR 500 billion, Erwin. Again, if I refer to the cash flow page, yeah, Erwin, yeah? It is more to the Happy, can you bring up to the cash flow page? Yes, this one. Sorry. After the cash flow one, before this. Kelihatan nggak? Coba, Happy. Bukannya ini, yang cash flow, ya. Sebentar, Pak. Yeah, this one. To share with all of you that in our management, this is actually what we are focusing. How is the capital allocation? How to utilize this free cash flow?
Hartono Tanuwidjaja: How is the portion? What is the optimal portion about the maintaining the CapEx for growth, to deleveraging, or to the shareholder return? That is very liquid, yeah? From month to month, we monitor it closely, because the situation from month to month can be changed quite drastically. In short, we are more careful in the capital allocation. How to spend this free cash flow? Which one is the best spending of this free cash flow for our shareholders, for our stakeholders in the short term, mid-term, and the long term? That is why maybe in the common words, we said the TSR, yeah, the total shareholder return, yeah?
Erwin Wijaya: Correct.
Hartono Tanuwidjaja: Again, this is part of this equation, Erwin.
Erwin Wijaya: Okay. Thank you, Pak. Now we have a question from Fajar of Danaparti RM. The first question is that the net debt stood at approximately IDR 44 trillion, with the net debt to our Q1 EBITDA about 3.9x. What is the management comfortable leverage range, and when does the company expect the ratio to fall below 3.5x?
Hartono Tanuwidjaja: Below 3.5x?
Erwin Wijaya: Correct.
Hartono Tanuwidjaja: Well, this is exactly what I said, that we monitor this. By the way, Danaparti, I think we have a schedule to meet next week. We will discuss in more detail. But this is exactly what I said, Erwin, that it really depends on how we allocate this free cash flow.
Erwin Wijaya: Correct.
Hartono Tanuwidjaja: But that is why in here, we said we are very comfortable with this level of net debt to EBITDA. There is no hurry to lower it, but we understand there is a necessity to deleveraging, because of the current higher interest rate regime. So, it is very liquid discussion from month to month. This is most of the topics of our board when having a meeting.
Erwin Wijaya: All right. Thank you, Pak. The second question is also still from Pak Jerry, is that a significant portion of the borrowings is classified as short-term. How much must be refinanced over the next 12 to 24 months, and how does the management anticipate higher funding cost?
Hartono Tanuwidjaja: Okay. That is a very good question. I do not have it in here. I can get back to you. Mona, please raise an answer email to that, yeah? But I want to highlight also, this is actually our strategy to maintain the cost of fund. So we understand about the needs to evaluate this because of the liquidity risk and cetera. But I want to add also that at the moment, we have around IDR 20 trillion unutilized debt. Yeah, meaning that there is a standby credit facility that we can use to refinance our loan. So this is part of our strategy to monitor or to mitigate the interest rate hiking, to find a good proportion about the either a fixed, a floating, a short-term, long-term. So this is a game that our CFO is really concentrating this now, I think every week now.
Hartono Tanuwidjaja: I can see here her activities is really to mitigate this interest rate hiking, yeah.
Erwin Wijaya: All right, Pak. Thank you. I noticed that we are slightly past the 60-minute mark, Pak Pakar. Is it okay we extend a few more minutes because we still have plenty of questions in the chat box?
Hartono Tanuwidjaja: Yeah. I think for Verdhana Nomura, there is always a time, Erwin.
Erwin Wijaya: Thank you so much, Pak. Moving on to the next question. Regarding the rumored merger between TBIG and MTEL, what is your view on that, on this potential transactions, and do you think such merger is feasible?
Hartono Tanuwidjaja: Yeah. I cannot comment on that, but from our point of view, we will be happy if the merger will take place, yeah, because it will further strengthening the industry. That is what I can comment, Erwin, because I really do not follow that news, yeah.
Erwin Wijaya: Fair enough, Pak. Fair enough. Secondly, with regards to the FWA, the fixed wireless access, what percentage of the company's total revenue is currently contributed by the FWA services?
Hartono Tanuwidjaja: Okay.
Erwin Wijaya: What is your outlook for FWA revenue contributions in the next year?
Hartono Tanuwidjaja: Okay. Again, I forget to highlight about that. We received the order from Surge, because the FWA consists of two, Surge and MyRepublic, right? Surge, we already received all the order from them. I think around 1,500 to 2,200 orders for colo only, because we do not build for them. So they are using the existing tower. However, in the first 9 months, the revenue is still small portion because it takes 3 months to commence. This is a new business for Surge also, so there is a baby sickness in the first 3 months, maybe to speed up the process. But we did receive the order from them within 1,500 to 2,200 orders from Surge.
Hartono Tanuwidjaja: From MyRepublic, we have not received anything yet, but our team, like I said, is keep talking to them, doing the DRM together, doing the drawing together to help them to roll out the spectrum. About the outlook of the order from this FWA, again, I repeated my view that tower growth, FTTT, FTTH wholesale business is a customer-driven orders.
Erwin Wijaya: Correct.
