Results

• On the back of IDR22.9tr turnover, XL FY17 core net profit of IDR740bn was above street’s full year forecast.

Deviations

• Normalized EBITDA margin was stronger-than-expected.

Dividends

• None.

Highlights

• QoQ: Gross revenue was flat as service revenue 1.4% growth was fully offset by others (interconnect, asset leasing and roaming). Core net profit gained 79.5% to IDR402bn driven by EBITDA margin improvement and lower D&A.
• YoY: Top line grew 13.3% while service revenue expanded at a faster pace of 16.8% thanks to data uplift. Excluding one-off items, core net profit advanced 4-folds attributable to lower D&A and interest cost.
• FY17: For the same reason, service revenue and core earnings grew 10.0% and 4.5 folds, respectively.
• Postpaid 4Q17 performance was a mixed bag where it added 72k subs bringing the base to 703k at the expense of ARPU, which contracted IDR1k to IDR114k. As for prepaid, 0.9m subs were added in 4Q17 to reach a total base of 52.8m with a stable ARPU of IDR33k.
• Prepaid SIM registration (dateline Feb 2018) is slow partly due to government’s subpar centralized database. To date, 20m registrations were successful while 10m failed.
• Continues to invest to provide high quality internet services by adding 3G and 4G nodes by 1.4k and 1.7k, respectively in 4Q17. This brings total base stations to circa 101.1k.
• With the improved coverage, 73% of total base or 39.1m are data users generating 1,279.5PB of total traffic in FY17, up 148.3% YoY. As affordability increased, smartphone users also grew 9.0% YoY, reaching 38.3m users or 72% of the total base.
• FY18 guidance: (1) revenue growth to be in-line with market; (2) EBITDA margin set at high 30’s; (3) CAPEX of circa 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 4Q17 results announcement slated on 22 Feb.

Rating

HOLD ↔ , TP: RM5.01 ↔

• 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 RM5.01 .

Source: Hong Leong Investment Bank Research - 05 Feb 2018