Overview

UOB Kay Hian’s latest report dives into the financial performance and strategic developments of XL Axiata (EXCL IJ), a leading telecommunications service provider specializing in cellular and mobile internet services. The report maintains a BUY recommendation for XL Axiata, with the target price revised upward to Rp3,300, representing a potential upside of 39.7% from its current share price of Rp2,290.

Company Highlights

XL Axiata’s 2024 performance demonstrated robust growth, outpacing expectations in certain areas while aligning with consensus forecasts in others. Key achievements included a 13% year-on-year (yoy) growth in EBITDA to Rp18 trillion and an impressive 93% yoy jump in net profit after tax (NPAT) to Rp1.8 trillion. The company also completed the acquisition of Linknet’s residential customer base, leading to a 336% spike in fixed broadband subscribers, which now number 1 million.

4Q24 and Full-Year 2024 Results

XL Axiata exhibited strong performance in the final quarter of 2024:

• Revenue Growth: Sales for 4Q24 reached Rp9,030 billion, a 7.2% yoy increase and an 8.7% quarter-on-quarter (qoq) rise.
• EBITDA: The quarter’s EBITDA rose 11.8% yoy to Rp4,583 billion. For the full-year 2024, EBITDA surged to Rp17.88 trillion, forming 104% of UOB Kay Hian’s full-year estimate and 102% of the consensus forecast. This growth was driven in part by a 22% reduction in sales and marketing costs.
• Operating Profit: Operating profit for 4Q24 grew by 33.1% yoy to Rp1,531 billion, with the full year showing a 27.6% increase to Rp5.59 trillion.
• Net Profit: NPAT for 4Q24 rose dramatically by 92.5% yoy to Rp502 billion, while the full-year figure was Rp1.8 trillion, surpassing UOB Kay Hian’s estimates by 7%.
• Margins: The company achieved an EBITDA margin of 51% in 4Q24, up from 49% in 4Q23, largely due to improved cost management and asset productivity.

Subscriber Numbers and ARPU Trends

XL Axiata’s cellular subscriber numbers grew by 2% yoy in 4Q24, although the average revenue per user (ARPU) remained flat. The 2024 ARPU was approximately Rp43,000, marking a 16% increase from 2021 levels. Despite data price hikes, ARPU stagnation was attributed to competitive starter packs, weak consumer purchasing power, the rise of Wi-Fi players, and reduced data usage among high-ARPU segments.

Key Financial Projections

Looking ahead, UOB Kay Hian forecasts a positive trajectory for XL Axiata:

• 2025 EBITDA and NPAT: Expected to grow by 5% and 21% yoy, respectively.
• Revenue: Projected to rise to Rp37.86 trillion in 2025, a 10.1% increase from 2024.
• Margins: EBITDA margin is expected to remain strong at 49.8%, while net profit margins are projected to rise to 5.8% in 2025.
• Valuation: XL Axiata trades at a 2025 EV/EBITDA of 4.1x, close to its -1SD historical average of 4.2x.

Strategic Developments

Key strategic moves include the successful migration of Linknet’s residential customer base, which significantly bolstered fixed broadband subscriber numbers. Additionally, XL Axiata continues to maintain stable operating expenses (excluding depreciation and amortization), reflecting its disciplined cost management.

Risks to Consider

UOB Kay Hian identifies several potential risks to XL Axiata’s growth trajectory:

• Stiff competition within the telecommunications sector.
• Macroeconomic challenges, including weak consumer purchasing power.
• Rising costs, particularly related to spectrum and interest expenses.
• Regulatory changes that may adversely impact operations.
• Lower-than-expected NPAT guidance in 2025, especially if the anticipated merger with Smartfren is completed by the targeted timeline of 1H25.

Recommendation

UOB Kay Hian reiterates its BUY recommendation for XL Axiata, with a revised target price of Rp3,300. This valuation is based on a 2025 EV/EBITDA multiple of 4.8x, reflecting the historical mean excluding the COVID-19 pandemic period. The target price revision incorporates a 3.5% increase in the EBITDA forecast.