XL Axiata (EXCL IJ)

09 August 2018

(EXCL IJ)

Re-Initiate Coverage

BUY
Pursuing growth in outer Java

Stock Data
Target price (Rp)

Rp3,500

Prior TP (Rp)

More optimism on healthier industry competition.

n.a.

Shareprice (Rp)


4G expansion in outer Java to drive growth.

Rp3,050

Upside/downside (%)

Lowest risk from voice and SMS decline among Big 3 Telcos.

+14.8

Sharesoutstanding (m)

10,688

Marketcap. (US$ m)

Re-initiate with TP Rp3,500 – BUY, 10% discount to 7-yr mean.

2,258


Free float (%)

33.6

Avg. 6m dailyT/O (US$ m)

Outer Java = Key to further growth. XL plans to invest c.55% of 2018 capex
in outer Java to reach 4G coverage of 85% of Indonesia’s population by end of
1H19 (vs. currently 65-70%), esp. in Kalimantan, Sumatra, and Sulawesi. We
view this as positive strategy as it will enable XL to grab opportunity from rising
smartphone penetration in outer Java. We expect stable EBITDA margin during
expansion phase to outer Java (2018F/19F at 37%) and then to slightly expand
gradually thereafter. For comparison, XL’s normalized EBITDA margin was 41% in
4Q17, post-acquisition of Axis.

2.7

Price Performance
3M


6M

12M

Absolute (%)

54.4

6.6

-12.6

Relative to JCI (%)

52.1

13.0

-17.1


52w high/low (Rp)

4,020 - 1,750

120
110
100
90
80
70

EXCL-Rebase

JCI Index-Rebase

Major Shareholders
Axiata Investments (Indonesia) Sdn.
Bhd.


66.4%

Public

33.6%

Estimate Change; Vs. Consensus
2018F

2019F

8,858

9,890

Vs. Prior EBITDA (%)

n.a.

n.a.


Vs. Consensus (%)

-5%

-10%

Latest EBITDA (Rp bn)

Source: Bloomberg

Jul-18

Jul-18

Jun-18

May-18

Apr-18


May-18

Mar-18

Mar-18

Jan-18

Feb-18

Jan-18

Dec-17

Oct-17

Nov-17

Sep-17


Aug-17

50

Oct-17

60
Aug-17

Equity | Indonesia | Telecommunication

XL Axiata

Better data pricing in 2H18F to aid performance. XL said it has raised data
pricing for certain Axis data packages in May and for XL packages before Lebaran
2018. XL also mentioned its intention to gradually improve data pricing further
after Lebaran based on market’s response. Therefore, we expect revenue growth
to accelerate to +7%YoY in 2019F from flat YoY in 2018F (2H18F +6%HoH),
slightly outpacing our est. for Telkomsel at -2%YoY, due to short-term pressure of

SIM Card re-registration and relatively competitive 1H18 vs. 2H18F.
Potential opportunity from subscribers’ transition to data. We think XL
might get slightly better chance to penetrate outer Java in data service compared
to voice and SMS considering that interconnection cost does not apply in data and
less dependency to one mobile phone number to use data. Furthermore, XL also
benefited from being a more data-centric company (based on data user
penetration and data revenue contribution as shown in Figure 1-2) among Big 3
Telcos. We expect 2018F/19F strong data traffic growth of 76/69%YoY (vs.
Telkomsel 77/49%YoY) and increase in mobile data revenue contribution to
68/76% (above Telkomsel 48/56%).
Re-initiate at BUY with TP of Rp3,500. We rolled over our valuation to 2019.
Our DCF-based TP assumed WACC of 12.5% (Fig 8). Our target 2019 EV/EBITDA
for XL is 5.5x, 10% discount to 7-year mean and 25% discount to TLKM (adj. for
% ownership in Telkomsel). XL trades at 2019EV/EBITDA of 5x, at -1STD below
its 7-yr mean and 32% discount to TLKM. We expect XL to achieve core profit
breakeven when its outer Java expansion makes its full-year impact in 2020. Our
TP translates to 2020EV/EBITDA of 5x, similar to EXCL’s -1STD below 7-yr mean.
Downside risk: Time lag until more certainty in growth outlook after tightening of
starter pack registration.


