XL AXIATA (XL)’s 4QFY21 CNP of IDR269b brought FY21 CNP to IDR1.10t, within our/street’s expectations. Looking ahead, we expect XL’s continued push of its convergence proposition to drive subs growth and stickiness. The competitive landscape in Indonesia has eased since the Hutch/Indosat consolidation in FY21, reducing the risk of further price wars. We maintain our Axiata Group’s earnings estimates post-XL’s 4QFY21 results, pending Group results today. Maintain our OUTPERFORM call with SoP-TP of RM4.30.

FY21 within expectations. 4QFY21 core net profit (CNP) of IDR269b (+62% YoY, -1% QoQ) brought FY21 CNP to IDR1.10t (+63% YoY), coming within our/street’s expectations at 99%/96% of full-year estimates.

YoY. FY21 CNP jumped 63% driven by: (i) a 25% decrease in D&A expense and (ii) 14% increase in postpaid subs. Prepaid ARPU subscribers remained stable at 56.7m. Postpaid ARPU softened by 4% while prepaid ARPU remained steady at IDR35k/month.

QoQ. 4QFY21 CNP tipped down 1%, despite the 1% rise in service revenue, mainly as higher OPEX weighed, mainly driven by: (i) higher device costs, (ii) infrastructure costs on expanded network footprint, and (iii) regulatory costs due to increase in frequency fees.

LinkNet deal to keep management busy. XL is currently seeking the necessary approvals to complete the LinkNet acquisition. Thus, although XL may continue to strike infrastructure collaboration agreement with other telcos, they likely will not have more M&A deals in the near future, reinforcing management’s dismissal of SmartFren merger rumors during the 3QFY21 results briefing. To reiterate, key cost synergies from the LinkNet acquisition include the sharing of backbone and transmission networks, as well as revenue synergies, with the main focus on its consumer convergence proposition.

Focus on convergence. XL continues its pursuit to be the number one converged operator in Indonesia, as they aim to combine mobile and fixed broadband and content under one proposition, all accessible through their mobile app. By leveraging on LinkNet’s fibre footprint, XL looks to continue cross-selling mobile and fixed services to each other’s customers to drive subscriber growth and stickiness. XL will also explore the potential to cross-sell enterprise solutions to LinkNet’s enterprise customers.

Met FY21 guidance. XL met its FY21 guidance of revenue growth (+3%), in line with market’s (low single-digit growth) and EBITDA margin of low 50% (FY21: 50%). More optimistic FY22 outlook, as management is expecting mid-single-digit revenue growth in light of continued economic recovery. FY22 should also see low 50% EBITDA margin, signifying that cost measures are sound and intact.

Post XL’s 4QFY21 results, we are keeping our Axiata Group FY21 estimates, pending Group-level results today.

Maintain OUTPERFORM with SoP-driven TP of RM4.30. We maintain Axiata as our telco sector top pick for its digital and regional exposure, which will partially benefit from the easing competitive landscape in Indonesia and a clear path for continued growth through the LinkNet deal.

Source: Kenanga Research - 22 Feb 2022