EXCL: 4Q15 results: Operating in-line, bottom line above
§ Earnings jumped to IDR481bn on FX gain: In 4Q15, on the back of strong forex gain and improved EBITDA margin, $EXCL
reported further earnings recovery acceleration to IDR481bn net profit (127% of our 4Q15F), +40% q-q and +666% y-y, to allow just IDR25bn in 2015 net loss.
§ Improved top line performance on solid double-digit data growth: $EXCL
booked improved 4Q15 revenue of IDR5.95tn (102% of our 4Q15F), +2% q-q and +1% y-y on solid data (+12% q-q and +13% y-y) revenue. However, $EXCL
also booked declining SMS (-9% q-q and -21% y-y) revenue, in line with the industry trend. 4Q15 voice revenue declined slightly by 1% q-q but increased 10% y-y on pricing. It is worth noting that $EXCL
prevented loss of subs in 4Q15 and gained 0.5mn new subs for 42mn total subs.
§ Higher EBITDA margin on robust data revenue: $EXCL
booked 4Q15 EBITDA of IDR2.3tn, +6% q-q and +1% y-y, on the back of solid revenue due to strong data usage growth (+35% q-q and +59% y-y) coupled with higher pricing resulting in 2015 improved ARPU to IDR34k, +31% y-y. On the margin front, $EXCL
booked higher 4Q15 EBITDA margin of 39.0% (3Q15: 37.7%) as it continued focusing on its new value-driven strategy.
Outlook: Earnings upgrades on monetization of solid network quality
At this stage, we expect sustainable long-term growth prospect for $EXCL
, helped by its focus to develop its digital business with several products such as Elevenia.com, XL-Tunai, etc. Currently, following $EXCL
’s new target of increased up-market customers, we expect an improved performance in 2016-17, backed by continued rational competitive landscape allowing $EXCL
to raise prices, supported by its strong network quality. Hence, we raise our 2016-17 revenue and EBITDA forecasts on higher margin estimates (exhibit 5). Note that our earnings include $EXCL
’s tower sale, but exclude the upcoming rights issue.
Tower sale and USD500mn rights for debt repayment $EXCL
plans to conduct USD500mn rights issue to repay its debt to Axiata. Rights terms include a minimum of IDR2,500/share with a maximum of 2.75bn shares, representing 24% of total shares post rights issuance. Furthermore, $EXCL
announced its intention to sell part of its remaining tower portfolio of around 6.5k to pay down its non-Axiata debt. In line with its previous transaction, we expect $EXCL
to sell 2,500 towers with valuation at IDR1.6bn/ tower, paving the way for IDR4tn cash inflow and allowing for lower interest charges, debt and net gearing as well as a one-time gain. However, this would decrease tower rental revenues and concurrently increase $EXCL
’s network cost.
Recommendation: Maintain BUY with higher TP of IDR4,400
Given the improved pricing and contained expenses coupled with solid data growth we maintain our BUY rating with a higher 12M DCF-based (WACC:11%) target price of IDR4,400 (From IDR4,200), translating to a 2016F EV/EBITDA of 6.2x, still at around a 20% discount to its regional peers (exhibit 6). While $EXCL
has outperformed the market in the past three months (exhibit 4), we reiterate our BUY call based on $EXCL
’s continued undemanding valuation. Risks: Tough competition and high network costs.