paula.ruth@ipc.co.id

Year To 31 Dec
Revenue (RpBn)
EBITDA (RpBn)
EBITDA Growth (%)
Net Profit (RpBn)
EPS (Rp)
EPS Growth (%)
Net Gearing (%)
Core PER (x)
PBV (x)
Dividend Yield (%)
EV/EBITDA (x)

+62 21 5793 1168

Source: EXCL, IndoPremier

Paula Ruth

PT Indo Premier Sekuritas

Refer to Important disclosures in the last page of this report

2016A
21,341
8,058
(4.0)
375
35
(1,582.0)
62.6
(211)
1.5
0.0
5.5

2017A
22,876
8,321
3.3
375
35
(0.1)
56.8
87
1.5
0.0
5.4

2018F
22,778
8,402
1.0
(6)
(1)
nm
61.5
(73)
1.5
0.0
5.3

2019F
24,372
8,990
7.0
53
5
nm
55.0
(79)
1.5
(0.4)
5.0

2020F
26,084
9,831
9.4
371
35
601.8
38.5
6,219
1.5
0.0
4.6

Share Price Closing as of :8-August-2018

EXCL IJ Re-Initiate Coverage
Fig. 1: Big 3 Telcos’ Data and smartphone portion of total subs.

90%

Fig. 2: Big 3 Telcos’ Data revenue portion to total revenue

% Data and smartphone users penetra
total subscribers

Data contribution to total netrevenue

70%

80%

60%

70%
50%

60%
50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0%

2Q17

2Q17

3Q17
Telkomsel

4Q17
Indosat*

3Q17

4Q17

1Q18

2Q18

1Q18
XL
Telkomsel*

Indosat**

XL

*) 2Q18 smartphone and data user penetration of Telkomsel and XL were 63%
and 77% respectively.

*) Telkomsel’s data revenue contribution to total Telkomsel’s revenue

Source: Companies, IndoPremier

Source: Companies, IndoPremier

Fig. 3:

XL’s data revenue and effective yield

Fig. 4: XL fw-hist. EV/EBITDA (3 Aug Jul 2018: 4.5x)
18

3,500

16

3,000

14
12

2,500

10

2,000

(Rp/mb)

(Rp bn)

10

4,000

9

8

7

8
6

1,500

6

1,000

4

500

2

0

0

5

4

3
Jul-18

Apr-18

Jan-18

Oct-17

Jul-17

Apr-17

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Refer to Important disclosures in the last page of this report

Oct-14

Fw-EV/EBITDA

Fw-EV/EBITDA avg

Fw-EV/EBITDA + 1 STD

Fw-EV/EBITDA -1 STD

Fw-EV/EBITDA - 2 STD

Fw-EV/EBITDA + 2 STD

-2STD 4.0
Source: Companies, IndoPremier

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Effective yield (RHS)

Apr-13

Jan-13

Data revenue (LHS)

-1STD 5.1

Avg 6.1

+1STD 7.2

+2STD 8.3

Source: Company, IndoPremier

2

EXCL IJ Re-Initiate Coverage
Fig. 5: Xtream smartphone package*

Price
Type
**

Benefit

In Rp
000

In USD
(assume
Rp14.4K/USD)

Xtream
1

669

46

Xtream
1 Pro

739

Xtream
1 Plus

949

Dual 4G
SIM
Feature

Implied avg.
Rp/MB (1-yr
subscription)

YouTube ***

Data quota

On-net Call
and SMS

Iflix
(1 Jun-31 Jul)

Yes

"Unlimited"
YouTube 24
hours, 1 year

12GB
(1GB/month),
1 year)

Free

Free
registration
cost

0.5

51

No

"Unlimited"
YouTube 24
hours, 1 year

12GB
(1GB/month),
1 year)

Free

Free
registration
cost

0.6

66

Yes

"Unlimited"
YouTube 24
hours, 1 year

12GB
(1GB/month),
1 year)

