Link Net LINK.JK
August 09, 2017 - 11:31am EST by
2017 2018
Price: 4,900.00 EPS 307 0
Shares Out. (in M): 2,959 P/E 16x 0
Market Cap (in $M): 1,088 P/FCF 19x 0
Net Debt (in $M): -28 EBIT 1,244K 0
TEV ($): 1,060 TEV/EBIT 11x 0

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*Indonesia was not an option in the VIC drop-down box, so I listed this as a Malaysian stock, but it's not - it's an Indonesian stock
**The "2017" numbers above are LTM figures as of 6/30/17
Link Net is an Indonesian cable company.  It’s one of the fastest-growing cable companies in the world (perhaps the fastest).  It’s also one of the cheapest cable stocks in the world, but I don’t think it should be.  That’s it, that’s pretty much my entire thesis.  Here’s a chart that sums it up:

A few notes about the chart above:

  • EBITDA and net debt figures are all based on LTM data as of most recently reported period (6/30/17 in most, but not all, cases)
  • Stock prices are as of 8/8/17 close
  • For companies that have made acquisitions, LTM EBITDA is PF for M&A
  • Altice USA (owner of cable companies formerly known as Cablevision and Cequel) shows up above as the fastest-growing cable company in the world.  The LTM experience for Altice overstates the future growth potential of the company, as the LTM growth was mostly based on cost cuts (RGUs were actually down over this period on a pro forma basis).
  • Chart above reflects all of the publicly-traded cable stocks (which I’ve loosely defined as companies where enterprise value is primarily from cable company operations) I’m aware of, but I’m probably missing some - as an example, I wasn’t even aware of Link Net until a few months ago.


The chart above reflects nearly 20% organic EBITDA growth for Link Net over the LTM period.  That’s not a blip.  Indonesia is an underpenetrated broadband and pay-TV market, which provides a nice tailwind.  With a network that’s entirely fiber and coaxial cable, Link Net also has excellent broadband speeds, so that’s allowed it to gain share as well.

As a result, the financials look great:

What’s the catch?  Well, it’s an Indonesian stock, so there are all the attendant emerging markets and currency risks.  In addition, it’s not a big company (market cap of ~$1B in USD).  Moreover, First Media (media arm of Indonesian conglomerate Lippo Group) owns 34% of the company, and CVC (private equity) owns another 33%, so float is only 1/3 of the market cap.  This is probably too small and illiquid for most large institutional investors to bother with.

Over the last couple years, Telkom Indonesia (Link Net’s biggest competitor) has been building out fiber to the home across much of its footprint, and that’s of course a big concern.  But either because the Indonesian market is growing so fast, or because Link Net’s products are good enough, the competitive threat from Telkom hasn’t had much of an impact on Link Net’s financials.
Capex is still running pretty high (27% of sales for the LTM period), so while it’s very cheap on an EV/EBITDA basis, the FCF yield of 5% (on a trailing basis) doesn’t scream cheap.  But with Link Net still growing homes passed at a nearly 10% clip, much of this is growth capex rather than maintenance capex.  Liberty Global is spending nearly 30% of sales on capex just to grow homes passed by ~3% a year, so I think Link Net is doing pretty good to have capex down to where it is given the growth.
Lastly, I could have made the same argument for Link Net (namely, that it’s way too cheap given its growth profile) anytime over the last year or two, and my thesis wouldn’t have played out.  Quarter after quarter of strong EBITDA and FCF growth haven’t been enough to drive the multiple upwards, so it’s hard to see what the catalyst could be:
In the US, the market views cable stocks as a different sector than incumbent telcos.  Comcast, Charter, Cable One et al don’t get compared to Verizon, AT&T and Frontier for valuation purpose.   But for Link Net, I get the impression that sell-side analysts (and perhaps much of the buy side) compare Link Net to incumbent Asian telcos.  I think this is wrong, but who knows when and if that ever changes.  But if the company continues to growth like this, the stock can still work even without multiple expansion.



I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.



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