PT SOLUSI TUNAS PRATAMA - stptower.comstptower.com/wp-content/uploads/JPMorgan-Credit-Initiation-Report.pdfAsia Pacific Credit Research 30 June 2015

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Asia Pacific Credit Research30 June 2015

PT SOLUSI TUNAS PRATAMA TBK Neutral

Tower built to withstand macro headwinds S&P: BB- Outlook: StableFitch: BB-

StableThe above agency ratings are at the corporate level

Ticker

SOLUIJ

Asia Corporate Research

Soo Chong Lim AC

(852) 2800-7387

[email protected]

Lu Sun AC

(852) 2800-6283

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

See page 11 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

We are initiating coverage of Solusi Tunas Pratama with a Neutral rating on the issuer, reflecting our view that the credit outlook is stable, and an OW rating on the Solusi ‘20s. The company’s tower rentals, coming mostly from top-tier telcos under long-term contracts, provide a relatively stable income stream. Importantly, the company has also largely hedged its currency exposure. These should help it withstand Indonesia’s macro headwinds, i.e., slower economic growth and a weaker IDR. In our view, the bonds look attractive at 181bp wide of interpolated spreads of Tower Bersama (TBIG) ‘18s and ‘22s, and almost flat to Indonesian property bonds, and we see fair value at closer to 6%. Key risks include M&A risk, as telcos are still offloading their tower portfolios, and Solusi, as the third-largest operator, could be a bidder. Also, the company will still need financing to fund capex. Potential stake selldowns by major shareholders could remain an overhang, but should not have any impact on fundamentals.

Utility-like rental income stream. Solusi typically leases space on its telecommunication towers for 10 years and on its DSA networks for five years.It also provides telcos with access to its optic backhaul network. Tenants for these towers and DSA networks are rather sticky due to punitive break clausesfor the rental leases and potential disruptions to services upon BTS relocation.Also, Solusi derives around about 90% of its revenue from the Big 4 telcos. A high EBITDA margin, at around 85%, and a relative stable cost base plus cost escalation clause (except for XL) should keep margins relatively stable. The government’s push for collocation and telcos’ asset-light strategy should help to improve the tenancy ratio, in our view, which could provide some lift to margin,as there is minimum cost for additional tenants.

Still smaller in size, but optic backhaul network could be an advantage. The acquisition of 3,500 tower sites with 5,793 tenancies from XL in December 2014 more than doubled the company’s tower portfolio, helping it close the gap with the top two operators, TBIG and Protelindo. As the only tower company with an optic backhaul network, Solusi is also well positioned for the rollout of LTE, in our view, which would require faster network speeds.

Largely hedged currency exposure. Solusi has hedged currency exposure on its USD borrowings using cross-currency swaps that cover 100% of principal outstanding at Rp12,750/US$ and 63% of interest cost. Unlike call spreads usedmore widely, these cross-currency swap contracts do not have any upper limit on IDR, beyond which hedges fall away. We believe these should largelymitigate one key risk common among Indonesian corporates.

See fair value at around 6% handle. Close comps for Solusi ‘20s (97.5offer, 6.89%ytw, z+526) are TBIG ‘18s (100.25offer, 4.52%ytw, z+337) and TBIG ‘22s (98.5offer, 5.52%ytw, z+353). In our view, Solusi should not trade more than 100bp wide of TBIG, as they have similar business risks, though TBIG is much bigger in size. We see fair value at z+430, or around 6%. Other comps are double-B-rated property names, like Lippo Karawaci ‘20s & Pakuwon ‘19s. With Solusi’s utility-like income stream vs. inherently more volatile property earnings that still account for close to half of Lippo’s and Pakuwon’s earnings, we believe Solusi ‘20s should trade inside Pakuwon ‘19s & close to Lippo ‘19s.

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Soo Chong Lim(852) [email protected]

Relative value

We believe Solusi ‘20s should not trade more than 100bp wider than Tower Bersama bonds. Tower Bersama, the largest telecom tower company in Indonesia, is a close comp for Solusi, given the similarity of their business risk profiles. We recognize that TBIG is bigger in scale, which is important in the tower telco business, and that it has the backing of PT Saratoga Infrastruktur (10.69%), a reputable shareholder that also owns PT Adaro. However, we believe Solusi, as the only telco tower company with its own optic backhaul network, will benefit from the rollout of LTE, helping to mitigate the disadvantages of a smaller tower portfolio. Also, Solusi’s financial metrics stack up slightly ahead of TBIG’s. Net-net, we believe the difference between Solusi ‘20s and TBIG (interpolated spread between TBIG ‘18s and ‘22s) should not be more than 100bp.