Free

Free
registration
cost

0.7

*) Terms and Conditions Applied
**) All with RAM 1GB / ROM 8GB specification.
***) FUP (Fair Usage Policy) 5GB/day according to Tribun News. Different FUP might apply in different area and/or time of observation.
^ (Smartphone price/12month + monthly top up Rp 25K) / (30x 5GB + 1GB)
Note:
Evercoss previously (Apr 2018) said the result was above expectation as three weeks after launched, Xtream 1 and 1 Plus (sales) reached 50K units (mostly reached via
Evercoss channel), 2.5x initial target of 20K units. Evercoss targets Oct’18 sales volume for those 2 series at 300K units.
Source: Company, IndoPremier, Merdeka.com, Tribun News

Strategy to grow early adopter of 4G
XL’s “Xtream” smartphone bundled package is resulted from cooperation between
XL, “Evercoss” (smartphone brand), and YouTube. This bundled package (requires
monthly top-up for 1 year) was launched in Apr 2018. The cheapest smartphone
package priced Rp669K (c.16% of avg. monthly 2017 GDP per capita).
Based on the XL’s product description, Xtream smartphone is available in stores
and 6 popular e-commerce channels: Tokopedia, Lazada, Bukalapak, Blibli,
MatahariMall, and Shopee. We found cheaper price for Xtream 1 in one of sellers in
BukaLapak e-commerce (c. 16% cheaper than price mentioned in Figure 5) which
also allows 0% instalment for 12 month at Rp47K/month, relatively affordable
enough to trigger wider penetration of 4G users in Indonesia, in our view.
Company said Xtream has received (positive) “overwhelming” response in 2Q18.
XL said this package gives positive low-single-digit margin (smartphone not
subsidized), but bring long-term benefit as it triggers user to switch to 4G
(typically higher ARPU than) from non-4G and focusing on “blue collar” segment.
In the future, XL plans to release other smartphones for “white collar” segment.

Refer to Important disclosures in the last page of this report

3

EXCL IJ Re-Initiate Coverage
Fig. 6: Forecast drivers
Description

FY16

FY17

2018E

2019E

2020F

47

54

54

58

62

XL Axiata
Mobile subs (m)

Implied Net ARPU (Rp 000)
% change

38

36

34

35

35

6.9%

-4.8%

-6.9%

3.5%

0.2%

Voice*
Total Outgoing Minutes
% change

Voice revenue / outgoing minute (Rp)
% change

27

24

22

19

17

-57.6%

-11.6%

-11.0%

-11.0%

-10.0%

256

208

171

152

137

100.0%

-18.7%

-18.0%

-11.0%

-10.0%

503,200

1,249,500

2,197,871

3,714,401

4,910,438

162.5%

148.3%

75.9%

69.0%

32.2%

16.2

10.6

7.1

5.0

4.3

-50.2%

-34.6%

-33.0%

-30.0%

-14.0%

Data
Data traffic (terabyte)
% change
Data Rate (Rp/MB)
% change

SMS*
Outgoing SMS (bn)
% change
Revenue / outgoing SMS (Rp)
% change

Gross revenue (Rp t)

34

28

25

23

20

-75.4%

-17.3%

-10.7%

-10.0%

-10.0%

79

63

47

43

41

180.3%

-20.6%

-18.0%

-10.0%

-10.0%

21.4

22.9

22.8

24.4

26.1

-6.7%

7.0%

-0.3%

7.0%

7.0%

21.3

22.9

22.8

24.4

26.1

-6.7%

7.2%

-0.4%

7.0%

7.0%

8.1

8.3

8.4

9.0

9.8

% change

-4.0%

3.3%

1.0%

7.0%

9.4%

EBITDA margin

37.8%

36.4%

36.9%

36.9%

37.7%

% change
Net revenue (Rp t)
% change
EBITDA (Rp t)

Core Profit (Rp bn)
Capex / revenue

-155

375

-446

-387

29

30.3%

31.4%

31.2%

28.0%

26.5%

*) Voice and SMS figures are estimate. Starting 2Q16, voice and SMS traffic were not disclosed by company.
**) Our 2H18F effective data yield is Rp6.8/MB (lower than 1H17 Rp7.5/MB, but similar to 2Q18).
Source: Company, IndoPremier

Refer to Important disclosures in the last page of this report

4

EXCL IJ Re-Initiate Coverage
Fig. 7: 2Q18 results
EXCL

2Q17

1Q18

2Q18

QoQ

YoY

6M17

6M18

YoY

6M18 / FY18E (%)

