XLSMART Telecom (EXCL IJ) (Neutral) - Laying groundwork

Laying groundwork

Downgrade to Neutral with TP unchanged at IDR3,000

Losses in 9M25 due to ongoing restructuring

XLSmart’s recently released 9M25 earnings have shown large losses. These were primarily reflecting the company’s ongoing restructuring costs following its recent merger with SmartFren (unlisted) in 2Q25. These costs included accelerated depreciation (and/or asset impairment), increased spectrum costs (as it must return all 2x7.5MHz spectrum in 900MHz band by the end of 2026) and broad integration costs. The larger-than-expected loss is the primary reason for our revised loss estimate for FY25F, as we now forecast losses of IDR3.53tn (previously IDR0.7tn). Going forward, for coverage (and capacity), XLSmart will rely on 2x11MHz spectrum in the 850MHz band, which would be more efficient. While merger- related costs could persist in 2026F, we believe that the amount should taper off in the coming quarters and pave ways for recoveries. The merger would also mean capex efficiency. Hence, we cut our capex assumption from IDR15.0tn to IDR12.5tn annually for FY26-27F. Thus, despite our earnings downgrade for FY25F, we raise FY26F/27F EPS by 24%/13%.

3Q25 witnessed evidence of market repair as depicted in the broad-based quarterly ARPU improvement across major cellular companies (+~4% q-q). We believe market repair is likely to continue in 4Q25F, for which we estimate ~1.5-2.5% q-q improvement in APRU, led by: 1) improvement in business activities in Nov-Dec 25 and/or 2) increased government spendings (including cash handouts). Moreover, upcoming holiday seasons would contribute to positive seasonality on cellular spendings. Going into 2026F, combined with the Eid holiday season (in Mar-26), we expect the government’s front-loading spending as well as minimum wage increases (estimated to rise by a mid-to-high single-digit rate) to contribute to another round of ARPU uplift.

Valuation and risks

Our TP of IDR3,000 (unchanged) is based on a DCF analysis, using a risk-free rate of 6.2%, an equity risk premium of 7.4%, and a terminal growth rate of 2.5%. This results in a WACC of 9.4% (from 9.3% previously). Given the recent stock price recovery, we downgrade our rating to Neutral (from Buy). At our TP, the stock would trade at 2026F EV/EBITDA of 5.2x (compared to 4.7x at the current price). Upside/downside risks include better/adverse macro conditions, higher/lower customer spending, more/less service price hikes leading to higher/lower data prices, and/or lower/higher opex.

Year-end 31 Dec	FY24		FY25F		FY26F		FY27F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
Revenue (bn)	34,392	41,916	42,416	42,638	43,138	43,606	44,106
Reported net profit (bn)	1,819	-694	-3,526	139	172	1,296	1,466
Normalised net profit (bn)	1,819	-694	-3,526	139	172	1,296	1,466
FD normalised EPS	138.56	-52.88	-268.60	10.58	13.12	98.74	111.66
FD norm. EPS growth (%)	44.7	-138.2	-293.9	–	–	833.7	750.9
FD normalised P/E (x)	19.7	–	–	–	208.0	–	24.4
EV/EBITDA (x)	4.5	–	4.7	–	4.3	–	4.0
Price/book (x)	1.4	–	1.0	–	1.0	–	1.0
Dividend yield (%)	1.5	–	–	–	–	–	–
ROE (%)	6.9	-2.3	-11.6	0.4	0.5	3.6	4.1
Net debt/equity (%)	171.5	165.2	151.8	164.0	145.7	153.9	129.3