Should be slightly inside double-B Indonesian property names. Other comps are double-B-rated property bonds, i.e., Lippo Karawaci ‘20s and Pakuwon ‘19s. We recognize that both have bigger market capitalizations, reflecting equity cushion for bondholders, and that Lippo Karawaci, having tapped the USD bond market for more than 10 years now, is a better-known name. But we believe this should not negateSolusi’s lower business risk profile than property developers’. While both property developers derive sizeable percentages of their revenue and profit from recurrent income, they are still exposed to the inherent cyclicality of property development, which we believe is on a weakening trend now.

Figure 1: Indonesian corporate comps for Solusi ‘20sTicker Coupon Maturity Rating Issue size Px YTM YTC Z-spread M. dur W/O dateSOLUIJ ‘20 6.250 2/24/2020 -/BB-/BB- 300 97.50 6.89% 6.89% 526 3.87 2/24/2020TBIGIJ ‘18 4.625 4/3/2018 Ba2u/BB/BB 300 100.25 4.52% 4.52% 337 2.53 4/3/2018TBIGIJ ‘22 5.250 2/10/2022 -/BB/BB 350 98.50 5.52% 5.52% 353 5.40 2/10/2022LPKRIJ ‘19 7.000 5/16/2019 Ba3/BB-/BB- 250 104.25 5.76% 5.38% 421 2.57 5/16/2018LPKRIJ ‘20 6.125 11/14/2020 Ba3/BB-/BB- 403 101.75 5.74% 5.55% 422 2.99 11/14/2018LPKRIJ ‘22 7.000 4/11/2022 Ba3/BB-/BB- 150 102.50 6.53% 6.38% 473 3.97 4/11/2020PWONIJ ‘19 7.125 7/2/2019 B1/B+/BB- 200 101.00 6.84% 6.84% 536 3.32 7/2/2019

Source: Moody’s, S&P, Fitch and J.P. Morgan data as of June 29, 2015.

Figure 2: Indonesian double-B-rated bonds – Z-spread

bp

Source: J.P. Morgan data as of June 29, 2015.

SOLUIJ '20

TBIGIJ '18TBIGIJ '22

LPKRIJ '19 LPKRIJ '20

LPKRIJ '22

PWONIJ '19

250

300

350

400

450

500

550

2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

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Figure 3: Indonesian independent tower companies – Financials and operating statistics: 2013, 2014 and 1Q15Rp in billions

Solusi Tower Bersama ProtelindoYear to 31 Dec 2013 2014 1Q15 2013 2014 1Q15 2013 2014 1Q15Rating NA/BB-/BB- Ba2 (NEG)/BB/BB Ba1/BB+(POS)/BB+Market Capitalization US$852mn US$3.3bn US$3.1bn1

Key operating statisticsNo. of telecommunication sites 2,798 6,651 6,690 10,134 11,820 11,873 9,746 11,332 11,473 No. of tenants 4,708 10,521 10,670 16,577 19,148 17,222 18,322 20,138 20,325 Tenancy ratio per site 1.68x 1.58x 1.59x 1.64x 1.62x 1.45x 1.88x 1.78x 1.77xMonthly revenue per tenant (Rp mn) 17.8 18.9 13.8 14.8 15.4 15.2 16.1 17.8 17.6

Income statementRevenue 840 1,072 439 2,691 3,307 827 3,197 4,106 1,069Gross profit 665 863 367 2,295 2,797 723 2,060 2,782 727EBITDA 693 888 378 2,205 2,717 702 2,635 3,405 887Operating income 582 760 334 2,052 2,505 644 756 2,044 362Interest expense 210 340 183 727 985 319 551 856 133Net income 198 -380 31 2,319 1,372 344 150 827 168

