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Jul 10,2018 07:48:46

Indonesia Telco: Pricing is not up in 2Q18, but healthier trends observed vs. 1Q18

We conducted an on-the-ground review of telco tariffs across: 1) traditional channels, and 2) distributors. Our key takeaways are: a) data yields remained down in June vs. May but this is likely due to telco channel stuffing, with June Lebaran actual demand strong especially in rural areas, b) Strong demand is prompting telcos and distributors to raise their ASPs in July, c) starter packs are incrementally deemphasized (vs. reloads) at Telkomsel. Our thesis of a better recovery in 2H18 is starting to take shape; hence, we see 2Q18 as another “wash-out” quarter due to a ‘lost’, subscriber base (see our report “Indo Telco – The State of Play: 1Q18 Wrap up” , 16 May 2018).

All in all, this suggests 2 key findings: a) 2Q18 revenue probably has yet to recover owing to continued data-yield pressure, while subscriber overhang remains due to SIM card deregistration, b) however, the overall trend is definitely getting healthier, especially with market leader Telkomsel since late June deemphasizing high-churn starter packs. This suggests its focus has turned towards lower-churn customers, which is positive for the longer-term tariff trend (ie, it is easier to maintain tariffs in an ecosystem of recharges vs. one of starter packs), and paves the way for trend improvements in 2H18.

Data yield down from average of IDR8k/GB to average of IDR6k/GB in June; but demand was strong during Lebaran. Our research across traditional shops in Jakarta, Jogja, Bandung and Makassar (700+ data points in 3 months) suggests data yields continue to trend lower across different absolute price ranges. Our market research looked at 3 price points i) below IDR25k, ii) IDR25-70k, and iii) above IDR70k. Our key findings are as follows:

1) Data yield overall declined for Telkomsel, EXCL and Fren, while for ISAT, Axis and Tri it is stabilizing-to-rising. In 1Q18 we observe data yields falling sharply to IDR8-10/MB (4Q17: IDR9-14/MB); in 2Q18 our market research suggests a further decline potentially to IDR6-8/MB on a blended basis. A data yield decline is, in our view, natural and we also understand demand (consumption) during Lebaran was especially strong for telco packages, which offsets data the yield decline. Our official view is that tariffs will continue to decline, but at a less rapid pace, which bodes well vs. the 2H17-1H18 rapid-declining tariff season.

2) SmartFren data yield gap significant vs. others. Fren data yield ranges from IDR4k-5.5k/GB or a good 10-20% gap vs. others. Smartfren is the only player we see turning more aggressive in July; we think this is a logical move given Fren’s sparse network and see this is one factor limiting tariff upside continuously. Our meeting with Smartfren suggests they have a peak utilization below 50% (lowest in the sector); indeed the recent OpenSignal June Indonesia report ranks Smartfren’s 4G availability and overall download speed to be the fastest, even above Telkomsel’s. We believe Smartfren’s network does put a cap on overall tariff increases (see next section for more thoughts on Smartfren).

3) Telkomsel likely exited low-priced packages (below IDR25k) in July. This tallies with our market research and we understand it is management’s strategy to shift towards reloads and less churn. We believe this is healthy for the industry, and with the exception of Smartfren, we are indeed seeing less competition in this segment.


Sep 21,2017 09:12:21

Indonesian Telecommunications Regulatory Authority (BRTI) has announced that the upcoming spectrum auction of 2 x 5MHz (2.1GHz band) and 1 x 30MHz (2.3GHz band) will be held in October. Our previous channel check with BRTI officials suggests that the 2.1Ghz band was transacted at about USD40m per 5MHz at the previous auction. Assuming that the price does not change, this implies that the 5MHz and 30MHz blocks would account for approximately 3%/10%/10% and 10%/50%/50% of Telkom, XL and Indosat’s FY17F capex respectively. PT Telkom and XL may bid for both blocks, while Indosat would only bid for one block. A likely scenario of the auction results may be Telkom winning one block, while the remaining block would be won by either XL or Indosat.