Source: Company data, Verdhana estimates

Key data on XLSMART Telecom

Income statement (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Revenue	32,323	34,392	42,416	43,138	44,106
Cost of goods sold	-26,291	-26,698	-37,540	-33,353	-33,035
Gross profit	6,031	7,693	4,876	9,786	11,071
SG&A	-251	-369	-750	-800	-850
Employee share expense	-1,402	-1,736	-3,500	-3,763	-4,045
Operating profit	4,378	5,589	626	5,223	6,176
EBITDA	15,885	17,880	18,997	20,159	20,648
Depreciation	-11,506	-12,291	-18,371	-14,936	-14,472
Amortisation	0	0	0	0	0
EBIT	4,378	5,589	626	5,223	6,176
Net interest expense	-2,840	-3,033	-3,828	-4,325	-4,260
Associates & JCEs	0	0	0	0	0
Other income	152	-129	0	0	0
Earnings before tax	1,690	2,427	-3,202	899	1,916
Income tax	-420	-580	704	-198	-422
Net profit after tax	1,270	1,848	-2,498	701	1,495
Minorities	-13	-29	-29	-29	-29
Other items	0	0	-1,000	-500	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	1,257	1,819	-3,526	172	1,466
Extraordinary items	0	0	0	0	0
Reported NPAT	1,257	1,819	-3,526	172	1,466
Dividends	-635	-544	0	0	0
Transfer to reserves	622	1,275	-3,526	172	1,466
Valuations and ratios
Reported P/E (x)	28.5	19.7	–	208.0	24.4
Normalised P/E (x)	28.5	19.7	-10.2	208.0	24.4
FD normalised P/E (x)	28.5	19.7	–	208.0	24.4
Dividend yield (%)	1.8	1.5	–	–	–
Price/cashflow (x)	4.0	3.1	1.9	2.5	2.3
Price/book (x)	1.4	1.4	1.0	1.0	1.0
EV/EBITDA (x)	5.1	4.5	4.7	4.3	4.0
EV/EBIT (x)	18.5	14.4	141.2	16.6	13.4
Gross margin (%)	18.7	22.4	11.5	22.7	25.1
EBITDA margin (%)	49.1	52.0	44.8	46.7	46.8
EBIT margin (%)	13.5	16.2	1.5	12.1	14.0
Net margin (%)	3.9	5.3	-8.3	0.4	3.3
Effective tax rate (%)	24.9	23.9	–	22.0	22.0
Dividend payout (%)	50.5	29.9	–	0.0	0.0
ROE (%)	4.8	6.9	-11.6	0.5	4.1
ROA (pretax %)	5.2	6.5	0.7	5.0	6.1
Growth (%)
Revenue	10.8	6.4	23.3	1.7	2.2
EBITDA	11.6	12.6	6.2	6.1	2.4
Normalised EPS	12.1	44.7	-293.9	–	750.9
Normalised FDEPS	12.1	44.7	-293.9	–	750.9
Source: Company data, Verdhana estimates

