Paula Ruth ([email protected]) Avg. 5 Day MA Trading ...€¦ · Porter’s five competitive...
Transcript of Paula Ruth ([email protected]) Avg. 5 Day MA Trading ...€¦ · Porter’s five competitive...
SECTOR FOCUS PT Trimegah Securities Tbk - www.trimegah.com 1
XL Axiata Company Focus
Paula Ruth
Sebastian Tobing
Better subscriber mix support higher ARPU momentum
EXCL managed to rise substantially its ARPU (25%YoY) in 1H15 despite
its number of subscribers declined by 27%YoY as the company’s chang-
es its focus to higher ARPU subscribers compared to lower ARPU sub-
scribers (higher churn rate; more sensitive to price changes). Moreover,
we saw a QoQ positive growth (4%) in effective data price for the 1st
time after several quarters of QoQ decline, supported by currently
healthier competition among telco industry players.
Strong demand for data service
We believe EXCL’s cellular business will benefit from strong data de-
mand in Indonesia on the back of higher smartphone adoption and
switch of subscribers’ preference to data service from telco legacy ser-
vice (voice and SMS). We expect growth in data to drive cellular reve-
nue growth in the future (2015E/16E 3/10%YoY). Accounting the impact
of lower tower revenue (due to tower sales to SUPR last Dec) to consoli-
dated revenue, we still estimate a soft decline (-2%YoY) this year con-
tinue with +7%YoY growth next year for EXCL’s revenue.
Promising sign of QoQ EBITDA recovery
Although 1H15 EBITDA declined 9%YoY, the company was able to
achieve positive QoQ EBITDA growth of 7% in 2Q15. We think the
EBITDA recovery was also possible because of Axis’ break-even achieve-
ment on EBITDA (prev. negative) and favorable result from EXCL’s effort
in transforming its strategy. We noticed the EBITDA recovery is yet
sufficient to maintain EXCL’s market share (among Big 3 operators) in
terms of EBITDA (1H15 ~14%; FY13/14 ~16/15%) though. We still
expect the company’s EBITDA to decrease in 2015E (-4%YoY), but
recover to 9%YoY growth in 2016E.
Valuation: Neutral with DCF-based TP of Rp2,600
Our target price implied 7% upside. For 2016E/17E, EXCL is trading
5.7/5.5x EV to EBITDA, higher than ISAT (2.8/2.8x), but below TLKM
(7.6/7.0x). The company still trades below regional peers’ average
(excl. Indonesia) of 2016E/17E EV to EBITDA of 9.4/9.0x.
PT XL Axiata Tbk provides a wide range
of mobile telecommunications services in
Indonesia.
Share Price Rp2,440
Sector Telecommunications
Price Target Rp2,600 (7%)
Year end Dec 2013 2014 2015F 2016F 2017F
Sales 21,265 23,460 22,973 24,494 24,737
EBITDA 8,659 8,623 8,249 8,975 9,216
Net Profit 1,033 -804 -662 519 554
EPS 121 -94 -78 61 65
Core Profit 1,942 148 -35 227 224
Core EPS (Rp) 227 17 -4 27 26
Core EPS Growth (%) -34.8% -92.4% nm nm -1.4%
DPS (Rp) 65 5 0 7 7
BVPS (Rp) 1,792 1,645 1,569 1,622 1,680
EV/EBITDA (x) 5.9 5.9 6.2 5.7 5.5
Core P/E (x) 11 141 nm 92 93
Div Yield (%) 2.7% 0.2% 0.0% 0.3% 0.3%
Neutral Rp2,600
Reuters Code EXCL.JK
Bloomberg Code EXCL.IJ
Issued Shares 8,541
Mkt Cap. (Rpbn) 20,841
Avg. Value Daily 6 Month (Rpbn)
13.3
52-Wk range 6750 / 2340
Axiata Investments (Indonesia)
Sdn. Bhd.
66.4%
Public 33.6%
Core EPS 16F 17F
Consensus (Rp) 92 166
TRIM vs Cons. (%) -72% -84%
Road to Recovery
Company Update
Stock Data
Major Shareholders
Consensus
Stock Price
Companies Data
September 15, 2015
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PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 2
Healthier competition among Telco players
Currently, there are ~5 telco operators in the industry, down from previously ~10 players in 2009, implying that
the industry has entered consolidation phase from previously unhealthy price war during 2008-12. Hence, we
think there will be less price war in the industry supporting the industry player’s effort to achieve better moneti-
zation of their network (more likely to increase ARPU).
