XL’s 9M22 core net profit of IDR976bn (+17% YoY) matched expectation. Sequentially, total base added 200k QoQ to 57.4m subs as both postpaid and prepaid sub bases expanded. Postpaid ARPU experienced erosion while prepaid’s was stable. Improved service quality with 4G coverage expansion while shutting down 3G footprints. Data growth remains solid supported by network quality and smartphone adoption. Reiterate HOLD on Axiata with unchanged TP of RM2.81.

Within expectation. XL’s (66.3% subsidiary of Axiata) 3Q22 core PAT of IDR327bn (-31% QoQ, +21% YoY), lifting 9M22’s sum to IDR976bn (+17% YoY) which matched expectation, accounting for 745% of consensus full year estimate. 9M22 one-off items include forex loss of IDR4bn and tower gain of IDR6bn.

QoQ. Turnover was up 3% to IDR7.5tn thanks to subscriber growth along with positive blended ARPU development. Data and digital services revenue gained 3% to IDR6.8tn and accounted for 91% of 3Q22 total revenue. Although EBITDA margin was flat at 48%, absolute EBITDA grew 2%. However, core earnings fell 31% on the back of higher D&A (+2%), interest expense (+16%) and tax (+20%).

YoY. The 10% uplift in top line was on the back of data revenue’s 9% growth. EBITDA expanded by 7% to IDR3.6tn although EBITDA margin was lower by 2ppt as total operating expenses increased at a faster pace of 14%. After stripping off one-off items, bottom line registered a 21% gain.

YTD. Similarly, turnover advanced 9% to IDR21.6tn supported by data revenue which also increased by 9%. In turn, core net profit grew 17% to IDR976bn.

Subscriber. Total base added 200k QoQ to 57.4m subs as both postpaid and prepaid sub bases gained and ended 3Q22 with 1.5m and 55.9m, respectively. Prepaid ARPU was stable at IDR38k while postpaid’s was eroded by IDR1k QoQ to IDR96k. With the improved coverage and more affordable device bundle offerings, 92% of total base or 53m are 4G users generating 2,046PB of total traffic in 3Q22, +3% sequentially and +19% YoY.

Expansion. Continued to invest to provide high quality internet services, especially ex Java, by expanding 4G coverage. It has added 20.3k 4G nodes YoY in 9M22 while shutting down 3G footprints. This brings total base stations to circa 145k. LTE is now available in 460 cities and areas across Indonesia with circa 90k eNodeB.

XL Linknet Synergy. (i) Collaborative product launch in Oct 2022; (ii) Optimization in backbone, submarine and fibre development; and (iii) Adapting analytics to combine and sharpen distribution channel and sales.

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

Forecast. Maintain forecast pending analyst briefing in conjunction with Axiata’s 3Q22 results announcement slated on 25 Nov. Reiterate HOLD with unchanged SOP-derived TP of RM2.81 (see Figure #1). We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on the Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and economic (in Sri Lanka) 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 - 8 Nov 2022