Telkom and XL Axiata (XL) have the highest data traffic/spectrum owned and financial muscle. Representatives from Telkom and XL have both indicated that the companies are willing to bid for both blocks, while Indosat would only bid for one block. This is understandable – as Telkom has the biggest balance sheet, its data traffic/spectrum is also the highest in Indonesia. This is followed by XL and Indosat. In terms of flexibility to bid for the blocks, according to their net gearing levels, the descending order would be as follows: Telkom (0.14x), XL (0.6x) and Indosat (1.5x). We also believe Indosat would be the least flexible player, as it may be pressured to raise capex to build base transceiver stations (BTS). It currently has the least BTS, among the top three telco operators. (Norman Choong, CFA)


Jan 23,2017 15:59:43

Sarana Menara Nusantara ($TOWR): Towering above
Telecommunications: Indonesia
-  Inorganic and organic growth to maintain biggest tower status: At this stage, we are of the view that Sarana Menara Nusantara ($TOWR) will maintain its status as Indonesia’s biggest tower operator through both organic and inorganic growth. Currently, TOWR has 24,209 tenants and 14,529 towers (collocation rate 1.67x), slightly higher than its closest peer TBIG with 21,562 tenants and 13,463 towers (collocation: 1.60x). In 9M16, TOWR’s number of towers jumped 19.0% y-y versus TBIG’s growth of 9.5% y-y, helped by the acquisition of 2,500 towers from $EXCL.

-  Strengthening debt structure: TOWR has managed to lower its exposure to foreign currency debt from 59% to 45% (3Q16) and added a greater proportion of IDR debt through its latest bond issuance of IDR800bn (with tenor of 3.5 and 7 years) on 9 November 2016. We believe this will make TOWR’s cost structure more prudent given lower FX risks, although average interest rates jumped from 4.88% in 3Q15 to 6.53% in 3Q16, due to EUR55m and USD190m in debt repayments.

-  Support from operators’ data growth: Data growth of the 3 big operators have continued to accelerate, up 124% y-y in 3Q16 (2Q16: +99% y-y, 1Q16 +84% y-y), providing higher demand for TOWR. On the back of higher data usage (exhibit 8), which requires increased Base Transceiver Stations (BTS), we expect TOWR’s number of tenants to rise from 25,548 in 2016F to 26,568 in 2017F.

Outlook: Bad news mostly in the price
TOWR has severely underperformed the market by more than 40% in the past 12 months (exhibit 4) on less favorable industry outlook as large players such as $ISAT and $EXCL decided to share their capex, causing slower growth outlook. Additionally, we believe $TLKM will focus on its own internal tower projects. That said, we believe most of the bad news has been priced in, although there is still no signs of the operators selling their towers this year.

Recommendation: Reiterate BUY with unchanged TP of IDR5,600
On valuation, we apply a WACC of 9.2% to obtain our DCF-based 12-month TP of IDR5,600, reflecting 60% upside potential. At our TP, TOWR would trade at 13.0x 2017F EV/EBITDA, still at a c.20% discount to the current global average of 16.8x (exhibit 5). Risks to our call would be greater-than-expected competition and slower organic as well as inorganic growth.

Aug 22,2016 21:00:03
EXCL to inject USD30mn into EleveniaEXCL will inject USD30mn into its subsidiary Elevenia which operated in the e-commerce segment. Elevenia is a joint venture between EXCL and SK Planet Co Ltd, a telecommunications provider from South Korea. The investment occured in March 2016. SK Planet CO has also invested USD20mn making the total investment worth USD50mn. Elevenia will use the money to develop its e-commerce business further. Elevenia targets sales of IDR3.5tn this year up 169% from 2015 sales of IDR1.3tn.


Jul 27,2016 08:50:24
EARNINGS CALENDAR (Half Year 2016 - Estimated)

JULY 2016

Jul 25, 2016 :
$BBTN (Bank Tabungan Negara (Persero) Tbk PT)

Jul 26, 2016
$BDMN (Bank Danamon Indonesia Tbk PT)
$BMRI (Persero) Tbk PT Earnings Release - 4:00PM GMT+7

Jul 27, 2016
$AALI (Astra Agro Lestari Tbk PT)
$HMSP (Hanjaya Mandala Sampoerna Tbk PT)
$LPPF (Matahari Department Store Tbk PT)
$MPPA (Matahari Putra Prima Tbk PT)
$PTBA (Bukit Asam (Persero) Tbk PT)

