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

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	2Q23	4Q23	1Q24	2Q24	Q-Q	Y-Y	YTD 2024	YTD 2023	YoY	2024F	YTD/FY24F
Gross rev	8,214	8,457	8,440	8,612	2.0	4.8	17,052	15,765	8.2	31,567	54.0
Cellular rev	7,776	7,905	8,063	8,258	2.4	6.2	16,321	14,944	9.2	30,190	54.1
- Data/VAS	7,501	7,680	7,823	8,016	2.5	6.9	15,838	14,410	9.9	29,841	53.1
- Non-Data	275	226	240	242	0.8	(12.1)	482	534	(9.6)	350	137.9
- Voice	203	166	177	178	0.8	(12.1)	355	393	(9.6)	238	149.4
- SMS	72	59	63	64	0.8	(12.1)	127	140	(9.6)	112	113.5
- IC services	337	409	211	162	(23.1)	(51.9)	373	592	(37.0)	1,165	32.0
* Others	109	143	166	192	15.9	76.0	358	237	51.0

Op. inc	1,234	1,150	1,390	1,394	0.3	13.0	2,784	2,075	34.1	4,688	59.4
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	4,060	4,130	4,454	4,503	1.1	10.9	8,958	7,643	17.2	15,401	58.2
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	441	261	539	486	(9.9)	10.1	1,025	642	59.6	1,601	64.0
Margin	5.4%	3.1%	6.4%	5.6%			6.0%	4.1%		5.1%
Core profit	409	323	505	490	(2.9)	19.8	995	555		1,601	62.2
Core margin	5.0	3.8	6.0	5.7			5.8%	3.5%		5.1%

Source: Company data, Verdhana research

Fig. 2: EXCL operational data

EXCL Operational data	2Q23	4Q23	1Q24	2Q24	Q-Q	Y-Y
Total subs ('000)	58,000	57,500	57,600	58,500	1.6	0.9
- Pre-paid	56,500	55,900	56,000	56,900	1.6	0.7
- Post paid	1,500	1,600	1,600	1,600	0.0	6.7
ARPU IDR	41,000	43,000	44,000	44,000	0.0	7.3
Data traffic (PB)	2,452	2,529	2,609	2,660	2.0	8.5
Data yield IDR/MB	3.1	3.0	3.0	3.0
Data ARPU IDR	39,536	41,579	42,690	42,700	0.0	8.0
HomeConnect ('000)	154	207	252	267	6.0	73.4
Data (ex VAS)	14,410	29,401	7,823	15,838	102.5	9.9
Data as % of rev (RHS)	91.4	90.9	92.7	92.9	0.2	1.6
Capex	4,501	10,425	2,057	4,145	101.5	(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	163,884	0.5	9.1
3G/4G BTS	97,125	106,050	108,283	109,547	1.2	12.8

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

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

Solid 1H24 operating results

Fig. 1: EXCL quarterly result

Fig. 2: EXCL operational data

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Fig. 1: EXCL quarterly result

Fig. 2: EXCL operational data

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