Results

• On the back of IDR10.9tr turnover, XL 1H17 core net profit of IDR114bn was largely in line with street’s full year forecast.

Deviations

• Largely in line.

Dividends

• None.

Highlights

• QoQ: While gross revenue expanded 7.6%, service revenue gained at a faster pace at 9.3% thanks to data revenue which increased 18.0% helped by monetization efforts in 1Q17. Core net profit strengthened more than 4 fold to IDR114bn thanks to EBITDA margin improvement by 150bps to 36.5%.
• YoY: Top line grew 8.2% thanks to data uplift. Excluding one-off items, core net profit advanced almost 2 fold attributable to better EBITDA margin and lower interest cost.
• 1H17: While gross revenue saw a marginal 0.7% gain, service revenue actually grew stronger at 4.1% driven by data services. Core net profit grew 80.9% partly aided by tax benefits in 1H17.
• Postpaid 2Q17 performance was a mix bag where it added 42k subs bringing the base to 582 at the expense of ARPU, which contracted IDR8k to IDR116k. As for prepaid, 2.5m subs were added in 2Q17 to reach a total base of 49.9m with a more solid ARPU development of +IDR1k qoq to IDR33k.
• Continue to invest to provide high quality internet services by adding 3G and 4G nodes by 2.4k and 3.3k, respectively in 2Q17. This brings total base stations to circa 93.5k.
• With the improved coverage, 70% of total base or 35.4m are data users generating 543.4PB of total traffic in 1H17, up 175.6% yoy. As affordability increased, smartphone users also grew 14% qoq, reaching 33.8m users or 67% 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.

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 2Q17 results announcement slated on 30 Aug.

Rating

HOLD ↔ , TP: RM4.65 ↔

• 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 rating with unchanged SOP-derived TP of RM4.65 .

Source: Hong Leong Investment Bank Research - 01 Aug 2017