Figure 2. Current marketing positioning of GSM operators
Source: TRIM Research
Telkomsel Indosat XL Three
Postpaid brand (high end customers) Halo Matrix XL Tri
Quality brand (medium to high end customers) Simpati Mentari XL Tri
Fighting brand (low to medium end customers) As IM3 Axis Tri
Figure 1. Timeline of Indonesia’s telco industry’s competitive phases
Source: TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 3
Figure 3. Porter’s five competitive forces analysis
Source: TRIM Research
Substitution to data service
There are three main services that telco operators provide: Voice, SMS, and Data. As smartphone adoption
(~14% in 2013) keep increasing, we think there is higher risk of substitution to data service rather than voice
and SMS service. Hence, operators might tend to increase voice and SMS price to balance the decline in voice
and SMS traffic.
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 4
Growing usage of data service from increasing smartphone penetration
As mobile subscribers’ penetration rate in Indonesia already reached 125%, we think there won’t be a significant
increase in the total number of subscribers in the industry. However, we think there’s still potential upside of fur-
ther growth for the cellular business from the growing data usage on the back of growing smartphone adoption
in Indonesia. This is also implied from 3G penetration rate in Indonesia which was still at 45%, significantly be-
low the mobile subscribers’ penetration rate, considering that most of mobile subscribers in Indonesia still use
feature phone (only 2G; voice and SMS). It is expected that smartphone penetration in Indonesia to reach 38%
in 2017E from 14% in 2013.
Source: World Bank, ITU, TRIM Research
Figure 4. Mobile Subscribers Penetration in ASEAN, China, and India (2013)
Figure 5. A snapshot of mobile subscribes and usage in Indonesia
Source: Internet live stats, Internet world stats, www.techinasia.com, companies’ data, TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 5
Figure 7. Social network users in Indonesia(in millions)
Source: statista.com, World Bank, TRIM Research
Figure 8. Number of Internet Users in Indonesia
Source: Euromonitor, World Bank, TRIM Research Source: statista.com
Figure 9. Average mobile app download rate per capita
in selected countries as of 3Q14
Figure 6. Indonesia’s smartphone penetration
Source: Statista.com, TRIM Research
Figure 10. Spectrum allocation
Source: Indosat, Telkom, XL, and TRIM Research
Total 850 Mhz 900 Mhz 1800 Mhz 2100 Mhz 2300 Mhz
Telkomsel 65.0 5.0 7.5 22.5 15.0 15.0
Indosat 57.5 2.5 10.0 20.0 10.0 15.0
XL Axiata 45.0 - 7.5 22.5 15.0 -
Hutchison Three 20.0 - - 10.0 10.0 -
Spectrum allocation—resource for competitiveness
For 3G service on 2100 Mhz spectrum, EXCL has bandwidth as much as Telkomsel’s and still more than Indosat’s
and Three’s. As 900Mhz already set as technology neutral, ISAT also allocated its 10Mhz bandwidth on that band
for 3G and 2G service. In total EXCL owned 45Mhz of bandwidth, still lower than Telkomsel and Indosat, but sub-
stantially higher than Three.
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 6
Commercial LTE service on 1,800Mhz
EXCL’s spectrum (22.5Mhz) on 1,800Mhz is as much as Telkomsel and higher than Indosat and Three. This was
achieved by acquiring Axis last year (Axis owned 15Mhz of bandwidth on 1800Mhz spectrum). Before the acqui-
sition EXCL only had 7.5Mhz on 1,800 band. Although 1800Mhz band should be ready for LTE after refarmed
(scheduled to finish on November 2015), higher usage of 4G service will depend also on the readiness of the
ecosystem (4G smartphone penetration rate). We think there will be substantial increase in LTE penetration if
the LTE mobile phone price goes down to Rp500K (~USD35) considering that telco operators do not subsidize
handset (99% of subscribers using prepaid packages). There’s already LTE mobile phone priced at Rp1.1mn
(~USD77) based on price survey last May.