Cash flowFunds from operation 186 666 2 1,586 2,553 651 2,432 3,337 418Capex (PPE and inv’t properties) 1,761 6,295 154 1,889 1,782 467 1,774 2,148 289Free cash flow -1,576 -5,629 -152 -303 770 184 658 1,189 128

Balance sheetCash & cash equivalents 525 1,319 1,076 854 901 696 1,502 2,006 2,070Total assets 6,311 12,895 13,342 18,719 22,034 22,634 15,578 17,274 17,995ST debt 308 5,474 509 2,331 7,314 3,200 1,086 203 219LT debt 2,656 4,153 7,733 10,650 8,748 13,722 8,221 9,239 9,485Total debt 2,965 9,627 8,242 12,981 16,062 16,922 9,308 9,442 9,704Net debt 2,440 8,308 7,166 12,127 15,162 16,226 7,806 7,436 7,633Total debt (post-FX hedging) 2,965 9,627 8,107 11,532 14,649 14,997 9,308 9,442 9,704Total liabilities 4,018 11,033 9,120 14,605 17,903 18,760 11,887 12,570 13,164Equity 2,292 1,861 4,223 4,114 4,131 3,874 3,691 4,705 4,837

RatiosGP margin 79% 81% 84% 85% 85% 87% 64% 68% 68%Operating margin 69% 71% 76% 76% 76% 78% 24% 50% 34%EBITDA margin 83% 83% 86% 82% 82% 85% 82% 83% 83%EBITDA interest coverage (x) 3.3x 2.6x 2.1x 3.0x 2.8x 2.2x 4.8x 4.0x 6.7xTotal debt/EBITDA (x) 4.3x 10.8x 5.5x 5.9x 5.9x 6.0x 3.5x 2.8x 2.7xNet debt/EBITDA (x) 3.5x 9.4x 4.7x 5.5x 5.6x 5.8x 3.0x 2.2x 2.2xTotal debt (post-hedging)/EBITDA (x) 4.3x 10.8x 5.4x 5.2x 5.4x 5.3x 3.5x 2.8x 2.7xTotal debt/total cap 56% 84% 66% 76% 80% 81% 72% 67% 67%EBIT interest coverage (x) 2.8x 2.2x 1.8x 3.0x 1.5x 1.2x 1.4x 2.4x 2.7x

Source: Company reports, Bloomberg. Remark: (1) Market capitalization of Sarana Menara Nusantara.

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Key investment highlights

Long-term lease contracts with sticky customers and punitive break clauses

Solusi typically leases space on its telecommunication sites for 10 years and access to its DAS network for five years. These long-term contracts had a weighted-average remaining life of 7.25 years as of March 31, 2015. In our view, telcos tend to be very sticky customers, and the churn rate for tenants should be very low, given the difficulties in shifting their base transceiver stations (BTS) due to potential coverage disruptions and relocation expenses to be incurred. As a result, we expect telcos to renew their lease contracts upon the expiry of their rental leases. The lease agreements also impose high exit clauses that normally require telcos to make whole their rental commitments till the end of the tenancy period.

Low-credit-risk tenants

Solusi has successfully diversified its customer base toward high-quality operators.The Big 4 telcos (Telkom group, Indosat, XL and Hutchison 3) together accounted for 92% of Solusi’s 1Q15 revenue. The tenancy mix has improved significantly over the past few years. The company was still highly dependent on Bakrie Telekom back in 2010, but has since written off these contracts. Also, telcos normally pay their rental upfront, with most paying one year in advance, and all customers pay at least one quarter in advance. In our view, Solusi’s current high-quality customers and payment terms lessen counterpart risks for its long-term rental lease contracts.

Figure 4: Customer revenue breakdown, 1Q15

Source: Company reports.

Stable margin with upside potential

Solusi’s EBITDA margin hovered around 83-84% over the past few years before improving to 86% in 1Q15, as full consolidation of XL’s towers led to some improved efficiency. We expect its EBITDA margin to stay healthy, with some upside bias. Its operating costs are relatively small and fixed in nature.

One key cost for tower operation is electricity bills, which are fully passed through or paid directly by telcos. This arrangement shelters tower companies such as Solusi from energy costs, which can be volatile. Also, most of Solusi’s lease agreements (except those from XL) include inflation escalation clauses that allow the pass-through of rising O&M cost, and its current quantum of O&M revenue with inflation

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escalators fully covers Solusi’s total O&M expense and thus mitigates the risk that XL’s leases do not come with escalation clauses.

