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25 Mei 2022

EXCL IJ - MNC Sekuritas Equity Report May 25, 2022

Slow Start at the Beginning of the Year

Revenue Stood at Single Digit
In its 1Q22 performance, EXCL IJ managed to record a revenue of IDR6.75 tn (+7.9% YoY), slightly in-line with our estimates (reaching 24.62%/23.93% of our/cons FY22E estimates). Data revenue remained to be the main driver with an increase of 9.3% YoY, contributed to 84.4% of the total revenue. This was further seen from the data traffic which rose to 1,857 Petabyte (+33.5% YoY), and was mainly driven from the increase in postpaid users to 1.36 mn (+15.3% YoY), as well as the increase in prepaid users to 55.64 mn (+1.5% YoY). In addition, the company managed to improve its annual blended ARPU to IDR36,000 from IDR35,000 with the smartphone penetration rate increased to 93% (+1.0% QoQ/+3.0% YoY), which showed that the company was able to maintain a healthy customer development.

EBITDA Grew Slow, Returned Single Digit
EBITDA grew by 1.8% YoY to IDR3.17 tn, which was in-line with our estimates (reaching 22.85%/22.43% of our/cons FY22E estimates), generating EBITDA margin of 47.1% (vs 48.6% in 1Q21). This was followed by the operational cost which was recorded to be increasing to IDR3.57 tn (+14.1% YoY). This significant increase of the cost was driven by the increase in sales and marketing expenses (+38.8% YoY) due to the rising sales commission for expanding distribution footprint (+50.8% YoY), as well as the company’s aggressive approach in marketing in the digital platforms.

Tower Shutdown Remained the Priority
EXCL IJ booked a net income of IDR139.1 bn (-48.8% QoQ/-56.6% YoY), below our estimates (reaching 10.06%/10.24% of our/cons FY22E estimates). Furthermore, the decrease in the bottom line resulted in the net profit margin of 2.1% (vs 1Q21: 5.1%). This was due to higher depreciation and amortization cost (+1.0% QoQ/+5.8% YoY) during the period, which was attributed to EXCL’s action in expanding its network by adding more towers in 460 cities, where the total number of towers recorded at 1Q22 to be 133,022 units, consisting of 83,873 4G units and 49,149 2G units (+40% YoY). EXCL IJ managed to shut down its 3G BTS with the remaining total to be 4,566 units in 1Q22 (-91.4% YoY), which would decrease future depreciation cost, thus improving the bottom line.

Boosting Revenue through Convergence
As the main driver of its revenue and a huge potential in fixed broadband (FTTH) services, EXCL IJ is planning to improve its network services by improving its converged services, which EXCL IJ expected it able to minimize the churn rates and improve customer loyalty. To do so, EXCL IJ is currently undergoing acquisition of Link Net (LINK IJ) by acquiring 66% worth IDR8.72 tn at IDR4,800 per share and is expected to be completed in 3Q22E. By acquiring LINK IJ, EXCL IJ plans to revamp its home and convergence service, especially to ‘XL Satu’ where the company prepares to boost its ‘Triple Play’ service, XL Axiata’s fiber optic service offering fixed broadband, landline and cable TV broadcast. Moreover, EXCL IJ is also undergoing acquisition of PT. Hipernet Indodata, acquiring 51% of the total stakes worth IDR321.3 bn to improve its enterprise segment, especially to the corporate and UMKM B2B businesses. As of 1Q22, EXCL IJ recorded 19% of the converged service penetration. With these undergoing acquisitions, EXCL IJ hopes that it will further improve the company’s converged product in the future.

Maintain BUY with TP of IDR3,500
We maintain our BUY rating on EXCL with a TP of IDR3,500 which implied 4.1x FY22E EV/EBITDA (close to mean of its 5-years mean). In line with the company’s vision to be the leading converged operator in Indonesia, EXCL IJ is currently undergoing process of acquisition of LINK IJ and PT. Hipernet Indodata to upgrade its converged services which EXCL IJ hopes that it will boost its future revenue.

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