XL’s FY21 core net profit of IDR1.1tn (+63% YoY) missed expectation. The 3% improvement in revenue was not fully reflected in EBITDA (+2%) as operating cost saw a 4% hike. Core net profit expanded by 63% to IDR1.1tn thanks to higher EBITDA and lower finance cost. Sequentially, XL experienced minor subscriber churn while ARPU was relatively stable. Improved service quality with 4G coverage expansion (+23k eNodeB) while rationalizing 3G footprints. Data growth remains solid supported by network quality and smartphone adoption. Reiterate HOLD on Axiata with unchanged TP of RM4.06.

Below expectation. XL’s (66.3% subsidiary of Axiata) 4Q21 core PAT of IDR269bn (-1% QoQ, +62% YoY) brought FY21’s total to IDR1.1tn (+63% YoY), which missed expectation, accounting for 73% of consensus full year estimate. The disappointment was mainly due to lower-than-expected turnover and EBITDA margin. FY21 one-off items include picocell gain (IDR181bn), tower disposal loss (IDR4bn) and forex gain (IDR7bn).

QoQ. Turnover was up 2% to IDR7.0tn mainly due to the increase in data revenue which gained 2% to IDR6.1tn. Data accounted for 95% of 4Q21 service revenue. Margin dipped 1ppt to 49% which led to 1% decline in absolute EBITDA. In turn, core earnings fell by 1% to IDR269bn.

YoY. The 10% uplift in top line was on the back of data revenue’s 12% growth. Total operating expenses increased at a faster pace of 12% resulted in lower EBITDA margin by 1ppt. However, bottom line expanded by 62% due to lower adjusted D&A (-18%) and finance cost (-13%).

YTD. The 3% improvement in revenue was not fully reflected in EBITDA (+2%) as operating cost saw a 4% hike. Core net profit expanded by 63% to IDR1.1tn thanks to higher EBITDA and lower finance cost.

Subscriber. Total base only lost 80k QoQ to 57.9m subs as postpaid’s addition was neutralized by prepaid’s attritions. Prepaid and postpaid sub base ended 4Q21 with 56.6m and 1.3m, respectively. Prepaid ARPU was flat QoQ at IDR36k while postpaid’s gained IDR1k QoQ to IDR106k. With the improved coverage and more affordable device bundle offerings, 92% of total base or 53.3 are smartphone users generating 1,865PB of total traffic in 4Q21, up 8% QoQ.

Expansion. Continued to invest to provide high quality internet services, especially ex-Java, by expanding 4G coverage. It has added 22.9k 4G nodes in FY21 while rationalizing 3G footprints. This brings total base stations to circa 162k (+12% YoY). LTE is now available in 458 cities and areas across Indonesia with circa 77k eNodeB.

FY22 guidance. Reiterate (1) Revenue growth to be in line with market; (2) EBITDA margin of low 50%; (3) Capex to be around IDR9tn.

Forecast. Maintain forecast pending analyst briefing in conjunction with Axiata’s 4Q21 results announcement slated on 22 Feb. Axiata remains a HOLD on the back of unchanged SOP -derived TP of RM4.06 (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 - 22 Feb 2022