Source: Indonesia’s Ministry of Communication and Informatics
Before Refarming
After Refarming
Figure 11. Refarming on 1800 Mhz spectrum
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 7
Management’s Strategy
Figure 13. Revenue breakdown Figure 14. Cellular revenue breakdown
Voice
36%
SMS
21%
Data25%
VAS
4%
Others
1% Inteconne
ct13%
Source: Company, TRIM Research Source: Company, TRIM Research
Source: Company, TRIM Research
More sustainable business strategy—higher ARPU
Starting this year, a new strategy was being deployed by the company by focusing to be a more sustainable and
profitable business. The company expects the transformation process (named “3R - Revamp, Rise, Reinvent”) to
take 12-18 months. The 1H15 initiatives (“Revamp” phase), including more focus on quality subscribers, gave
positive impact to substantially higher 1H15 ARPU to Rp30K (+25%YoY) despite losing significant number sub-
scribers (-27%YoY), which according to the company are low-revenue subscribers. We expect similar trend of
declining number of subscribers until end of this year (-25%YoY), which then continue to positive growth in the
future (3/2% in 2016E/17E).
Figure 12. EXCL’s subscribers and implied ARPU growth
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PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 8
Source: Company, TRIM Research
Figure 15. QoQ data traffic and rate changes
Data consumption drive cellular business future growth
Voice and SMS still accounts most (FY14 ~57%) of EXCL’s cellular revenue. However, as data usage continues to
rise supported by growth of smartphones users, we expect more subscribers to use and prefer data services
(FY14 ~25% of cellular revenue) compared to SMS and voice in the future. During 2Q15, EXCL was able to im-
prove its effective data pricing (Rp/kb) slightly by 4%QoQ. The company actually already increased its headline
data pricing for several of its product offerings last Dec, but it was yet translated to better effective data price as
data traffic kept going up implying high appetite of data consumption. We think the effective data price QoQ in-
crease was also contributed from the company’s effort to improve its subscriber mix (focus more to high ARPU
subscriber), managing data abuser, and added with positive seasonality impact of 2-week Ramadhan effect in
July during 1H15. Note that 2Q15 data traffic was slightly down by –2%QoQ though. We expect data revenue to
grow by 15/25%YoY in 2015E/16E (vs. FY13/14 16/42%; 1H15 14%YoY vs. 1H14 43%YoY) based on rising data
usage and relatively slower decline of effective data pricing.
0
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2010 2011 2012 2013 2014 1Q15 6M15
2G BTS 3G BTS 4G BTS
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2010 2011 2012 2013 2014 1Q15 6M15
2G BTS 3G BTS
Source: Company
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Figure 16. EXCL’s Total BTS Figure 17. BTS composition
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 9
Slower voice and SMS growth—migration to data
EXCL’s voice traffic (outgoing minutes) started to post negative growth (-13%YoY) in FY14 (vs. FY12/13 +15/
+1%YoY) with further decline in 1Q15/2Q15 by-8%/-4%QoQ. However, FY14 voice revenue still slightly grew
(+3%YoY) as voice price (Rp/minute) was up by 19%YoY (vs. FY12/13 –9%/-8%.). We estimate growth in
2015E/16E voice revenue to be 1/3%YoY (vs. FY12/13/14 at +6/-7/+3%YoY) relying mostly on rising voice
price. As we expect higher adoption of smartphone (higher usage of mobile messaging service), we predict
2015E/16E SMS traffic to go down by -28/-15%YoY (1H15 –28%YoY vs. 1H14 +6%YoY; FY13/14 +6/-2%). We
expect the company to increase SMS price (Rp/sms) in 2015E/16E by 17/15%YoY (1H15 19%YoY vs. 1H14 –1%
YoY) to partially offset the falling SMS traffic. Thus, we think there will be negative growth in SMS revenue
(2015E/16E -15/-3%YoY vs. FY14 +3%YoY; 1H15 –14%YoY vs. 1H14 +5%YoY).
For total cellular revenue, we estimate growth of 3/10%YoY in 2015E/16E (vs. FY13/14 –1/+13%YoY; 1H15
+1%YoY vs. 1H14 +14%YoY) primarily driven by data revenue increase. We expect 2016E data’s contribution to
cellular revenue to be ~33% (up from FY14 ~25%), while contribution from voice and SMS to be ~35% (FY14
36%) and ~16% (FY14 21%) respectively, implying substitution to data service by the cellular subscribers.
