XL Axiata
(EXCL IJ)
1Q18 review: A mixed bag
Top-line performance was in line
For 1Q18, XL Axiata (EXCL) posted revenue of IDR5.5tr (-8% QoQ, +5% YoY),
achieving 96% of our first-quarter forecast and implying 23%/22% run rates against
full-year estimates (ours and consensus, respectively). On a QoQ basis, cellular
revenue declined to IDR4.9tr (-10% QoQ, +4% YoY), as legacy revenue fell to
IDR1.4tr (-15% QoQ, -31% YoY) due to data migration. Despite growing data
consumption (3.5GB/sub per month; +3% QoQ, +41% YoY), data revenue dropped
QoQ to IDR3.5tr (-8% QoQ, +31% YoY), as data yield declined (IDR8/MB; -14% QoQ,
-28% YoY), affected by prepaid registration and tight competition.
In-line EBITDA; Bottom line missed
EBITDA was IDR2.0tr (-6% QoQ, +8% YoY), achieving 97% of our 1Q18 forecast and
implying 24%/21% run rates against full-year estimates (ours and consensus). The
decline in revenue was offset by better-than-expected cost efficiencies, resulting in
EBITDA margin improvement (36.1% in 1Q18, vs. 35.5% in 4Q17 and 35.1% in
1Q17). Meanwhile, net profit was disappointing, at IDR15bn (-89% QoQ, -67% YoY),
largely due to higher-than-expected operating/financial leverage, leading to a
pretax loss of IDR71bn. Nevertheless, EXCL still managed to book net profit due to
a tax benefit of IDR87bn.
Data subscriber mix is far ahead of the industry: Approach with caution
Despite EXCL’s high data consumption, we note that its 1Q18 growth was the
lowest among the top three operators. While this could be due to the addition of
lower-value subscribers who just recently registered/switched to EXCL, it could also
suggest that EXCL is approaching data consumption saturation. We still have
concerns regarding its high data subscriber mix (74% as of 1Q18), which is far
ahead of the industry (64%). As we expect competition to stay tight throughout
FY18, EXCL’s high data subscriber mix could prove risky, as revenue will become
increasingly hard to sustain without data monetization.
Conference call takeaways: Infra expenses should continue to decline
Management expects infrastructure expenses to continue to decline, as it will
continue to renegotiate contracts. This should help to improve EXCL’s cost
efficiencies going forward, in our view. Moreover, EXCL reiterated its intention to
follow data yield hike in 2H18, should its peers decided to do so.
Maintain Buy, with lower TP
In light of the 1Q18 results, we revise down our FY18-19F revenue estimates by 1%,
and hence lower our net profit forecasts by 17% and 10%, respectively.
Improvement in top line as competition eases (likely from FY19F) would be a key rerating
catalyst. We maintain our Buy rating on EXCL, but lower our TP to IDR3,100.
Mirae Asset
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