XL Axiata released soft 3Q24 operating results, with 3Q24 profit at IDR292bn (-40% q-q, -21% y-y). Still, despite the soft 3Q24, EXCL’s 9M24 net profit was ahead of our expectation (96.1% of our FY24F projection), growing 30.3% y-y to IDR1.32tn. 

We attribute the declining profitability on a q-q basis to 1) weaker purchasing power, 2) a still intense competitive landscape, 3) seasonality (whereby 3Q is the slowest quarter typically), and 4) possibly the increasing presence of illegal ISPs that compete with cellular companies’ data services. Despite that, we maintain our Buy rating on EXCL, as we anticipate 4Q24F to be better than 3Q24, albeit against the backdrop of weak purchasing power, particularly in the mass-market segments, which typically are associated with low ARPUs.

3Q24 result summary

3Q24 revenue reached IDR8.3tn (-3.5% q-q, +2.4% y-y) bringing 9M24 revenue to IDR25.4tn (+6.2% y-y). Cellular was the main driver of growth, with 3Q24 revenue hitting IDR7.7tn (-6.2% q-q, +2.5% y-y), implying 9M24 revenue of IDR24.1tn (+7% y-y). While headline ARPU declined to IDR41,000 (-6.8% q-q; flat y-y), the overall 3Q24 subscriber base reached 58.6mn users (+0.2% q-q, +1.9% y-y). We argue that the lower ARPU can be largely attributed to soft purchasing power and still intense competition

3Q24 EBITDA was at IDR4.3tn (-3.7% q-q, +5.5% y-y), bringing 9M24 EBITDA to IDR13.3tn (+13.1% y-y). Implied EBITDA margin reached 52.4% in 9M24 (+320bp y-y). This represents 79.4% of our 2024F EBITDA forecast.

3Q24 net profit was at IDR292bn (-40% q-q / -21% y-y). This translated into 9M24 net profit of IDR1.32tn (+30.3% y-y). EXCL’s 3Q24 q-q bottom-line decline was more significant compared to its peers (ISAT -20% q-q, TLKM +3.6% q-q), suggesting larger impact from illegal ISPs (EXCL has a strong fixed broadband business relative to ISAT).

Valuation and risks

Our unchanged TP of IDR2,600 is based on DCF valuation, using a risk-free rate of 6.2%, an equity risk premium of 7.4%, a terminal growth rate of 2.5%, a net debt-to-equity ratio of 114%, and a WACC of 9.4% (all metrics unchanged). We maintain our Buy call. At our TP, the stock would trade at 2024F EV/EBITDA of 4.4x (vs 3.5x at current levels). Downside risks include adverse macro conditions and lower customer spending.

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)