Cashflow statement (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
EBITDA	15,885	17,880	18,997	20,159	20,648
Change in working capital	-3,450	-2,325	3,533	-755	356
Other operating cashflow	-3,565	-4,169	-3,568	-4,967	-5,126
CF from operations	8,870	11,386	18,962	14,437	15,878
Capital expenditure	-10,425	-8,369	-15,822	-12,500	-12,500
Free cashflow	-1,555	3,017	3,140	1,937	3,378
Reduction in investments	0	0	0	0	0
Net acquisitions	0	0	0	0	0
Dec in other LT assets	0	0	0	0	0
Inc in other LT liabilities	0	0	0	0	0
Adjustments	-1,569	-556	9,258	-84	416
CF after investing acts	-3,124	2,461	12,398	1,853	3,794
Cash dividends	-635	-544	0	0	0
Equity issue	0	-1,499	12,052	0	0
Debt issue	0	0	0	0	0
Convertible debt issue	0	0	0	0	0
Others	-458	3	-14,978	0	0
CF from financial acts	-1,094	-2,040	-2,925	0	0
Net cashflow	-4,218	420	9,473	1,853	3,794
Beginning cash	5,184	966	1,387	10,860	12,713
Ending cash	966	1,386	10,859	12,713	16,507
Ending net debt	44,952	44,701	52,498	50,645	46,851
Balance sheet (IDRbn)
As at 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Cash & equivalents	966	1,387	10,860	12,713	16,507
Marketable securities	0	0	0	0	0
Accounts receivable	1,735	2,175	2,610	2,649	2,702
Inventories	378	194	281	255	255
Other current assets	4,395	4,680	4,680	4,680	4,680
Total current assets	7,474	8,436	18,431	20,297	24,143
LT investments	0	0	0	0	0
Fixed assets	63,890	61,034	65,913	63,477	61,505
Goodwill	0	0	0	0	0
Other intangible assets	0	0	0	0	0
Other LT assets	16,624	16,708	31,686	31,686	31,686
Total assets	87,988	86,179	116,030	115,460	117,334
Short-term debt	6,877	9,090	14,012	12,500	12,500
Accounts payable	9,383	8,251	11,972	10,862	10,866
Other current liabilities	4,327	3,675	4,010	4,378	4,782
Total current liabilities	20,586	21,017	29,994	27,739	28,148
Long-term debt	39,041	36,998	49,346	50,858	50,858
Convertible debt	0	0	0	0	0
Other LT liabilities	2,000	2,104	2,104	2,104	2,104
Total liabilities	61,628	60,118	81,443	80,701	81,110
Minority interest	0	0	0	0	0
Preferred stock	0	0	0	0	0
Common stock	18,093	16,593	28,646	28,646	28,646
Retained earnings	8,267	9,467	5,941	6,113	7,579
Proposed dividends	0	0	0	0	0
Other equity and reserves	0	0	0	0	0
Total shareholders' equity	26,360	26,060	34,586	34,759	36,225
Total equity & liabilities	87,988	86,179	116,030	115,460	117,334
Liquidity (x)
Current ratio	0.36	0.40	0.61	0.73	0.86
Interest cover	1.5	1.8	0.2	1.2	1.4
Leverage
Net debt/EBITDA (x)	2.83	2.50	2.76	2.51	2.27
Net debt/equity (%)	170.53	171.53	151.79	145.71	129.34
Per share
Reported EPS (IDR)	95.75	138.56	-268.60	13.12	111.66
Norm EPS (IDR)	95.75	138.56	-268.60	13.12	111.66
FD norm EPS (IDR)	95.75	138.56	-268.60	13.12	111.66
BVPS (IDR)	2,007.95	1,985.10	2,634.56	2,647.68	2,759.34
DPS (IDR)	48.39	41.44	0.00	0.00	0.00
Activity (days)
Days receivable	14.6	20.8	20.6	22.2	22.1
Days inventory	5.5	3.9	2.3	2.9	2.8
Days payable	144.2	120.9	98.3	124.9	120.0
Cash cycle	-124.1	-96.1	-75.4	-99.8	-95.1
Source: Company data, Verdhana estimates

Company profileXLSmart Tbk is an Indonesia-based mobile telecommunications services operator, This is the new entity from the merger of XL Axiata Tbk and SmartFren Tbk. headquartered in Jakarta. It is one of the largest mobile telecommunications companies in Indonesia. The operator's coverage includes Java, Bali, and Lombok, as well as the principal cities in and around Sumatra, Kalimantan and Sulawesi. XL offers data communication, broadband internet, and mobile communication.

Valuation MethodologyOur TP of IDR3,000 is based on DCF, using a risk-free rate of 6.2%, equity risk premium of 7.4%, and a terminal growth rate of 2.5%. The implied 2026F EV/EBITDA from our TP is 5.2x. The benchmark index for this stock is JCI.

Risks that may impede the achievement of the target priceUpside/downside risks include better/adverse macro conditions, higher/lower customer spending, more/less service price hikes leading to higher/lower data prices, and/or lower/higher opex..

