What’s new: XL reported results yesterday, with topline and EBITDA ahead. Mobile ARPU continue to trend well, with prepaid improving while postpaid decline eased further. For the year, the company guided HSD growth for revenue suggesting that the Indonesia mobile sector is clearly in repair mode. For XL specifically, our sense is that the merger with Smartfren is more likely than in the past. Our thoughts below.
Key takeaways: FY24 guidance: High single digit revenue growth, 50% EBITDA margin and IDR 8tn capex (flat).
Data and Digital services revenue came in 3% ahead and improved to +12.3% YoY (Q1: 11%, Q2: 12.9%, Q3: 6.8%), driven by momentum in data growth and better ARPU trend. Mobile service revenue (ex-IC, post discount) continues to trend ahead of industry, up by 11.6% YoY (Q1: 10.6%, Q2: 12.5% Q3: 6.4%) on better prepaid ARPU growth. Meanwhile, EBITDA outperformed consensus by 2.3%, up by 7.1% YoY (Q1: 12.9%, Q2: 14.3%, Q3: 12.6%) on lower labour costs and slower growth in marketing expenses. For the full year, revenue was up 10.9% YoY while EBITDA grew 11.6%; margin improved by 3pp to 49.1%.
KPIs: Mobile ARPU trend remains encouraging as it crossed the 43k mark in Q4. Blended ARPU growth improved to +7.5% from 5% on better prepaid growth and lower decline in postpaid ARPU. Subscribers figure remained unchanged at 57.5m. The company’s FBB product, XL home, added 29k subscribers to reach 235k. Within this, its FMC product, XL Satu, saw penetration rise to 75% from 37% last year. Although funding is a concern, XL is targeting 8.4m homes passed by 2026 from 3.2m in its FMC strategy to capture the FBB market. The delayering of Link Net into FiberCo while XL becomes the ServeCo, is expected to complete by 1H24. Through this, XL will migrate Link Net’s 750k fixed subscribers to reach c.1m FBB subscribers, said to be Indonesia’s second largest FBB player.
Conclusion
FY24 guidance was a positive read for the Indonesian sector as a whole – mobile ARPU is expected to trend well on the benign dynamic. As with the past, we think the election is unlikely to pose any threat to the ARPU recovery story. Specific to XL, we think a deal with Smartfren would also make a lot of sense and improve further the competitive environment in the medium/long term. As the 3rd player XL’s Buy case is more dependent on market repair than either PT Telkom or IOH, but confidence that the market will continue to be rational underpins our Buy recommendation and IDR 5,000 price target.
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