Source: Company, TRIM Research
Figure 18. Voice traffic and rate
Figure 20. Cellular revenue
Source: Company, TRIM Research
Figure 21. Cellular revenue composition
Source: Company, TRIM Research
Source: Company, TRIM Research
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Voice SMS Data Interconnect and others VAS
Figure 19. SMS traffic and rate
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 10
Figure 22. EXCL’s forecast drivers
Source: Companies and TRIM Research
31 December 2013A 2014A 2015E 2016E 2017E 2018E 2019E
XL Axiata
Mobile subs (m) 61 60 45 46 47 48 50
Subscriber market share 21.3% 19.0% 14.1% 14.3% 14.4% 14.5% 14.8%
Implied Net ARPU (Rp 000) 31 31 35 43 42 42 43
% change -11.0% -1.6% 15.0% 22.1% -1.8% 1.0% 1.2%
Voice
Outgoing MOU (min/sub/month) 169 130 122 131 130 132 134
Total MOU (min/sub/month) 338 260 246 263 265 272 277
Total minutes carried (b min) 216 188 154 144 147 153 159
% change 1.3% -13.0% -17.7% -6.5% 2.0% 4.0% 4.0%
Incoming minutes (%) 50% 50% 50% 50% 50% 50% 50%
Voice revenue / outgoing minute (Rp) 72 85 105 116 117 118 119
% change -8.7% 18.7% 23.6% 10.3% 1.0% 1.0% 1.0%
Data
Data traffic (terabyte) 54,615 123,824 181,228 239,278 275,170 302,687 326,902
% change 141.5% 126.7% 46.4% 32.0% 15.0% 10.0% 8.0%
Data Rate (Rp/kb) 0.07 0.04 0.03 0.03 0.03 0.03 0.03
% change -51.8% -37.6% -21.2% -5.1% -5.0% -3.0% -1.0%
SMS
Outgoing SMS (bn) 259 253 183 156 154 152 151
% change 5.9% -2.1% -27.5% -15.2% -1.0% -1.0% -1.0%
Revenue / outgoing SMS (Rp) 18 19 22 25 25 25 25
% change -9.2% 5.6% 17.1% 14.6% 0.5% 0.5% 0.5%
Gross revenue (Rp t) 21.4 23.6 23.1 24.6 24.8 25.6 26.7
% change 0.3% 10.4% -2.1% 6.6% 1.0% 3.2% 3.9%
Net revenue (Rp t) 21.3 23.5 23.0 24.5 24.7 25.5 26.5
% change 1.4% 10.3% -2.1% 6.6% 1.0% 3.2% 3.9%
EBITDA (Rp t) 8.7 8.6 8.2 9.0 9.2 9.6 10.0
% change -11.1% -0.4% -4.3% 8.8% 2.7% 3.9% 4.6%
EBITDA margin 40.7% 36.8% 35.9% 36.6% 37.3% 37.5% 37.8%
Capex / revenue 32.6% 24.5% 26.5% 22.0% 20.0% 18.0% 18.0%
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 11
Lower leased tower revenue (impact from tower sales to SUPR)
Last December, EXCL completed a sale and lease back transaction for its 3,500 tower with SUPR. This caused
EXCL’s 1H15 other telecommunication segment revenue significantly decreased (~35%YoY), which lead to EXCL’s
1H15 net revenue declined by -4%YoY (cellular revenue growth almost flat at 1%YoY). For 2015E/16E, we esti-
mate EXCL’s net revenue growth at a pace of –2/+7%YoY (vs. FY13/14 +1/+10%YoY). The company’s 1H15 rev-
enue accounts 48% of our FY target,
Source: Company, TRIM Research
Figure 23. EXCL’s net revenue
Reducing inefficiency post-Axis integration
EXCL’s opex excluding depreciation and amortization (D&A) are mostly contributed from infrastructure (~35% of
FY14 revenue; ~56% of total Opex excl. D&A) and interconnection & telco service (~14% of FY14 revenue;
~23% of total Opex excl. D&A). Network expansion, tower sales to SUPR, and higher frequency cost from Axis
acquisition & integration contribute to rise in infrastructure expense (+15%YoY), but lower SMS interconnect cost
and service access payment to RIM mostly helped to decreased its interconnection and other direct expenses sig-
nificantly (-29%YoY). As of March 2015, Axis already turned break-even on EBITDA level, after previously posted
negative EBITDA when acquired by EXCL around March 2014. Number of Axis’ contract staffs stays with EXCL
also declined resulting to lower personnel expense (-9%YoY; ~5% to revenue). We estimate the increase of opex
excl. D&A in 2015E/16E at –1%YoY/+5%YoY with ratio to revenue at 64/63% respectively, assuming the compa-
ny will be able to increase efficiency from Axis’ infrastructure further, e.g. relocate old Axis’ site or decrease tow-
er leases to avoid duplicate sites .
