Beneficiary of Rapidly-Rising Data Consumption
1Q18 Highlight: Top-line performance in line while bottom-line missed out
EXCL booked revenue of IDR5.50 tn (-7.89% QoQ, +4.46% YoY) in 1Q18, accounting for 23.23% of our full-year revenue estimate of IDR23.68 tn, with a 63% contribution coming from its data business. Legacy revenue declined to IDR1.39 tn (-30.53% YoY) while data business grew significantly to IDR3.46 tn (+30.65% YoY), driven by attractive data offerings with +80.57% YoY increase in traffic growth. We remain optimistic that data segment will continue to yield a higher contribution, given higher data pricing and higher smart-phone penetration amid tough conditions resulting from regulatory changes on prepaid SIM registration. EBITDA managed to grow by 7.47% YoY to IDR1.98 tn (vs. IDR1.85 tn in 1Q17) with a margin of 36.10% maintained, which reflects 22.48%/21.62% of MNCS/Consensus’ estimates. Meanwhile, net profit plunged by -68.09% YoY to IDR15bn (-89.05% QoQ) due to lower sales, higher financing costs and lower tax benefits, representing 3.84%/2.07% of MNCS/Consensus’ estimates.
Focus on modern network technology especially in Ex-Java
According to management guidelines on 1Q18 call, EXCL targets relatively similar growth as the overall industry, amid tough competition and regulatory changes covering SIM registration. To achieve these targets, EXCL continues to ensure the best quality of experience data, supported by 105,000 BTS with 3G totaling almost 48,000. EXCL’s 4G-LTE service is now available in 373 cities and regions across Indonesia and more than 20,000 4G BTS. We see this improved service quality as an advanced strategy of XL, dating from the implementation of prepaid registration, to widen its market share by increasing traffic data outside Java. While such regulatory reforms have a negative short-term impact, management believes that the change will be a positive one in the form of a healthier market environment for the mobile industry and thus long-term value creation for EXCL. The change is in line with EXCL’s transformation strategy in becoming a data leader, focusing on value customers and experience rather than price. In our view, post-prepaid registration implementation has created a healthier industry and thus provides better opportunities for growth in 2H18E.
Recommend BUY with Target Price IDR 3,300
We recommend BUY for EXCL, with a TP: of IDR 3,300 which implies an EV/EBITDA 4.02x/3.80x and PBV 1.60x/1.57 in FY18E/FY19F. EXCL’s valuation has become attractive as it is currently trading at a level of –1.50 STD (average 3-years EV/EBITDA) with EV/EBITDA of 4.33x. Risks to our call would include: 1) higher-than-expected decline in legacy business; 2) delayed data monetization; and 3) regulatory changes.