Jul 28, 2016
$ASII (Astra International Tbk PT)
$BEST (Bekasi Fajar Industrial Estate Tbk PT)
$BJBR (PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk)
$DOID (Bloomberg)
$NCO (Vale Indonesia Tbk PT)
$JPFA (Bloomberg)
$PSAB (Bloomberg)
$SSMS (Bloomberg)
$SMGR (Semen Indonesia (Persero) Tbk PT)
$UNTR (United Tractors Tbk PT)
$UNVR (Unilever Indonesia Tbk PT)

Jul 29, 2016
$ASRI (Alam Sutera Realty Tbk PT)
$ADHI (Bloomberg)
$BSDE (Bumi Serpong Damai Tbk PT)
$BNGA (Bloomberg)
$BNLI (Bloomberg)
$BNII (Bloomberg)
$BKSL (Bloomberg)
$BHIT (Bloomberg)
$BISI (Bloomberg)
$CPIN (Bloomberg)
$CTRA (Ciputra Development Tbk PT)
$CTRP (Bloomberg)
$ELSA (Bloomberg)
$GIAA (Bloomberg)
$GJTL (Bloomberg)
$GGRM (Gudang Garam Tbk PT)
$NKP (Bloomberg)
$INTP (Indocement Tunggal Prakarsa Tbk PT)
$INDF (Indofood Sukses Makmur Tbk PT)
$ICBP (Indofood CBP Sukses Makmur Tbk PT)
$INDY (Bloomberg)
$KARW (Bloomberg)
$KAEF (Bloomberg)
$KIJA (Bloomberg)
$KLBF (Kalbe Farma Tbk PT)
$KRAS (Bloomberg)
$LPKR (Lippo Karawaci Tbk PT)
$LSIP (Perusahaan Perkebunan London Sumatra Indonesia Tbk PT)
$MAPI (Bloomberg)
$PWON (Bloomberg)
$PNBN, $PNLF, $PNIN (Bloomberg)
$PTPP (Bloomberg)
$RALS (Bloomberg)
$SMRA (Bloomberg)
$TBLA (Bloomberg)
$TLKM (Telekomunikasi Indonesia (Persero) Tbk PT)
$TOTL (Bloomberg)
$WSKT (Bloomberg)

Aug 1, 2016
$HRUM (Harum Energy Tbk PT)
$SSIA (Surya Semesta Internusa Tbk PT)

Aug 10, 2016
$ITMG (Indo Tambangraya Megah Tbk PT)

Aug 12, 2016
$EXCL (XL Axiata Tbk PT)

Aug 29, 2016
$ADRO (Adaro Energy Tbk PT)
$ANTM (Aneka Tambang (Persero) Tbk PT)
$BBRI (Bank Rakyat Indonesia (Persero) Tbk PT)
$ISAT (Indosat Tbk PT)
$PGAS (Perusahaan Gas Negara (Persero) Tbk PT)


Sep 13, 2016
$SMCB (Holcim Indonesia)

Jul 13,2016 09:28:13
Regional Telecommunications: Re-Winding The Yield Compression Theme

The continuing risk-off sentiment post Brexit is generally supportive of yield-oriented telco markets. Since the 24 Jun referendum, SG Telcos – which are the most predisposed to the dividend theme – have re-rated by 11-13% (MY Telcos: +2-3%, TH Telcos: +2-6%). Assuming a further 50bps compression in yields, we estimate an added 10-13% upside for SG Telcos (MY/TH Telcos: +9-16%). Telcos with the greatest upside across the ASEAN-4 are M1, AIS and Singtel on a renewed yield compression theme. Our regional telco Top Picks: Telkom Indonesia, M1, AIS and Time dotCom.

¨ Re-dialling the yield theme post Brexit. Telco stocks have garnered renewed interest following the unprecedented Brexit outcome and the US federal fund futures market pricing in zero probability of a rate hike for the year (the US Federal Reserve has kept interest rate unchanged at its June meeting). The re-rating bears some resemblance to the yield compression theme that swept across emerging/developed market telcos at the height of the US quantitative easing (QE) programme in 2010-2013 against the backdrop of low interest rates (see our 25 Aug 2015 sector report: Telecommunications : Staying Connected – Aug 2015). With the continuing risk-off sentiment globally, we expect markets/investors to remain supportive of yield-related telcos as haven assets.