Source: Company, TRIM Research
Figure 24. Opex excl. D&A
0%
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Others Supplies & overhead
Personnel Marketing & sales
Interconnection & telco service Infrastructure
Figure 25. Opex excl. D&A composition
Source: Company, TRIM Research
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PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 12
Promising sign of EBITDA recovery
As 1H14 EBITDA (margin 37%) yet accounted for Axis’ acquisition (around end of 1Q14), the company posted
1H15 EBITDA decline (-9%YoY; margin 35%). However, 2Q15 EBITDA has showed promising sign of recovery
through positive growth of 7%QoQ (2Q14 –6%QoQ; 1Q14 2%QoQ vs. 1Q15 –18%QoQ) accompanied with rise in
EBITDA margin to 36% (2Q14 34%; 1Q14 40% vs. 1Q15 34%). We still project a decline in EBITDA this year (-
4%YoY vs. FY13/14 –11/+0.4%YoY), which then recover to positive growth next year (9%YoY) with 2015E/16E
EBITDA margin at 36/37% based on higher infrastructure efficiency. 1H15 EBITDA is 47% of our 2015E FY esti-
mate. Note that 4Q14 EBITDA margin of 39% including one-off impact from completion of Axis’ integration and
renegotiation of contracts. According to EXCL, if those one-off impacts were excluded, 4Q14 EBITDA margin was
~36%. We have not assumed additional tower sales in our forecast.
Figure 27. EBITDA and EBITDA margin
Source: Company, TRIM Research
Figure 26. Quarterly Revenue, opex excl. D&A, and EBITDA
Source: Company, TRIM Research
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PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 13
Contribution from JV (“Elevania”) yet significant
EXCL has 50% ownership in JV (“XL Planet” established since 2013) to build e-commerce (“open marketplace”)
website named “Elevania” (launched Mar 2014). As of 1H15, the company recorded its investment in JV of
Rp216bn, only ~1% of EXCL’s market cap. Last year, the loss as share of result from JV reached ~Rp102bn. Ac-
cording to the company, the JV might book slightly higher loss this year compared to last year.
Possibility of lower USD debt exposure this year
EXCL plans to lower its borrowing and reduce USD exposure significantly in the next 3-6 months. Among the total
of ~USD1.6tr loan, the effort to reduce borrowing and USD exposure will be prioritized respectively on the un-
hedged external debt (~USD 652mn), hedged external debt (~USD 400mn), and then the loan from Axiata
(~USD 500mn). Currently, the company is exploring the possibility of refinancing (converting to IDR loan), pay-
ing back, and/or extending the maturity of the USD loan. For restructuring plan of Axiata loan, the company is
still on discussion with Axiata. The company’s 1H15 net debt to EBITDA was 2.9x, already down from 3.2x in
1H14. It had cash amount of Rp5.5tr in 1H15 (vs. 1H14 Rp2.5tr). EXCL recorded forex loss of Rp1.5tr last se-
mester (vs. 1H14 Rp516bn; FY14 Rp1.3tr). We haven’t accounted this potentially lower forex exposure to our
estimation. Our 2015E/16E net debt to EBITDA is at 3.6/3.1x.
Figure 28. Interest bearing debt breakdown as of 1H15
Source: Company
USD Loan
(USD
1.55bn)71%
IDR
Bank
Loan
29%
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 14
Figure 29. TRIM vs. Consensus Estimates
Source: Bloomberg, TRIM Research
TRIM versus Consensus
Our 2017E revenue and EBITDA is below consensus probably because we assume lower subscriber, lower ARPU
and/or slower impact from LTE 1800Mhz service relative to consensus. We are also slightly more conservative on
our 2017E EBITDA margin (37.3%) compared to consensus (38.0%). This might also happen because we have
not included the assumption of additional tower sales between 2015E-17E which could lower the revenue and
reduce the EBITDA margin estimates (due to additional cost to lease tower instead of previously using its own
tower). We use EV/EBITDA as basis for our valuation.
Our operating profit is below consensus as our D&A (2015E-17E ~32% to revenue) is higher than consensus by
5/9/11%, which might happen due to higher depreciation rate that we used relative to consensus. The capex as-
sumption that we used is in-line for 2015E, but lower in 2016E/17E compared to consensus by 20/28%. If EXCL
sells its tower, which we have not included in our forecast assumption, it could lower its depreciation expense.
We forecast the company will still booked core loss in 2015E compared to consensus’ estimate of core profit.
