Comprehensive Analysis of XL Axiata – November 2024

Published by UOB Kay Hian on November 22, 2024

Company Overview

XL Axiata, a leading telecommunications service provider, primarily offers cellular and mobile internet services. As of November 2024, the company’s stock is trading at Rp3,000 with a target price of Rp3,000, indicating an upside potential of 35.7%. The company operates in the Communication Services sector, with Axiata Investments (Indonesia) Sdn. Bhd. as its major shareholder holding 66.3% of shares.

Financial Performance and Market Position

In 3Q24, XL Axiata reported a robust financial performance, with its EBITDA rising by 6% year-on-year, reaching Rp13.3 trillion for the first nine months of 2024. This aligns with both internal and consensus expectations. The report highlights XL Axiata’s strategic move to become the second-largest player in Indonesia’s Fixed Broadband (FBB) market. This achievement was bolstered by its acquisition of ServeCo from Link Net, enhancing its FBB subscribers to over 1 million.

Market Dynamics and Strategic Outlook

Indonesia’s fibre penetration is notably low at 8% compared to the Southeast Asian average of 23%. This underpenetration presents a significant growth opportunity for XL Axiata. The company’s strategic acquisition of ServeCo is anticipated to boost its 2025 EBITDA by 7% and revenue by 8%, leveraging Link Net’s subscriber base and content offerings.

Projected Financial Growth

XL Axiata’s financial projections indicate a net profit after tax (NPAT) growth of 24% year-on-year in 2025, driven by a 7% increase in data and digital revenue. The net margin is expected to slightly expand from 5.0% in 2024 to 5.5% in 2025. The company projects a 26% NPAT growth for 2025, reflecting its strategic initiatives and market expansion efforts.

Key Financial Metrics

Stock Performance and Valuation

Despite a challenging market environment, XL Axiata maintains its ‘BUY’ recommendation with a target price of Rp3,000. The company’s valuation is based on an EV/EBITDA of 4.7x, which is below its 10-year average. The favorable valuation, along with strategic growth initiatives, positions XL Axiata as a compelling investment opportunity in the telecommunications sector.

Strategic Risks and Considerations

While XL Axiata shows promising growth potential, investors should consider potential risks, including intensified competition, macroeconomic volatility, rising costs, and regulatory changes. These factors could impact the company’s financial performance and market position.

Conclusion

XL Axiata is strategically positioned to capitalize on the growing demand for fixed broadband services in Indonesia. With a solid financial foundation and strategic initiatives, the company is poised for continued growth and market leadership. Investors are encouraged to consider XL Axiata as a valuable addition to their portfolios, given its potential for significant returns.