November 14, 2024

Concluding Acquisition with Even Brighter Future

Market Commentary

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On September 30, 2024, PT XL Axiata Tbk (EXCL) and PT Link Net Tbk (LINK) successfully completed the transfer of Link Net's assets valued at IDR 1.87 trillion.

The assets transferred include ServeCo, which comprises: 750,000 Link Net subscribers, Broadband Network Gateway, software and applications owned and/or developed by LINK, and customer premise equipment.

Following this transfer, Link Net plans to transfer its residential business to EXCL and integrate it with EXCL’s mobile business.

Meanwhile, EXCL reported softer-than-expected performance in 3Q24, with revenue declining by 4% to IDR 8.3 trillion, EBITDA decreasing by 4% to IDR 4.3 trillion, and net profit plunging by 40% to IDR 292 billion. The significant drop in earnings was primarily attributed to a one-off expense of IDR 100 billion related to the acquisition of Link Net subscribers, completed in late September 2024.

On a year-over-year basis for 9M24, the company achieved 13% EBITDA growth and a 30% increase in net profit, amounting to IDR 13.3 trillion and IDR 1.3 trillion, respectively.

EXCL Income Statements Key Numbers (IDR bn)

EXCL’s ARPU declined to IDR 41,000 in 3Q24. Management attributed the lower ARPU to: 1) macroeconomic pressures impacting consumer purchasing power, 2) seasonal industry trends affecting the third quarter, and 3) a quarter-over-quarter decline in data traffic growth of 4%.

We anticipate ARPU recovery in 4Q24, supported by a ~5% data price increase for both the Axis and XL brands implemented in early September, alongside the typically higher data traffic growth seen in the fourth quarter. The company also noted that the previously saturated SIM-card market has recently stabilized, with industry competition remaining healthy.

EXCL disclosed an ARPU of IDR 250,000 to 300,000 for its broadband segment, with an EBITDA margin ranging from 25% to 30%. The company also highlighted the potential for increased competition driven by price adjustments as competitors focus on volume growth, aligning with our outlook for the fixed broadband (FBB) industry.

EXCL's ARPU Over the Quarters

Despite the limited catalyst amidst current economic and geopolitical condition, in our view, EXCL currently trades at a very undemanding valuation. We believe current valuation is offering investors with limited downside which makes it very lucrative if we consider its future improvement potential.

EXCL is currently trades between its -1 and -2 SD 5 years mean PE band at 13.3x forward PE, while we initially expect EXCL to trade at 20.6x PE by the end of 2024. Hence, we Maintain our BUY call with a TP of Rp3,500/share.

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