Results

• On the back of IDR22.9tr turnover, FY15 EBITDA of IDR8.4tr was within expectations, accounting for 100% of consensus’ FY estimate.

Deviations

• In line.

Highlights

• Transformation strategy continues to show further positive momentum in terms of financial performance and operating metrics. After a series of initiatives to eliminate forex debt exposures, it has proposed right issue to repay shareholder’s USD500m loan on top of tower disposal plan to strengthen balance sheet, reducing net debt to EBITDA ratio to below 2 times (level prior to Axis acquisition).

• 4Q15 sales grew 2% qoq as usage drew in tandem at 2% mainly driven by data which recorded 15% qoq expansion. For FY15, data’s contribution to overall revenue edged up 3- ppt yoy to 32% as traffic surged 54.1% yoy to 190.8PB.

• Smartphone users grew 10% yoy, reaching 17.7m users or 42% of the total base. While smartphone is data’s main growth driver, it has also persistently eroded SMS revenue by 17% yoy as users migrate to OTT platforms.

• Recorded first net add under the 3R regime with 500k subs elevating total base to 42m in 4Q15. XL claimed that it has successfully rebased with high value subscribers, blended ARPU in 4Q15 reached IDR41k, up 43% yoy and 7.9% qoq.

• EBITDA margin gained 1.3-ppt qoq to 38.8% mainly due to the reshape of customer base to focus on more profitable subs, improved product pricing as well as cost efficiencies.

• Continue to invest to provide high quality internet services by adding 3G and 4G nodes by 321 and 2.1k, respectively in 4Q15. This brings total base stations to circa 58.9k.

• FY16 guidance: (1) In-line or better than market; (2) EBITDA to grow at faster pace than sales with margin set at high 30’s; (3) CAPEX of not exceeding IDR7.0tr.

Catalysts

• Higher smartphone penetration boosting data ARPU.

• Strong growth in low penetration developing markets.

• Penetration into new markets and in-country consolidations.

Risks

• Regulatory risks, price wars and high gearing level.

Forecasts

• Unchanged pending analyst briefing in conjunction with Axiata’s 4Q15 results announcement.

Rating

HOLD , TP: RM6.09

Positives

• mobile internet growth, margin improvements through collaborations/sharing and unlock value through tower listing.

Negatives

• OTT threat substituting voice and SMS, unable to monetize data.

Valuation

Maintain HOLD with unchanged SOP-derived TP of RM6.09 (see Figure #2).

Source: Hong Leong Investment Bank Research - 2 Feb 2016