Results

On the back of IDR15,808bn turnover, XL’s 9M13 core net profit of IDR1,497bn came in within expectations, accounted for 73.1% of consensus’ full year forecast.

One-off adjustments:

1. Unrealized FOREX loss amounted to IDR581bn;

2. Accelerated depreciation of IDR192bn; and

3. Tax impact incentive of IDR193bn.

Deviations

In line.

Highlights

QoQ: Revenue grew 5% with data as the fastest growing service with double digit growth of 10% while voice and SMS grew 3% and 6% respectively. EBITDA grew in tandem, yielding an improvement to 41%.

YTD: Data grew by 15% while voice and SMS declined by 9% and 4% respectively. Non-voice revenue contributed 54% (+4ppt yoy) of XL’s total usage revenue. Introduction of SMS interconnect and expansion of leased sites dragged EBITDA by 14%, suppressing margin to 40%.

Subscribers: XL recorded 58.1m or 7% increase yoy.

Data and VAS: Sustainable exponential growth with 125% yoy. Data subscribers reached 33.7m or about 58% of the total base. Data has remained the fastest growing service in 9M13 with its contribution to overall sales increased from 19% to 23%.

As of 3Q13, XL has become #1 amongst Facebook users in Indonesia with the largest number of Facebook users on the network and generated around 20m paid Facebook users across its related products. This achievement was a result of XL continuous effort to provide an excellent data experience for subscribers.

Smartphone: grew significantly by 55% yoy, reaching 9.2m users or 16% of the total base.

Infrastructure: has installed 14.7k NodeBs as of 3Q13 bringing total number of 2G and 3G BTS to 42.8k. Investments are still being prioritized to enhance service experience in data in key city areas. At the same time, XL has completed 2G and 3G modernization for majority sites across Indonesia.

Catalysts

• Higher smartphone penetration boosting data ARPU.
• Strong growth in low penetration developing markets.
• More cost savings from collaboration with DiGi.

Risks

Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

Unchanged.

Rating

HOLD, TP: RM7.05

Positives – Despite the challenging environment, Axiata’s main OpCo (Celcom, XL, Dialog) continue to execute well.

Negatives – Exposure to Indian telecom market which is currently under close scrutiny by the government.

Valuation

Maintain HOLD call on the stock with unchanged SOP TP of RM7.05 (see Figure #2).

Source: Hong Leong Investment Bank Research- 4 Nov 2013