¨ SG Telcos score highly on yields. The SG Telco market is the most predisposed to the yield compression theme of the ASEAN-4, with the telcos’ superior dividend yields of 5-6% and larger yield spreads of 2.8% (5-year mean). This compares with MY/TH Telcos’ dividend yields of 3-5%/4-6% and yield spreads of 0.7%/2.1% respectively. Singapore/Malaysia/Thailand bond yields have narrowed by 24bps/25bps/17bps respectively since the Brexit vote and are likely to compress further in the current environments. M1, Advanced Info Service (AIS) and Singtel have the greatest exposure to the yield compression theme, with yield spreads above their long-term means.

¨ Competitive risks are top most concerns in three of the four ASEAN-4 markets. We continue to see competition as key risks for the telco sector in Malaysia, Singapore and Thailand, given the combination of spectrum award/reallocations, potential new entrants and challenges monetising data (pressure on data yields). The telecom regulators in Malaysia and Singapore are in the process of re-farming existing spectrum (via auctions or direct assignments), which will further level the playing field and/or attract new operators. All three telco markets have witnessed marked deceleration in service revenue growth over the last two years on structural legacy revenue weakness and acute data substitution.

¨ IND Telcos remain the most fundamentally attractive. IND Telcos are not regarded as yield stocks (the focus has been more on earnings delivery) and should be insensitive to external/macroeconomic risks/developments, in our view. The sector remains our sole OVERWEIGHT among the ASEAN-4 (we remain NEUTRAL on Malaysia and Singapore, and UNDERWEIGHT on Thailand). This is driven by the industry’s superior growth prospects, the largely benign market competition and undemanding valuations. Telkom Indonesia remains our IND Telcos Top Pick. (Jeffrey Tan)


Jun 06,2016 15:49:36
Regional Telecommunications: Come Forth, Next Generation…

This report documents 4G developments across the ASEAN-4 telcos and complements RHB’s coverage initiation on the world’s largest mobile telecommunications group, CM. 4G has gained considerable traction across developing markets due to rapid network expansion and the use of optimal spectrum bands. Falling prices of 4G handsets are also driving a raft of upgrades to the spectrally-efficient technology. We expect 4G to be near ubiquitous across the ASEAN-4 by 2018/2019, helped by data-centric applications and the progressive adoption of the 700MHz band.

¨ 4G is increasingly mainstream. 494 LTE networks have been launched in 162 countries as at April, with over half of live deployments in developing markets, according to Global Mobile Suppliers Association (GSA) data. Across the ASEAN-4, 4G was first commercialised in Singapore (2012), followed by Malaysia/Thailand (2013) and Indonesia (2014). The rapid 4G footprint expansion in the Asia-Pacific region has helped drive strong subscriber (sub) conversion from 3G, with the decline in price-points of handsets further easing barriers to switching. We expect 4G penetration in the ASEAN-4/China markets to respectively reach 60-70%/83% by 2018 from 15%/33% currently.

¨ China’s 4G coverage is already above 90%. China Mobile’s (CM) (HK:0941) pervasive 4G coverage in China puts it in an enviable position to drive stronger data uptake and ARPU uplifts going forward, in our view. Its 4G sub penetration surged to 37.8% in 2015 (2014: 11.2%) post aggressive 2014/2015 4G capex. We project its data traffic to grow by a FY15-18 CAGR of 54.1% while blended ARPU is set to rise to CNY66.00 in FY18 (FY15: CNY57.70). While average data consumption in China still lags the ASEAN-4, the gap should narrow quickly, given the proliferation of over-the-top (OTT) applications and the Chinese penchant for online services and social media.

¨ Improved data economics from overstated regulatory risks. Unlike few ASEAN-4 markets where spectrum is typically auctioned off or awarded via a beauty contest, Chinese telcos are beneficiaries of near free spectrum allocated by the Ministry of Industry and Information Technology (MIIT). This eliminates the risk of hefty amortisation charges from prohibitive spectrum costs, which may dis-incentivise network investments. Regulatory risks, in our view, are overstated in China, as some polices do offer long-term mutual benefits.

