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.
(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.