ESGXLSmart has devised a sustainability framework within the 4P framework, namely: Building Prosperity, Nurturing People, Process Excellence, Planet and Society. Through Building Prosperity, XLSmart aims to fashion an innovative digital 17 ecosystem to bridge the digital divide by envisaging the economic, environmental, and social aspects. To put it into practice, the company aims to ensure that Process Excellence, which is the development of a streamlined digitalization process with good governance, is able to increase the company's efficiency and business sustainability. In addition to economic development and processes, XLSmart is involved in developing future leaders by increasing their internal competence, which is included in the sustainability framework of XLSmart Nurturing People. XLSmart prioritizes concern for the environment and society through the Planet and Society framework. The company has been improving its services and optimizing its local potential with social outreach programs to reduce the environmental impact. This sustainability policy and framework was instigated by establishing a sustainability road map design from year to year. This roadmap exemplifies XLSmart’s long-term determination to always prioritize the company’s progress by cautiously implementing the principles of sustainability. In turn, this road map is translated into a variety of axes related to economic, social, and environmental programs. To ensure the achievement of its sustainability goals and the implementation of XLSmart’s sustainable business, the company has appointed special officials . Their duty is to guarantee that all policies and strategies implemented by XLSmart are executed according to the set targets. XLSmart believes that the implementation and development of a culture of sustainability can only take place within the framework of Good Corporate Governance (GCG) with the five principles of: transparency, responsibility, accountability, independence, and fairness. The company has developed a GCG Roadmap to ensure the implementation and development of GCG in the long run. The development of culture and sustainability praxis at XLSmart undoubtedly lies upon the shoulders of every XLSmart individual. For this reason, the company always endeavors to develop each and every employee’s competencies in sustainability topics through various trainings, such as training related to governance aspects: anticorruption training, national laws, and regulations concerning the FSA’s statutes. In the field of OHS, XLSmart provides various trainings and simulations of dangerous situations, including the topic of COVID-19. These heterogenous trainings are given to employees according to their position and also to governance bodies.

Fig. 1: ARPU trends

Source: Company data, Verdhana research

Fig. 2: EXCL new forecasts

Source: Company data, Verdhana estimates

Fig. 3: XLSmart – DCF valuation

EXCL - DCF Derived TP IDRbn	31-Dec-25	31-Dec-26	31-Dec-27	31-Dec-28	31-Dec-29	31-Dec-30	31-Dec-31
Cash flow from operations	22,530	19,404	21,004	21,185	21,594	22,318	22,296
Capex and others	(15,118)	(12,698)	(12,922)	(13,210)	(13,459)	(13,598)	(13,549)
FCF	7,412	6,706	8,083	7,976	8,135	8,720	8,747
Terminal value
Total FCF	7,412	6,706	8,083	7,976	8,135	8,720	8,747

	New	Old
Rf %	6.2	6.2
Risk premium %	7.4	7.4
Beta	1.0	1.0
CODebt %	8.5	8.5
Net debt to capital employed %	60%	62%
WACC	9.4%	9.3%
Terminal growth	2.5%	2.5%

NPV	108,528	108,592
Net debt	(52,498)	(57,565)
Equity value	56,030	51,027
Fair value per share (IDR)	3,079	2,983	(TP Rounded to IDR3,000 vs previous TP IDR3,000)

Source: Company data, Verdhana estimates

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.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations.

Rating Table

Rating Down from Buy	Neutral
Target price Remains	IDR 3,000
Closing price 17 November 2025	IDR 2,730
Implied upside	+9.9%
Market Cap (USD mn)	2,971.6
ADT (USD mn)	2.1

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	2,971.6
Free float (%)	33.8
3-mth ADT (USDmn)	2.1

(%)	1M	3M	12M
Absolute (IDR)	12.8	-6.5	27.6
Absolute (USD)	11.8	-9.7	20.9
Rel to Jakarta Stock Exchange Composite Index	6.5	-13.1	10.0

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: TELECOMS, EXCL, EXCL JK, EXCL IJ, Erwin Wijaya

XLSMART Telecom (EXCL IJ) (Neutral) - Laying groundwork

Laying groundwork

Key data on XLSMART Telecom

Fig. 1: ARPU trends

Fig. 2: EXCL new forecasts

Fig. 3: XLSmart – DCF valuation

Rating Table

Relative performance chart

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XLSMART Telecom (EXCL IJ) (Neutral) - Laying groundwork

Fig. 1: ARPU trends

Fig. 2: EXCL new forecasts

Fig. 3: XLSmart – DCF valuation

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