¨ We add China telecoms to our ASEAN-4 coverage. Indonesia remains our sole OVERWEIGHT among the ASEAN-4 telcos. We like the Indo telcos given their superior growth prospects among ASEAN-4 telcos, steady competition in the market and the sector’s attractive 4.5x FY16F EV/EBITDA valuations. We are NEUTRAL on Malaysia and Singapore telcos on concerns over rising competitive risks from potential new entrants, while our UNDERWEIGHT stance on the Thai telcos is premised on stiff 4G competition, regulatory related risks and prohibitive spectrum payouts. Our preferred ASEAN-4 telco picks are Telkom Indonesia, Axiata Group, XL Axiata (XL), Advanced Info Service (AIS) and M1. (Jeffrey Tan, Wong Cheng Horng, CFA, Ken Chui)

$TLKM $EXCL $ISAT HK:0941 HK:0728 SG:B2F
May 09,2016 17:54:13
XL Axiata: obtained regulatory approval for rights issue

XL Axiata has secured approval from the regulator to proceed with its rights issue, issuing IDR2.1b new shares (20% of total issued and paid-up capital) where each shareholder of 100 existing shares is entitled 25 rights with exercise price of IDR3,150. Maximum dilution to existing public shareholders is around 6.73% with the underwriters would act as standby buyers. Implied proceed of rights issue will be around IDR6.7t. The rights issue structure proposed by XL Axiata does not deviate much from our projection and will only result in a marginal impact to our full-year forecast. Note that proceed from the rights issue will be used solely to repay shareholder loan amounting to USD500m. This would pave the way for EXCL to save significant amount of interest expense and result in earnings accretion. Our last rating on EXCL was a BUY with a TP of IDR5,000.  


May 03,2016 08:14:55


1.1.MEDC : Medco Tingkatkan Saham di Blok APT Medco Energi Internasional Tbk menaikkan sahamnya menjadi 58,33 persen di lapangan gas Blok A di Kabupaten Aceh Timur, Aceh, melalui akuisisi saham Japex di Blok A 16,66 persen. (KOMPAS)

1.2.Suplai dan Penyerapan Minyak Mentah Global Mulai Stabil 2017. (TEMPO)

1.3.PGN Bangun 24 Ribu Jargas di Surabaya Senilai Rp285,2 Miliar. (TEMPO)

1.4.ELSA : PT Elnusa Tbk bakal bekerjasama dengan Chevron dan PT Pertamina untuk mengembangkan pembangkit listrik tenaga flare gas. Nantinya, kedua perusahaan tersebut akan menyediakan flare gas dan perseroan menjadi operator pembangkit listriknya. (TENDER INDONESIA)


2.1.Sejalan dengan perkiraan Bank Indonesia, Indeks Harga Konsumen (IHK) pada April 2016 mencatat deflasi sebesar 0,45% (mtm). Deflasi IHK terutama disumbang oleh deflasi komponen barang yang diatur Pemerintah (administered prices) dan komponen bahan makanan bergejolak (volatile foods). Dengan perkembangan tersebut, inflasi IHK secara tahunan (yoy) mencapai 3,60% (yoy) serta berada dalam kisaran sasaran inflasi Bank Indonesia, yaitu sebesar 4%±1% (yoy).


2.1.LPCK : PT Lippo Cikarang Tbk. segera meluncurkan menara apartemen keenam yakni Newport Park di proyek andalannya Orange County. (TENDER INDONESIA)


4.1.XL Kaji Perluas Kerjasama dengan MNC Grup di Pasar Broadband. (INDO TELKO)

4.2.BMTR : PT Global Mediacom Tbk. akan mengeluarkan maksimal 2% saham perseroan untuk program EMSOP (maksimal 283,97 juta saham perseroan). Dividen tunai final sebesar Rp5 per saham. (BISNIS INDONESIA)

4.3.MNCN : PT Media Nusantara Citra Tbk. akan mengeluarkan maksimal 2% saham perseroan untuk program EMSOP (maksimal 283,97 juta saham perseroan). Dividen tunai final sebesar Rp42 per saham atas tahun buku 2015. (BISNIS INDONESIA)


Target Harga Terendah 594
Target Harga Tertinggi  667





Mar 21,2016 13:35:38
Telco: Boost from Lower Frequency Charge

Pemerintah menurunkan BHP (Biaya Hak Penggunaan) Frekuensi pada 2.100 dan 2.300 Mhz untuk mendorong industri telekomunikasi. Kami meyakini hal ini positif untuk seluruh emiten telekomunikasi, dimana biaya BHP frekuensi merupakan salah satu komponen biaya terbesar dalam satu tahun. Pada 2015, $TLKM membayar BHP frekuensi hingga Rp3,6 triliun, $EXCL Rp2,8 triliun, dan $ISAT sekitar Rp2,6 triliun.