We believe there is further margin upside with an improved tenancy ratio, as the company would incur low incremental costs for new collocation tenants on existing towers.

Optic backhaul network could be a differentiating factor

Solusi is the only listed tower company to have obtained a license to lease out space on microcell poles and possess the fiber optic backbone to connect these poles. It had 2,424km of fiber optic backbone network and 330 microcell poles as of March 31, 2015. This well positioned the company to support aggressive urban 3G/LTE rollouts by telcos that require faster network speeds and greater bandwidth necessary for data and microcells that are optimized for urban areas for enhanced capacity with minimal space requirements. The fiber optic network also offers potential new business opportunities for providing wholesale fiber optic connections to broadband and Pay TV operators to reach commercial and residential end users.

Favorable industry demand

The Indonesian telecommunication industry has seen rapid growth in data traffic,with a 107% CAGR over the past three years, according to Princy Singh, our ASEAN telco equity analyst. He expects data usage to grow at over 50% per annum over the next three years, driven by rising smartphone penetration rates, which are still at about 25% in Indonesia. This should drive Indonesian wireless carriers to continue investing in their networks.

Also telcos are increasingly using tower sales and tower leasing to de-leverage their balance sheets. Thus, we expect to see solid growth in the number of towers and tenancies for telco tower companies. Based on the stated expansion plans of the listed wireless operators in Indonesia, our equity colleague expects the number of leasable towers in Indonesia to increase to 86k by the end of 2016 from about 75k as of end-2013. Please see our equity colleague’s report on the global telecom tower industry,dated October 20, 2014, for details. This should create more business opportunitiesfor tower companies like Solusi, especially in light of the growing trend for telcos to rent space for their BTS to focus their capex on their equipment.

High barriers to entry

We believe the tower rental industry has high barriers to entry. Government regulation prohibits non-Indonesian individuals or companies from controlling tower assets, effectively locking out foreign competitors. Furthermore, the government’s push for tower-sharing means that new towers could be erected only if there are at least two telcos sharing them, which favors existing independent tower owners.

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Risk factors

Aggressive expansion

Solusi has increased its total number of towers (including microcell poles) to 6,690 as of March 31, 2015 from 1,309 as of December 31, 2011. Besides organic growth via the erection of 806 build-to-suits towers, Solusi has also acquired towers via M&A activities, with the latest being the acquisition of 3,500 towers from XL,completed in 2014. We expect Solusi to continue to look for M&A activities to scale up operations. Some of these acquisitions are funded by debt, which could put pressure on the company’s credit metrics. In our view, M&A risk remains a key risk to monitor.

Figure 5: Solusi - Acquisition of towersYear Telco # of towers Tenancy ratio at acquisition2014 XL Axiata 3,500 1.66x2014 Independent tower company 142 1.65x2013 Independent tower company 493 1.38x2012 Independent tower company 321 1.40x2012 Hutchinson 200 1.00x2010-2011 Independent tower companies 203 1.31x2009 Bakrie 543 1.00x2007 Axis 528 1.00xTotal/average 5,930 1.47x


We see several mitigating factors. Solusi will erect new towers only after securing an anchor tenant. For its acquisitions, newly acquired tower assets add incremental cash flow from Day 1, and the company should start to deleverage once it signs up other colocators. Solusi has also demonstrated financial discipline. Its US$461mnacquisition of XL towers was partly funded by US$190mn in equity raised from a rights issue completed on January 6, 2015. The company also raised new equity and warrants to fund its acquisition of Hutchinson towers back in 2012.

Stake-lowering by major shareholders is an overhang

The company announced in April 2015 that its two major shareholders, PT Kharisma Indah Ekaprima (KIE) and Cahaya Anugerah Nusantara (CAN), were planning to sell a combined 30% stake in the company. The share placement was subsequently cancelled due to adverse market conditions. KIE currently holds a 43.2% stake, and CAN, controlled by Carlyle Group, has a 25.5% stake. If the stake sale had materialized, the divestment would have brought the combined stake of the two controlling shareholders to 38.7% from 68.7%.

