Results

• On the back of IDR16.9tr turnover, XL 9M17 core net profit of IDR338bn was above street’s full year forecast.

Deviations

• D&A was lower-than-expected.

Dividends

• None.

Highlights

• QoQ: Gross revenue expanded 5.3% as service revenue gained 5.1% thanks to data revenue which increased 11.0% supported by strong take-up. Core net profit strengthened more than 138.3% to IDR224bn driven by EBITDA margin improvement and lower D&A.
• YoY: Top line grew 13.8% while service revenue expanded at a faster pace of 16.3% thanks to data uplift. Excluding one-off items, core net profit advanced 3 folds attributable to lower D&A and interest cost.
• 9M17: For the same reason, service revenue and core earnings grew 8.0% and 5 folds, respectively.
• Postpaid 3Q17 performance was a mixed bag where it added 49k subs bringing the base to 631k at the expense of ARPU, which contracted IDR1k to IDR115k. As for prepaid, 2.0m subs were added in 3Q17 to reach a total base of 51.9m with a stable ARPU of IDR33k.
• Continue to invest to provide high quality internet services by adding 3G and 4G nodes by 2.3k and 2.1k, respectively in 3Q17. This brings total base stations to circa 98.0k.
• With the improved coverage, 72% of total base or 36.4m are data users generating 882.5PB of total traffic in 9M17, up 163.5% YoY. As affordability increased, smartphone users also grew 8.6% qoq, reaching 36.7m users or 70% of the total base.
• Ex-Java region experienced mid-to-high-teen growth rate and contributed equally compared to Java region.
• FY17 guidance remains unchanged: (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 3Q17 results announcement slated on 23 Nov.

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 Nov 2017