Kami memperkirakan hal ini akan mendorong laba bersih perusahaan telekomunikasi tahun ini. Kami memprediksi laba bersih TLKM berpotensi tumbuh 14,6% tahun ini, sementara EXCL berpotensi mencatat laba positif dari tahun lalu yang mencatat kerugian. Selain itu, rupiah yang stabil juga akan membantu laba bersih EXCL seiring tidak adanya rugi selisih kurs yang signifikan. EXCL juga berencana melakukan rights issue dengan target dana minimal USD 500 juta tahun ini untuk melunasi utang USD.

Kami optimis terhadap industri telekomunikasi. Kami melihat tahun 2016 merupakan tahun positif bagi telekomunikasi, kami merekokmendasikan BELI untuk TLKM dengan target harga Rp3.900, mengimplikasikan EV/EBITDA 6,5x, dan juga BELI untuk EXCL dengan target harga Rp4.700, mengimplikasikan EV/EBITDA 5,0x.
Mar 01,2016 12:27:31
Staying Connected – February 2016

Spectrum developments dotted the Asean-4 telco landscape in recent weeks. Concerns over a competitive spectrum auction spooked MY investors just as the TH telcos prepare for the first tranche of spectrum payouts. We downgraded TH sector to UNDERWEIGHT on earnings concerns and intensifying competition. The MY telcos were earlier downgraded on auction fears albeit the about-turn in policy (spectrum assignment vs auction) prompted us to restore our NEUTRAL stance. The INDO telco sector remains the sole OVERWEIGHT of the Asean-4 telcos.

¨ ASEAN-4 telcos down 2.5% YTD. The strongest declines were see in MY (-11.6%) and SG (-5.2%) while both INDO and TH telcos gained 6-9%.

¨ Lost in translation. The announcement of a spectrum bidding exercise during the tabling of the revised Budget 2016 on 28 Jan clearly spooked investors. It was only a month earlier that the Thai Government raised a whopping USD6.5bn (MYR28bn) from an auction of the 900MHz band. A competitive bidding (a first for Malaysia) would have been value destructive for the sector. On 1 Feb, the Government announced that the 900/1800MHz spectrum would be re-allocated to Maxis, DiGi.Com (Digi), Celcom and U-Mobile under a new spectrum framework (kindly refer to our report dated 3 Feb – Telecommunications : A Fuzzy Line Restored). While the ‘awards’ ruled-out a cataclysmic auction, the ‘change of heart’ costs the telcos some MYR14bn in market capitalisation. Expect further details on the spectrum fees in the coming months. The remaining 5MHz on the 900MHz is likely reserved for the high speed rail (HSR).

¨ Singapore confirms a fourth mobile entrant. The Infocomm Development Authority (IDA) has set aside 60MHz for a new operator in a two-stage spectrum auction scheduled for 3Q16. This follows the announcement of the revised spectrum framework on 18 Feb (kindly refer to our report dated 19 Feb – Firing The Fourth Cylinder)

¨ Results season well underway – shaping up to be another lacklustre quarter. INDO telcos are seen to continue outperforming with the last of the results due late March. 4Q15 earnings season has ended for the SG telcos. Key takeaways were: i) the continuing sluggish mobile revenue from weak usage/roaming revenues, and ii) ARPU pressure from a stronger take-up of SIM-only plans. While the usual seasonality in subscriber acquisition cost (SAC) pummelled 4Q15 EBITDA, the impact was particularly acute for StarHub due to additional provisions and costs. It was also another lacklustre quarter for the Malaysian and Thai mobile operators due to weak consumer sentiment and heightened competition, with the TH telcos ramping-up handset subsidies to drive 3G/4G upgrades ahead of the spectrum transfers. The bright spot continues to be in Indonesia where a steady competitive environment and rapid mobile data take-up have hitherto driven the superior mobile revenue growth.

Feb 02,2016 11:20:15
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, 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.
Jul 06,2015 14:12:57
EXCL Support 3,000

Quotes delayed, except where indicated otherwise.
3,500.00 120.00 (3.55%)
XL Axiata Tbk.
Last Update 02:54:11