While management has explained that the stake sale is not an indication of a lack of shareholder commitment, but rather aimed at improving the market liquidity of Solusi shares, the timing of the failed private placement was unexpected, coming soon after the bond issue. We recognize that this could remain an overhang in the near term.

Subordination risk

The US$ bonds are structurally and legally subordinated to bank loans. In our view, the subordination risk is partly mitigated by the high visibility of rental revenue. Total contracted revenue of rental leases added up to about Rp12.6tn (~US$947mn)against net debt of US$539mn as of March 31, 2015.

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Despite the subordination risk, both rating agencies, S&P and Fitch, have their bond ratings as the same level as their issuer ratings. S&P has taken the view that they have no ability to differentiate between secured and unsecured debt in issuer ratings, while Fitch believes that prior-ranking debt/EBITDA is below the 2.0-2.5x threshold for notching the senior unsecured debt below the issuer rating.

Figure 6: Solusi - Key terms of syndication loans

Key terms Remarks

Limit US$315mn term loan and US$10mn and Rp530bn (~US$40mn) revolver

Security

Conditional assignment of rights on master lease agreement and land lease agreement

Fiduciary over: (i) the company’s insurance policies; (ii) all towers and other movable assets

of the company; (iii) all receivables of the company in respect of master lease agreement and land lease agreement

Pledge of current accounts of the company and mortgage deeds over the land registered

under the company’s name on which the telecommunication towers are located

Financial covenants Net debt/LQA EBITDA < 5.0x by December 2015

Operating cash flow/debt service > 1.1x

Tenure Term loan will mature in 4.5 years. Amortization schedule is 3% in December 2015, 14% per

annum in 2016-2018 and the remaining 55% in December 2019

Interest rates For US$ tranche, Libor+3.20% for onshore lenders and +3.00% for offshore lenders, with

upfront fee of 90bp for mandated lead arrangers and 75bp for lead management fee


Currency exposure, but largely hedged

Solusi’s debts are mainly denominated in USD, while its revenue is principally denominated in IDR, which exposes the company to fluctuation in foreign currency rates. The company has a hedging policy in place to safeguard against FX risk. It has hedged 100% of outstanding debts against the FX risk for principal and 63% for interest using cross-currency swaps with international banks as counterparties. We note that call spread hedges normally used by Indonesian corporates do not cover large moves in IDR above certain limits, but these cross-currency swap agreements fully protect Solusi for any movement in IDR. In our view, the unhedged portion on its interest cost is manageable.

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Company profile and bond structure

Third-largest independent tower company in Indonesia. Solusi leases space for antennas and other equipment to Indonesian mobile telecommunication operators and provides them with access to fiber optic backhaul networks and indoor DAS networks in shopping malls and office buildings. As of December 31, 2014, Solusi operated 7,149 telecommunications sites, comprising 6,651 tower sites (including 301 microcell sites) with 10,521 tenancies, for a tenancy ratio of 1.58, as well as 472 shelter-only sites, 26 indoor DAS networks with 67 tenants, for a tenancy ratio of 2.58, and approximately 2,400 km of fiber optic network around Indonesia, including approximately 1,300 km in the Greater Jakarta Region. This makes Solusi the third-largest independent tower company by number of tower sites. Solusi started operations in 2006 and was listed in 2011. It had a total market capitalization of Rp11.4tn (~US$852mn) as of June 29, 2015.

XL Axiata Tower acquisition more than doubled its tower portfolio. Solusiacquired 3,500 tower sites with 5,793 total tenancies, for a tenancy ratio of 1.66, on December 23, 2014, in the XL Axiata tower assets acquisition, which more than doubled the size of its tower portfolio. Total acquisition consideration was Rp5.6tn(~US$461mn), which valued the purchase at 8.0-8.5x EBITDA, or Rp1.60bn (~US$132,000) per tower. The deal was partly funded by US$190mn in equity raised from a rights issue completed in early 2015.

Stable business profile with long-term lease agreements. Solusi generally leases space on tower sites under long-term lease agreements of 10 years, licenses access to indoor DAS networks under long-term license agreements of five years, and providesfiber optic backhaul capacity under agreements of 10 years. As of March 31, 2015, following the completion of the XL Axiata tower assets acquisition, the weighted-average remaining life of all tower sites, shelter-only sites, indoor DAS networks and fiber optic backhaul leasing agreements was approximately 7.25 years, and the contracted revenue under these agreements was approximately Rp12.6tn (~US$947mn).