Hartono Tanuwidjaja: Meaning that we just wait for them to give us the order. We just try to. When that happens, we will do our best to get the orders. I want to add also that, again, if we see the ARPU from the operator is getting healthy now, I think reaching close to 50,000, if I am not mistaken. It is a good sign, meaning they are more healthy. Hopefully they can roll out more faster. When those times come, we believe that TOWR can play a significant role on that. Because you know that we have, if you see our performance, we have the ability to finance it. Our leverage is below 4. Even with the big order, we are ready with the CapEx.
Hartono Tanuwidjaja: It is a proven track record for the last maybe 15 years that we can deliver the order to them to satisfy the, to meet the KPI, and also our good relationship with them so far. We believe that whenever that time comes, TOWR can play a significant role to get that order, Erwin.
Erwin Wijaya: Well noted, Pak. Well noted. Maybe we can take 2 more questions here, Pak, before we call it a day. Second last question is that the 9-month FTTT revenue increases about 3% on a yearly basis, while the Q3 FTTT jump about 2.4%. Is this kind of numbers that we should expect amid the rising 5G CapEx from the MNOs?
Hartono Tanuwidjaja: Okay. This is interesting question. Actually, yesterday I had also a discussion about the outlook of this segment. Now, FTTT is the business that to provide the fiber optic to connecting the tower, replacing the traditional microwave. The growth in the future can be coming from 2 source. First, the rollout of new tower. I see that already in the last 2 or 3 years, the new order from towers, they always using the fiber optic instead of microwave. Meaning that whenever there is a new tower built, they need the fiber optic. They do not use the microwave anymore. That is the first growth factor. The second one, if you see the current existing tower, there is still a portion of tower, portion percentage of tower is not fiberized yet.
Hartono Tanuwidjaja: They are still using the microwave because they have already the microwave and the bandwidth requirement still available, can be surfaced by microwave. But we know that the bandwidth demand is increasing drastically every year. So again, when that time comes, they have to replace with the fiber optic.
Erwin Wijaya: Got it, Pak.
Hartono Tanuwidjaja: Yeah.
Erwin Wijaya: This is going to be the last question. The question is, since Pak Pakar mentions about TSR and the share price has been hammered quite significantly, is there any plan to improve the share price, Pak? Are you planning to bring the dividend back to about 30%?
Hartono Tanuwidjaja: Sorry, come again, Erwin.
Erwin Wijaya: So with the TSR, with regard to TSR, the share price has been pretty much hammered. Is there any plan to improve the share price? Are you planning to increase for a higher dividend, perhaps back to the 30% level, Pak?
Hartono Tanuwidjaja: Yeah. We noticed this one, Erwin. We noticed also some of our shareholders with the view of the short-term, medium, and long-term view of their investment in TOWR. Again, the situation is very liquid. From month to month, we evaluate, but we are committing to give the optimum result, optimum return to our shareholders. But again, we need to seek or to evaluate not only the short term, but also the long-term view of the company. But we notice about that. We cannot say anything further than that, Erwin, but we really understand about this.
Erwin Wijaya: Thank you, Pak. I think we have stretched to the maximum of the 60 minutes capacity. I would like to apologize to all the questions that have not been answered. Perhaps we can set another session, or you can shoot the email directly to the IR team to be answered. With that, I would like to thank you, Pak, for your time and for the participations of all the attendees. I would like perhaps you can have a sentence or two, Pak, for the closing remarks.
Hartono Tanuwidjaja: Yeah. What I said that in general, we understand the industry, the telco industry is really in the peak of the consolidation time, this year, last year, maybe the last year of Indosat and Hutch. But I should say that if you see how is our performance of the 9 months, we can. Because for the tower and fiber provider company like us, the most headwind is the consolidation of the MNO. This XL and Smartfren consolidation is coming quite close to the Indosat and Hutch. But if you see our performance, we are happy that we can pass this test, the big test. So I should say the headwind of the industry consolidation should not be seen in the coming future, at least in the short-term coming future, Erwin.
Hartono Tanuwidjaja: So the headwind already passed, so this is only how to It is a game that how to utilize more of our existing assets. Also, I want to highlight that higher interest regime also is challenging for us. We understand. That is why we put our effort, more effort about the capital allocation. How is our free cash flow be used to meet the expected return for our stakeholders. But again, short-term, mid-term, and long-term, Erwin.
Erwin Wijaya: All right. Thank you, Pak. Thank you for everyone who have joined this call today. On behalf of the management, we appreciate your continued interest and support for the company. With that, I would like to pass the floor back to Sani for closing. Thank you.
Hartono Tanuwidjaja: Thank you, Erwin.
Operator: Thank you, Erwin. Thank you so much, Pak Hartono, Pak Happy, Raymond, and also Erwin. Thank you very much, ladies and gentlemen. This is end of our session, Human and Disconnect. Thank you and have a great day.
Hartono Tanuwidjaja: Thank you. Bye.
Erwin Wijaya: Thank you, Pak.
Hartono Tanuwidjaja: Thank you, Pak. Bye.
Operator: Goodbye.