6M18 / old cons (%)

Sales

5,668

5,266

5,780

9.8%

2.0%

10,934

11,046

1.0%

48.5%

46.0%

EBITDA

2,073

1,849

2,138

15.6%

3.1%

3,921

3,986

1.7%

47.4%

44.1%

Normalized EBITDA

2,096

1,986

2,000

0.7%

-4.6%

3,958

3,986

0.7%

NA

44.1%

371

138

146

5.8%

-60.6%

540

284

-47.4%

38.6%

15.6%

Operating Profit
Net Profit

97

15

(97)

NM

NM

143

(82)

NM

NM

NM

Core Profit

17

(34)

(81)

NM

NM

(35)

(115)

NM

NM

NM

36.1%

EBITDA Margin

36.6%

35.1%

37.0%

35.9%

Opr Margins (%)

6.5%

2.6%

2.5%

4.9%

2.6%

Net Margins (%)

1.7%

0.3%

-1.7%

1.3%

-0.7%

Source: Company, IndoPremier

Fig. 8: Risk-free-rate and terminal EV/EBITDA assumption
Risk-Free rate

7.5%

Equity market risk premium

6.0%

Beta

1.3

Cost of equity

2-year Beta

15.4%

Post-tax cost of debt

7.9%

Debt/Capital ratio

38%

WACC

12.5%

Terminal EV/EBITDA

5.6

Source: Company, IndoPremier, Bloomberg

Potential acceleration in long-term EBITDA growth.
There might be short-term pressure in share price as we conservatively estimate
2018/19 EBITDA at below cons. However, we assume investors will eventually
focus on higher EBITDA growth trajectory in the future from: 1) Growing data
demand in Indonesia; 2) Lower uncertainties post-SIM card registration; 3) Growth
opportunity in outer Java. Moreover, consensus’ est. might be less dependable for
now considering relatively substantial variance between cons’ 18F/19F EBITDA low
end (14/23% above) to high end.
Risks
Upside risk: Stronger than expected data demand, faster than expected return
from investment in data network (and/or core profit turnaround), significantly
stronger trend in Rupiah vs. USD, further potential upside considering XL’s highest
share price last year (before market gradually pricing in intense price competition
in 3Q17 and SIM card registration) was Rp4,020, c.32% above current share price.
Downside risk: Short-term forex risk, unsustainable improvement in data yield.
XL’s USD debt accounted 31% of total debt as of 2Q18, with maturity in 2019. The
company hedged USD debt (for principal) at c.Rp14.6k/USD based on 2Q18
disclosure.
On 2 Feb 2018, Bloomberg and CNN Indonesia reported: EXCL might expand to
triple play service (pay TV, broadband, and fixed line) with investment (est.
USD500mn in 3-5 years); the investment might include options of acquisition and
JV with cable TV companies; EXCL use small percentage of its capex to launch new
Pay TV and gradually expand it in the next five year. We have not included
potential acquisition or JV with cable (IP) TV and/or fixed broadband company in
our estimates.

Refer to Important disclosures in the last page of this report

5

EXCL IJ Re-Initiate Coverage
Year To 31 Dec (RpBn)

2016A

2017A

2018F

2019F

2020F

Net Revenue

21,341

22,876

22,778

24,372

26,084

Cost of Sales

0

0

0

0

0

21,341

22,876

22,778

24,372

26,084

(21,329)

(21,505)

(22,042)

(23,488)

(24,777)

Income Statement

Gross Profit
SG&A Expenses
Operating Profit
Net Interest
Forex Gain (Loss)

12

1,370

735

883

1,308

(1,533)

(1,295)

(1,330)

(1,399)

(1,270)

351

(30)

0

0

0

1,355

176

587

587

457

Pre-Tax Income

186

221

(8)

71

495

Income Tax

190

154

2

(18)

(124)

0

0

0

0

0

375

375

(6)