Figure 7: Solusi - Key terms of senior unsecured bonds

Key terms Remarks

Structure

Typical SPV structure with listco guarantee The US$300mn senior notes are issued by wholly owned Singapore-domiciled SPV Pratama

Agung Pte Ltd., with guarantees from parent listco PT Solusi Tunas Pratama Tbk

The bond proceeds were injected as equity and intercompany loans into Kharisma Agung Pte Ltd., which would use such net proceeds to fund listco Solusi’s corporate purposes by granting

one or more intercompany loans to Solusi

Used of proceeds Use of proceeds is to partially repay the term loan facility, with US$650mn outstanding as of

January 29, 2015 (total facility size is US$790mn).

Ranking The notes rank as general unsecured obligations of the issuers and will be subordinated to

secured bank loans raised at the operating companies

Others terms

Callable at 103.125% between February 2018 and 2019 and at 101.563% between February

2019 and 2020 101 change of control put would be triggered by typical CoC events (including >=50%

ownership by persons other than the current major shareholders, e.g., the key president

commissioners and directors), combined with rating downgrade There are also limitations on restricted payments, such as dividends, and a debt incurrence test

whereby parent guarantor’s debt/cash flow is capped at 5.75x before December 31, 2015, or

5.5x thereafter. General debt basket of US$350mn is permitted


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Financials

Higher earnings base in 1Q15. The acquisition of XL towers completed on December 23, 2014, reset Solusi’s earnings base at a higher level. EBITDA jumped to Rp378bn (+86% yoy, +57% qoq) in 1Q15 as revenue expanded to Rp439bn (+79% yoy, +50% qoq). With the 3,500 towers acquired from XL, Solusi saw its number of towers increase to 6,690 from 2,798 in December 2013, and tenanciesincrease to 10,670 from 4,708. The tenancy ratio was marginally lower, at 1.59x vs. 1.68x in 1Q14. Although XL’s towers came with a lower monthly rental rate ofRp10mn, which brought the average monthly rental rate down to Rp13.8mn from Rp18.9mn in 2014, the enlarged tenancies provided a big lift to revenue. EBITDA margin inched up slightly, to 86% in 1Q15 from 83% in 2014, due mainly to thespreading out of SG&A over a larger revenue base.

EBITDA to rise at healthy pace over next few years. We expect full-year EBITDA to grow 85% yoy, to reach Rp1.55tn, but the growth rate should plateau to 10% in the coming years, on the assumption of 500 net adds in towers and a slight improvement in the tenancy ratio, to 1.65x by 2017 from 1.58x in 2014, which should lead to around 1,000 new tenancies per annum. We assume relatively stablemargins, which is conservative, as we have not factored in potential margin improvement with rising tenancy rates and improved operation efficiency.

Almost fully hedged currency exposures. Solusi completed its syndication loan in early June. Its current borrowings consist of: (1) the syndication loan that includesUS$315mn 4.5-year amortization loans; (2) US$10mn and Rp530bn revolvers that remain undrawn; and (3) US$300mn five-year bonds. Management indicated that Solusi has entered into cross-currency swap agreements with international banks to hedge 100% of principal and 63% of interest payments on its USD borrowings. These agreements locked in IDR at an average of Rp12,570/US$ and an all-in interest rate at 11.3% per annum.

Expect increased debt going into 2016. We expect Solusi, which ended 1Q15 with Rp1.08tn in cash, to be able to fund its capex, estimated at Rp1tn, by using cash on hand, and its operating cash flow, as debt amortization should be light, at 3% of principal this year. However, looking into 2016 and 2017, the company may need to tap into new borrowings, given that its estimated EBITDA of Rp1.5-1.8tn per year may not be sufficient to fully fund its Rp1tn in capex, annual interest servicing of ~Rp850bn and loan amortization that should creep up to 14% per annum, or Rp540bn.

Leverage should start to improve. The XL tower acquisition pushed up Solusi’sleverage ratio to 5.5x in 1Q15 from 3.3-3.6x. We expect leverage to start to trend down from here on rising EBITDA, even though we believe total debt could still rise.

