05 November 2018

PT XL Axiata Tbk EXCL - 05112018

The Data-Centric Player


3Q18 Highlights: Showing Recovery in Quarterly Basis
EXCL posted revenues of IDR5.85 trillion, an increase of 5.44% QoQ in 3Q18 (vs IDR5.54 tn in
2Q18) mainly driven by data monetization. Data business grew by 6.60% QoQ/6.90% YoY in
3Q18 contributing ~64% to total revenue while Non-data business declined. On 9M18 basis,
revenue slipped by –0.07% YoY to IDR16.89 tn in line with our estimate which represent
71.48%/72.39% of the Consensus/MNCS estimate. However, EBITDA was recorded at IDR2.17
tn, or increased by 8.80% QoQ in 3Q18 in-line with growth in revenue and cost efficiency.
EBITDA margin showing recovery in 3Q18 stood at 37.22% level (vs 36.07% in 2Q18).
Meanwhile, EXCL recorded loss of IDR144.81 bn in 9M18 (IDR63.07 bn in 3Q18), which is lower
compared to a IDR238.06 bn profit recorded in 9M17 due to the lower EBIT as a result of
higher depreciation and amortization cost.

Focus on Growth of Postpaid Users through Bundling Strategy
The implementation of a smartphone bundling promo with XL Prioritas postpaid service aims
to snare postpaid customers who provide a more stable income stream for EXCL. The bundling
package will bind customers for a minimum of 12 months, with prices ranging from IDR150k to
IDR450k/month. Through a product bundling strategy, we see EXCL able to increase its
customer base by 1-2 mn subscriber in FY18E/FY19E. The new tariff that potentially increase in
2H18E-1H19F will gradually push up data yield, so that revenues are predicted to grow by
2.01%/5.20% in FY18E/FY19F.

Development of a Massive 4G LTE Outside Java to Build Data Traffic
EXCL management is convinced FY18E performance is above the industry average, amid
generally challenging conditions. In order to keep ahead, EXCL has been expanding the
development of a massive 4G LTE protocol outside Java since early 2018. A great opportunity
for increased traffic data outside Java is expected to fatten up top-line. We agree, seeing how
the management plan to increase tariffs more rationally in 2H18. An increase in the collocation
ratio, supported by efficient tower construction costs, is also expected to build margins.
Company EBITDA is estimated to be stable at IDR8.59 tn/IDR9.32 tn in FY18E/FY19F, with
EBITDA margin at 36.79%/ 37.99% level.

BUY Recommendation for EXCL with TP: Rp3,100
We reiterate our BUY call for EXCL with lower TP: IDR3,100 (from IDR3,300) which implies an
EV/EBITDA 5.57x/5.06 in FY18E/FY19F. We see the increase in tariffs and bundling strategies
carried out by EXCL as driving better performance in 2H18, while exchange rate fluctuations are
a principal factor inhibiting performance growth. EXCL is currently traded at a level of -0.5 STD
EV/EBITDA (3-year average) with EV/EBITDA of 4.97x.

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