53

371

1,400

2,455

1,068

1,245

1,341

Receivable

663

809

802

865

913

Inventory

161

143

157

164

173

4,583

3,773

4,305

4,451

4,733

6,807

7,181

6,332

6,726

7,160

33,183

34,934

33,315

30,914

28,211

6,681

6,681

6,681

6,681

6,681

Others-Net

Minorities
Net Income
Balance Sheet
Cash & Equivalent

Other Current Assets
Total Current Assets
Fixed Assets - Net
Goodwill

8,056

7,525

8,541

9,473

9,568

54,896

56,321

54,869

53,795

51,621

0

0

0

0

0

Payable

6,503

7,476

0

7,695

8,236

Other Payables

4,329

3,979

3,244

2,939

3,109

Current Portion of LT Loans

3,645

3,771

4,140

4,575

0

14,477

15,227

14,576

15,210

11,345

11,026

10,980

10,238

8,663

9,863

8,184

8,484

8,431

8,129

8,259

33,687

34,691

33,245

32,001

29,467

13,208

13,226

13,226

13,226

13,226

8,002

8,405

8,399

8,568

8,927

0

0

0

0

0

21,209

21,631

21,625

21,794

22,153

54,896

56,321

54,869

53,795

51,621

Non Current Assets
Total Assets
ST Loans

Total Current Liab.
Long Term Loans
Other LT Liab.
Total Liabilities
Equity
Retained Earnings
Minority Interest
Total SHE + Minority Int.
Total Liabilities & Equity
Source: EXCL, IndoPremier

Refer to Important disclosures in the last page of this report

6

EXCL IJ Re-Initiate Coverage
Year to 31 Dec

2016A

2017A

2018F

2019F

2020F

375

375

(6)

53

371

Depr. & Amortization

7,064

6,167

6,871

7,298

7,637

Changes in Working Capital

1,178

1,147

(503)

363

312

868

833

1,265

552

990

9,486

8,522

7,626

8,266

9,309

(6,401)

(7,387)

(6,267)

(5,829)

(5,029)

201

413

189

81

94

Cash Flow
Net Income (Excl.Extraordinary&Min.Int)

Others
Cash Flow From Operating
Capital Expenditure
Others

(6,200)

(6,974)

(6,078)

(5,748)

(4,935)

Loans

(5,385)

80

(373)

(1,140)

(3,375)

Equity

6,721

18

0

0

0

0

0

0

116

(11)

(6,251)

(1,119)

(1,760)

(1,816)

(1,344)

(4,915)

(1,021)

(2,134)

(2,840)

(4,730)

(1,630)

527

(585)

(322)

(355)

100.0

100.0

100.0

100.0

100.0

Operating Margin (%)

0.1

6.0

3.2

3.6

5.0

Pre-Tax Margin (%)

0.9

1.0

0.0

0.3

1.9

Net Margin (%)

1.8

1.6

0.0

0.2

1.4

ROA (%)

0.7

0.7

0.0

0.1

0.7

ROE (%)

2.1

1.8

0.0

0.2

1.7

ROIC (%)

1.8

1.7

0.5

0.4

1.4

13.5

10.3

10.4

10.3

10.2

Acct. Receivables - Other TO (days)

3.1

2.8

2.5

2.2

2.3

Inventory TO (days)

0.0

0.0

0.0

0.0

0.0

Payable TO (days)

0.0

0.0

0.0

0.0

0.0

Acct. Payables - Other TO (days)

0.0

0.0

0.0

0.0

0.0

Cash Flow From Investing

Dividends
Others
Cash Flow From Financing
Changes in Cash
Financial Ratios
Gross Margin (%)

Acct. Receivables TO (days)

Debt to Equity (%)
Interest Coverage Ratio (x)
Net Gearing (%)

69.2

68.2

66.5

60.7

44.5

147.0

1.1

2.1

1.7

1.0

62.6

56.8

61.5

55.0

38.5

Source: EXCL, IndoPremier

Refer to Important disclosures in the last page of this report

7

Head Office
PT INDO PREMIER SEKURITAS
Wisma GKBI 7/F Suite 718
Jl. Jend. Sudirman No.28
Jakarta 10210 - Indonesia
p +62.21.5793.1168
f +62.21.5793.1167

INVESTMENT RATINGS
BUY
: Expected total return of 10% or more within a 12-month period
HOLD
: Expected total return between -10% and 10% within a 12-month period
SELL
: Expected total return of -10% or worse within a 12-month period
ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the
research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any
responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for
general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the
particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or
sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this
report.