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Figure 8: Solusi - Key assumptionsYear to 31 Dec 2012 2013 2014 2015E 2016E 2017E 1Q14 2Q14 3Q14 4Q14 1Q15

No. of towersTotal 1,946 2,798 6,651 7,151 7,651 8,151 2,798 2,957 3,125 6,651 6,690Yoy chg. 49% 44% 138% 7% 7% 7% 0% 6% 6% 113% 1%Net add 637 852 3,853 500 500 500 0 159 168 3,526 39Average towers 1,628 2,372 2,975 6,921 7,401 7,901 2,798 2,878 3,041 3,138 6,671Yoy chg. 34% 46% 25% 4% 7% 7% 18% 3% 6% 3% 124%

No. of tenantsTotal 3,159 4,708 10,521 11,548 12,509 13,489 4,708 4,669 4,630 4,728 10,670Yoy chg. 58% 49% 123% 8% 8% 8% 0% -1% -1% 2% 1%Net add 1,161 1,549 5,813 1,027 960 980 0 -39 -39 98 149Avg. BTS for the period 2,579 3,934 4,718 11,035 12,029 12,999 4,708 4,689 4,650 4,679 10,596

Tenancy ratio 1.6 1.7 1.6 1.6 1.6 1.7 1.7 1.6 1.5 0.7 1.6Monthly rental per tenant (Rp mn) 17 18 19 14 14 14 17 19 19 21 14% chg. in rental rate 4% 6% 0% 2% 2% -3% 9% 2% 8% -27%

Source: Company reports and J.P. Morgan estimates.

Figure 9: Solusi - Key financials and ratios, 2012-2017E, 1Q14-1Q15

Rp in billions

Year to 31 Dec 2012 2013 2014 2015E 2016E 2017E 1Q14 2Q14 3Q14 4Q14 1Q15Income statement

Revenue 529 840 1,072 1,827 2,031 2,239 245 266 269 292 439Gross profit 404 665 863 1,516 1,701 1,884 197 218 213 235 367EBITDA 442 693 888 1,553 1,730 1,910 203 222 222 241 378Operating income 354 582 760 1,379 1,553 1,727 175 193 189 203 334Interest expense 129 210 340 820 882 892 82 88 85 85 183Net income 176 198 -380 385 465 587 43 41 -435 -29 31

Cash flowFunds from operations 108 186 666 1,323 1,700 1,849 74 139 426 28 2Capex (PPE and inv’t properties) 653 1,761 6,295 1,000 1,000 1,000 242 129 172 5,753 154Free cash flow -544 -1,576 -5,629 323 700 849 -168 10 254 -5,725 -152

Balance sheetCash & cash equivalents 263 525 1,319 559 383 384 400 243 272 1,319 1,076Total assets 3,882 6,311 12,895 13,128 13,801 14,639 6,424 6,666 5,925 12,895 13,342ST debt 254 308 5,474 554 642 748 510 535 571 5,474 509LT debt 622 2,656 4,153 7,028 7,014 7,021 2,453 2,452 2,386 4,153 7,733Total debt 876 2,965 9,627 7,583 7,657 7,769 2,963 2,987 2,957 9,627 8,242Net debt 613 2,440 8,308 7,024 7,274 7,385 2,563 2,744 2,684 8,308 7,166Total debt (post-FX hedging) 876 2,965 9,627 7,448 7,522 7,634 2,963 2,987 2,957 9,627 8,107Total liabilities 2,161 4,018 11,033 8,570 8,778 9,057 4,128 4,341 4,022 11,033 9,120Equity 1,721 2,292 1,861 4,559 5,023 5,582 2,297 2,326 1,904 1,861 4,223

