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XL Axiata EXCL IJ -Buy - Solid 1H24 operating results

XL Axiata EXCL IJ -Buy - Solid 1H24 operating results

Telco NS W RK 1K 7th Aug, 2024

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Solid 1H24 operating results


XL Axiata released a set of solid 1H24 operating results, as its 1H24 operating income and EBITDA were ahead of our FY24F projections (i.e., 59.4% and 58.2% of our full-year estimates, respectively). Additionally, despite pressure from a high-interest rate environment, EXCL’s 1H24 net profit was ahead of our expectation (64% of our FY24F projection), growing 59.6% y-y (106.9% q-q) to IDR1tn. 

We see EXCL potentially gaining revenue market share from Telkomsel (TSEL, unlisted), especially in the ex-Java region, on the back of ongoing improvement in its network quality from spectrum re-farming. Taking its network quality improvement into account, given the price discount that EXCL has in ex-Java relative to TSEL, EXCL could implement upward pricing, leading to an overall better profitability profile for the cellular sector and for EXCL.

Meanwhile, we also note that EXCL’s FMC (fixed mobile convergence) continues to gain traction, with the FBB subscriber base now reaching 267k (+73% y-y). More encouragingly, the company is seeing ~81% convergence (i.e., FBB subscribers are also cellular subscribers), suggesting greater stickiness of such subscribers. We reiterate our Buy rating on the stock.

2Q24 results summary

    • 2Q24 gross revenue reached IDR8.6tn (+2.0% q-q, +4.8% y-y), bringing 1H24 gross revenue to IDR17tn (+8.2% y-y), or 54.0% of our FY24F gross revenue projection. This was primarily generated from strong data/VAS revenue, which reached IDR8.0tn (+2.5% q-q, +6.9% y-y) in 2Q24, bringing 1H24 data/VAS revenue to IDR16tn (+9.9%) representing 53.1% of our FY24F data revenue projection.

      • During the quarter, EXCL recorded data traffic of 2,660PB (+2.0% q-q, +8.5% y-y), as user engagement continued to gain momentum, as evident from monthly active users for the company’s MyXL and AXISNet applications rising by +110% from December 2021 to 32mn in 2Q24. The company's overall blended ARPU increased to IDR44,000 (+flat q-q, +7.3% y-y), given EXCL’s ongoing initiative to increase its prices and cut bonuses for subscribers. This applies to both its low-end brand AXIS and high-end XL products.

        • 2Q24 EBITDA reached IDR4.5tn (+1.1% q-q, +10.9% y-y), bringing 1H24 EBITDA to IDR8.96tn (17.2% y-y) or 58.2% of our FY24F projection, with 2Q24 EBITDA margin at 52.3% and 1H24 margin to 52.5%, which is slightly above the company’s guidance. EXCL's 2024 guidance is for a 50% EBITDA margin.

          • 2Q24's reported net profit came in at IDR486bn (-9.9% q-q; +10.1% y-y), bringing 1H24 net profit to IDR1.03tn (+59.6% y-y) accounting for 64% of our FY24F estimate.

            • In 2Q24, EXCL reported an increase in 4G BTS to 109,170 (from 107,906 in 1Q24, and 97,125 in 2Q23). This was due to its 3G spectrum re-farming nearing completion. With EXCL continuing to enhance its 4G coverage, we expect its data services to become more efficient.

            Valuation and risks

            Our unchanged TP of IDR2,600 is based on a 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). 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. We reiterate our Buy rating.

            Fig. 1: EXCL quarterly result

             EXCL QoQ IDRbn 2Q234Q231Q242Q24Q-QY-YYTD 2024YTD 2023YoY2024FYTD/FY24F
             Gross rev 8,2148,4578,4408,6122.04.817,05215,7658.2    31,56754.0
             Cellular rev 7,7767,9058,0638,2582.46.216,32114,9449.2    30,19054.1
             - Data/VAS 7,5017,6807,8238,0162.56.915,83814,4109.9    29,84153.1
             - Non-Data 2752262402420.8(12.1)482534(9.6)          350137.9
             - Voice 2031661771780.8(12.1)355393(9.6)        238149.4
             - SMS 725963640.8(12.1)127140(9.6)        112113.5
             - IC services 337409211162(23.1)(51.9)373592(37.0)      1,16532.0
             * Others 10914316619215.976.035823751.0  
                        
             Op. inc 1,2341,1501,3901,3940.313.02,7842,07534.1      4,68859.4
             Margin % 15.0%13.6%16.5%16.2%  16.3%13.2% 14.9% 
             Margin (net) 15.0%13.6%16.5%16.2%  16.3%13.2% 14.9%109.8
             EBITDA 4,0604,1304,4544,5031.110.98,9587,64317.2    15,40158.2
             Margin % 49.4%48.8%52.8%52.3%  52.5%48.5% 48.8% 
             Margin (net) 49.5%48.8%52.8%52.3%  52.5%48.5% 0.0% 
                        
                        
             NP 441261539486(9.9)10.11,02564259.6      1,60164.0
             Margin 5.4%3.1%6.4%5.6%  6.0%4.1% 5.1% 
             Core profit 409323505490(2.9)19.8995555       1,60162.2
             Core margin 5.03.86.05.7  5.8%3.5% 5.1% 
            Source: Company data, Verdhana research

             

            Fig. 2: EXCL operational data

             EXCL Operational data 2Q234Q231Q242Q24Q-QY-Y
             Total subs ('000)         58,000        57,500        57,600        58,5001.60.9
             - Pre-paid         56,500        55,900        56,000        56,9001.60.7
             - Post paid           1,500          1,600          1,600          1,6000.06.7
             ARPU IDR         41,000        43,000        44,000        44,0000.07.3
             Data traffic (PB)            2,452           2,529           2,609           2,6602.08.5
             Data yield IDR/MB              3.1             3.0             3.0             3.0  
             Data ARPU IDR         39,536        41,579        42,690        42,7000.08.0
             HomeConnect ('000)             154               207            252            2676.073.4
             Data (ex VAS)         14,410        29,401          7,823        15,838102.59.9
             Data as % of rev (RHS)            91.4           90.9           92.7           92.90.21.6
             Capex 4,50110,4252,0574,145101.5(7.9)
             Capex as % of rev (RHS)            28.6          32.24           24.4           24.3(0.3)(14.9)
             Net debt (cash)         40,928        44,975        44,897        44,053(1.9)7.6
             Net debt to equity %             151            171            167            165  
             Net debt to EBITDA x              2.5             2.7             2.5             2.4  
             Total BTS       150,261      160,124      163,106      163,8840.59.1
             3G/4G BTS         97,125      106,050      108,283      109,5471.212.8
            Source: Company data, Verdhana research

            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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            Rating Table

            Rating
            Remains            		Buy
            Target price
            Remains
            		IDR 2,600
            Closing price
            6 August 2024            		IDR 2,190

            Research Analysts

            Indonesia Research Team


            Nicholas Santoso             (nicholas.santoso@verdhana.id),

            Erwin Wijaya (erwin.wijaya@verdhana.id), and

            Raymond Kosasih (raymond.kosasih@verdhana.id)

            Tags: Telco, EXCL JK, EXCL IJ, Nicholas Santoso, Erwin Wijaya, Raymond Kosasih
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