XL’s 9M21 core net profit of IDR835bn (+63% YoY) matched expectation. The 1% YTD improvement in revenue was not reflected in EBITDA as operating cost saw a 1.4% hike. Yet, core net profit expanded by 63% YTD thanks to lower finance cost and tax rate. Sequential subscriber uplift coupled with stable ARPU were attributable to strong product traction. Improved service quality with 4G coverage expansion (+17k eNodeB YTD) while rationalizing 3G footprints. Data growth remains solid supported by network quality and smartphone adoption. Reiterate HOLD on Axiata with unchanged TP of RM3.96.

Within expectation. XL’s (66.3% subsidiary of Axiata) 3Q21 core PAT of IDR272bn (-18% QoQ, -18% YoY) brought 9M21’s total to IDR835bn (+63% YoY), which meet expectation, accounting for 73% of consensus full year estimate. 9M21 one-off items include picocell gain (IDR181bn), tower disposal loss (IDR4bn) and forex gain (IDR5bn).

QoQ. Turnover was up 2% to IDR6.8tn mainly due to the increase in data revenue which gained 2% to IDR6.0tn. Data accounted for 95% of 3Q21 service revenue. Margin was sustained at 50% which led to similar 2% expansion in absolute EBITDA. However, core earnings fell by 18% to IDR333bn due to higher tax expense.

YoY. The 4% uplift in top line was on the back of data revenue’s 6% growth. Total operating expenses increased at a faster pace of 8% resulted in lower EBITDA margin by 2ppt. Despite the lower interest and tax expenses, bottom line shrunk by 18% due to higher D&A (+7%).

YTD. The 1% improvement in revenue was not reflected in EBITDA as operating cost saw a 1.4% hike. Yet, core net profit expanded by 63% to IDR835bn attributable to lower finance cost and effective corporate tax rate.

Subscriber. Due to strong product traction, total base added 1.2m (or +2.1%) QoQ to 58.0m subs as both prepaid and postpaid saw positive developments. Prepaid and postpaid sub base ended 3Q21 with 56.7m and 1.3m, respectively. Prepaid ARPU was flat QoQ at IDR36k while postpaid’s fell IDR3k QoQ to IDR105k. With the improved coverage and more affordable device bundle offerings, 92% of total base or 53.3m (+1.6m QoQ) are smartphone users generating 1,722PB of total traffic in 3Q21, up 10% QoQ.

Expansion. Continued to invest to provide high quality internet services, especially ex-Java, by expanding 4G coverage. It has added 16.8k 4G nodes YoY in 9M21 while rationalizing 3G footprints. This brings total base stations to circa 153k (+8% YoY). LTE is now available in 458 cities and areas across Indonesia with circa 70k eNodeB.

FY21 guidance. Reiterate (1) Revenue growth to be in line with market; (2) EBITDA margin of low 50%; (3) Capex is revised higher to ~IDR8.5tn (previously ~IDR7.0tn).

Forecast. Maintain forecast pending analyst briefing in conjunction with Axiata’s 3Q21 results announcement slated on 26 Nov. Axiata remains a HOLD on the back of unchanged SOP -derived TP of RM3.96 (see Figure #1). We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and execution risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 10 Nov 2021