Results

• On the back of IDR21.4tr turnover, XL FY16 core net loss was lower than expected at IDR209bn compared to consensus? IDR467bn loss.

Deviations

• Lower-than-expected D&A and effective tax rate.

Dividends

• None.

Highlights

• YoY: Third consecutive softness, revenue fell 12% as the decline in voice and SMS outpaced data?s growth. EBITDA fell by 22% due to higher sales and marketing costs leading to the quarterly loss.
• QoQ: Although gross revenue was flat, there was an uptick in service revenue by 1% thanks to stronger data growth. However, for the same reason above, EBITDA fell by 8%.
• FY16: While service revenue was weaker by 4%, EBITDA margin gained 1-ppt attributable to lower interconnect costs (in line with the down trending voice and SMS traffics) and lower infrastructure expenses.
• Postpaid performance was solid, added 96k subs in FY16, bringing the base to 533k at the same time strengthened ARPU to IDR116k, up from IDR107k a year ago. As for prepaid, 4.4m subs were added in FY16 to reach a total base of 45.9m but ARPU was stable yoy at IDR34k.
• Continue to invest to provide high quality internet services by adding 3G and 4G nodes by 20.5k and 5.1k, respectively in FY16. This brings total base stations to circa 84.5k.
• With the improved coverage, 65% of total base or 30.2m are data users generating 503PB of total traffic in FY16, up 262% yoy. As affordability increased, smartphone users also grew 21% qoq, reaching 29m users or 63% of the total base.
• FY17 guidance: (1) revenue growth to be in-line with market (stronger 2H17); (2) EBITDA margin set at high 30?s; (3) CAPEX of not exceeding IDR7.0tr.
• Separately, Axiata?s 19.9%-owned Idea is in exploratory talk with Vodafone for a merger to be India?s largest cellco. While we are positive as this will lead to a more sustainable and healthy market, this is expected to undergo tough scrutiny and required to comply to regulatory caps on revenue market share and spectrum holdings.

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 4Q16 results announcement slated by end of Feb.

Rating

HOLD ↔, TP: RM5.28 ↔

• Regional exposures with focus on emerging countries with great growth potentials. However, regulatory and execution risks are major concern. Asset monetization through tower listing is a long term catalyst.

Valuation

• Maintain HOLD with unchanged SOP-derived TP of RM5.28 .

Source: Hong Leong Investment Bank Research - 02 Feb 2017