Results Review:
XL Axiata (EXCL IJ, BUY, TP: IDR3,355)
Playing Catch-Up
XL Axiata (EXCL IJ, BUY, TP: IDR3,355)
Playing Catch-Up
XL
posted sequential revenue and EBITDA growth for the first time since the past
five quarters, due to improved data to legacy revenue substitution and lower
costs. Looking at its high data subscriber base, we expect XL’s reduction of
data bonuses (end of March) to point towards stronger revenue and EBITDA growth
in the coming quarters. 1Q17 results were in line with our and consensus
estimates on weak seasonality. Maintain BUY and DCF-derived TP of IDR3,355 (12%
upside).
¨ First sequential
growth since FY15, on strong data and lower costs. On a seasonally
weaker quarter, XL posted QoQ revenue and EBITDA growth of 0.2/1.4%. This was
driven by higher data revenue growth that offset its legacy revenue's decline,
as well as lower depreciation and advertising & promotion (A&P) costs.
Management maintained high single-digit revenue growth and EBITDA margin in the
high 30s (1Q17 at 35%) on a pick-up of revenue growth and better data yield.
However, expect A&P costs to increase in the coming quarters, to drive revenue
growth.
XL's data revenue now accounts for 50% of
total revenue and among the highest in our Indonesian telco coverage. However,
data yield saw another decline to IDR11,200/GB on the back of strong 40.7% QoQ
data traffic growth. We expect data yield to at least stabilise in the coming
quarter, after XL scales back its data bonuses by end-March.
¨ Management sounds
optimistic about data price repair. When asked about its view on data
monetisation, XL sounded more optimistic than its peers, citing that data
traffic remains strong after the data bonus reduction, while its subscribers
top up more frequently to maintain their data usage. Furthermore, XL is better
positioned in terms of 4G network quality, due to lower utilisation than its
peers.
Our monthly price tracking shows that XL's
basic 2GB data packages as of May offers 4GB of data bonuses, as compared to
Indosat's (ISAT IJ, NEUTRAL,
TP: IDR7,100) 3GB of data bonuses. Freebies now include special quotas for YouTube on its XL brand, while its Axis brand offers starter packs that give unlimited usage for WhatsApp and LINE, and for Blackberry messengers.
TP: IDR7,100) 3GB of data bonuses. Freebies now include special quotas for YouTube on its XL brand, while its Axis brand offers starter packs that give unlimited usage for WhatsApp and LINE, and for Blackberry messengers.
¨ Still competing on
price, revenue growth crucial going forward. Similar to 4Q16, XL
recorded net prepaid subscribers adds of 1.5m in 1Q17. However, this does not
reflect any improvement in brand loyalty, in our view, because XL's data
bonuses were the highest in the industry in 1Q17. Going forward, we believe it
is imperative for XL to maintain its strong data traffic growth momentum with
some degree of data yield improvement.
¨ Maintain BUY and DCF-derived TP of
IDR3,355 (WACC: 11.2%, TG: 1%). This implies FY17F-18F EV/EBITDA of 5.5-4x. Key
downside risks are continued data yield erosion and execution risks of its
strategy to transform from the price leader to the leading data provider with
higher ARPU.
Norman Choong, CFA
Assistant Vice
President
Research Analyst – Utilities,
Oil & Gas, Telecommunications, Poultry
PT RHB Sekuritas
Indonesia
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