Interest rate hikes by the Fed and Bank Indonesia since 2022 increased interest costs for tower companies, expecting a rate cut in September 2024 that could reduce the company’s interest expenses.

TOWR benefits more than MTEL as its interest-bearing debt/total liabilities ratio is lower, so the expected rate cut this year could boost its profit margins.

Indonesia’s Digital Transformation 2030 aims to become the world’s fifth-largest economy. Its focus is on developing and expanding digital infrastructure, particularly in remote areas.

Telecommunications companies are expanding into Eastern Indonesia with great potential and low penetration, with government support in constructing broadband networks.

We recommend overweight on the tower sector due to continued demand growth driven by government focus on infrastructure for Indonesia Emas 2045, with Top Picks TOWR (target price IDR850) and MTEL (target price IDR720), as well as upside risk from demand growth and realization of interest rate cAut.

By PHINTRACO SEKURITAS | Research
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