RatiosGP margin 76% 79% 81% 83% 84% 84% 80% 82% 79% 80% 84%Operating margin 67% 69% 71% 75% 76% 77% 71% 73% 71% 69% 76%EBITDA margin 83% 83% 83% 85% 85% 85% 83% 83% 83% 82% 86%EBITDA interest coverage (x) 3.4x 3.3x 2.6x 1.9x 2.0x 2.1x 2.5x 2.5x 2.6x 2.8x 2.1xTotal debt/EBITDA (x) 2.0x 4.3x 10.8x 4.9x 4.4x 4.1x 3.6x 3.4x 3.3x 10.0x 5.5xNet debt/EBITDA (x) 1.4x 3.5x 9.4x 4.5x 4.2x 3.9x 3.2x 3.1x 3.0x 8.6x 4.7xTotal debt (post-hedging)/EBITDA (x) 2.0x 4.3x 10.8x 4.8x 4.3x 4.0x 3.6x 3.4x 3.3x 10.0x 5.4xTotal debt/total cap 34% 56% 84% 62% 60% 58% 56% 56% 61% 84% 66%EBIT interest coverage (x) 2.7x 2.8x 2.2x 1.7x 1.8x 1.9x 2.1x 2.2x 2.2x 2.4x 1.8xFOF/total debt 12% 6% 7% 17% 22% 24% 10% 19% 58% 1% 0%Free cash flow/total debt -62% -53% -58% 4% 9% 11% -23% 1% 34% -238% -7%

Source: Company reports and J.P. Morgan estimates.

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Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for PT SOLUSI TUNAS PRATAMA TBK, PT Tower Bersama Infrastructure Tbk within the past 12 months.

Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected].

PT Tower Bersama Infrastructure Tbk - J.P. Morgan Credit Opinion HistoryDate Action Rating/Designation Ticker/ISIN

Issuer 01 Jul 13 Initiate Neutral TBIGIJ4.625% '18 10 Jun 15 Upgrade Overweight USY85516AA355.25% '22s 04 Feb 15 Initiate Neutral XS1165340883

Lippo Karawaci - J.P. Morgan Credit Opinion HistoryDate Action Rating/Designation Ticker/ISIN

Issuer 01 Jul 14 Upgrade Neutral LIPPO6.125% '20 11 Feb 15 Upgrade Neutral XS08520042997.000% '19 25 Oct 13 Initiate Neutral XS07801924717.000% '22 11 Feb 15 Upgrade Neutral XS1014670662

Pakuwon - J.P. Morgan Credit Opinion HistoryDate Action Rating/Designation Ticker/ISIN

Issuer 30 Mar 15 Initiate Neutral PWONIJ7.125% '19 30 Mar 15 Initiate Overweight XS10797020797.125% '19 10 Jun 15 Downgrade Neutral XS1079702079

The table(s) above show the recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company and/orinstruments over the past 12 months (or, if no recommendation changes were made during that period, the most recent change). Notes: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Please see the Explanation of Credit Research Ratings below for the new definitions. The previous rating system no longer should be relied upon. For the history prior to September 30, 2013, please call 1-800-447-0406 or e-mail [email protected].

Explanation of Credit Research Ratings:Ratings System: J.P. Morgan uses the following issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan Emerging Markets Sovereign Research uses Marketweight, which is equivalent to Neutral. NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating no longer should be relied upon. An NR designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation. Analysts can rate the issuer, the individual bonds of the issuer, or both. An issuer recommendation applies to all of the bonds at the same level of the issuer’s capital structure, unless we specify a different recommendation for the individual security. When we change the issuer-level rating, we are changing the rating for all of the issues covered, unless otherwise specified. For CDS, we use the following rating system: Long Risk (over the next three months, the credit return on the recommended position is expected to exceed the relevant index, sector or benchmark), Neutral (over the next three months, the credit return on the recommended position is expected to match the relevant index, sector or benchmark), and Short Risk (over the next three months, the credit return on the recommended position is expected to underperform the relevant index, sector or benchmark).

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Valuation & Methodology: In J.P. Morgan's credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral) based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by credit rating agencies and the market prices for the issuer's securities. Our credit view of an issuer is based upon our opinion as to whether the issuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, the issuer's credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital investment). We also analyze the issuer's ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuer's balance sheet relative to the operational leverage in its business.

J.P. Morgan Credit Research Ratings Distribution, as of March 31, 2015

Overweight Neutral UnderweightGlobal Credit Research Universe 24% 58% 18%

IB clients* 68% 63% 60%

Note: The Credit Research Rating Distribution is at the issuer level. Please note that issuers with an NR or an NC designation are not included in the table above.*Percentage of investment banking clients in each rating category.

Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

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