Meanwhile, our core profit in 2016E-17E is significantly lower than consensus. The difference might be related to
difference in forecast of interest expense, forex loss, share of profit (loss) from JV, and other income (expense).
Our net debt in 2015E/16E/17E are higher than consensus by 39/37/42% respectively. We have not included
the plan to issue Sukuk, nor the USD loan restructuring assumption in our forecast, especially the USD 900mn
loan which will due in 2017E (bullet repayment).
EXCL Rp bn 2015E 2016E 2017E
Revenue TRIM 22,973 24,494 24,737
Cons 23,193 24,628 26,558
% -0.9% -0.5% -6.9%
EBITDA TRIM 8,249 8,975 9,216
Cons 8,317 9,196 10,092
% -0.8% -2.4% -8.7%
Operating Profit TRIM 981 1,315 1,180
Cons 1,475 2,211 2,909
% -33.5% -40.5% -59.4%
Core Profit TRIM -35 227 224
Cons 130 797 1,414
% nm -71.5% -84.2%
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 15
YE Dec 31 (in Rp b) 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F
EBIT 1,180 1,263 1,634 1,853 2,938 2,977 3,139 3,257 3,328 3,429
Tax Rate 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%
EBIT*(1-t) 885 947 1,226 1,390 2,204 2,233 2,354 2,443 2,496 2,572
+ D & A 8,036 8,315 8,385 8,652 8,034 8,299 8,566 8,845 9,135 9,345
- Capex (4,947) (4,597) (4,777) (4,976) (5,163) (5,306) (5,508) (5,695) (4,887) (5,009)
+ Decrease/(increase) in non
cash working capital 31 (422) (195) (163) (247) (213) (1,075) 79 83 70
FCFF 4,004 4,243 4,639 4,904 4,828 5,013 4,338 5,672 6,827 6,978
FCFF - Discounted 3,663 3,552 3,553 3,436 3,095 2,940 2,328 2,785 3,067 2,868
Value of cash-flows thro 2026 31,285
Terminal value- 4x EV/EBITDA 20,997 Risk-Free rate 8.4%
Equity market risk premium 5.0%
Enterprise value 52,282 Beta 0.652
Net Debt / (Cash) 30,090 Cost of equity 11.7%
Equity value 22,192 Post-tax cost of debt 8.3%
Value per share 2,599 Debt/Capital ratio 69.2%
9.3% WACC
Target price after rounding 2,600
Figure 30. DCF calculations
Source: TRIM Research
Source: Company, Bloomberg, TRIM Research
Figure 31. Forward historical EV/EBITDA
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Fw-EV/EBITDA Fw-EV/EBITDA avg Fw-EV/EBITDA + 1 STD
Fw-EV/EBITDA - 1 STD Fw-EV/EBITDA - 2 STD Fw-EV/EBITDA + 2 STD
6.5
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PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 16
Country Mobile Subs. Smartphone Ticker Company Name Mobile Service
Penetration* Penetration** Revenue
Contribution
Indonesia 125% 23% TLKM Telkom (Telekomunikasi Indonesia) ~74%***
ISAT Indosat 81%
EXCL XL AXIATA 94%
Singapore 156% 87% ST Singtel (Singapore Telecommunications) 43%
STH Starhub 52%
M1 M1 62%
Malaysia 145% 80% Axiata Axiata 85%
Digi Digi.com 90%
Maxis Maxis NA
T Telekom Malaysia NA
Philippines 105% 15% TEL Philippine Long Distance 65%
GLO Globe Telecom 79%
Thailand 140% 49% ADVANC AIS (Advance Info Services) 84%
DTAC Total Access Communication NA
Figure 33. Regional telco companies’ profile
Source: Bloomberg, World Bank, ITU, Nielsen.com, TRIM Research
*) As of 2013 **) Article dated Jan 2014 ***) Telkomsel's revenue compared to consolidated TLKM revenue
Ticker Name EV/EBITDA P/E
2016E 2017E 2016E 2017E
Indonesia
TLKM Telkom (Telekomunikasi Indonesia) 7.6 7.0 16.9 5.1
ISAT Indosat 2.8 2.8 16.8 11.8
EXCL XL AXIATA 5.7 5.5 nm 91.7
Singapore
ST Singtel (Singapore Telecommunications) 12.8 12.4 14.2 13.2
STH Starhub 8.9 8.7 16.8 16.6
M1 M1 8.5 8.3 14.1 14.0
Malaysia
Axiata Axiata 8.2 7.8 19.5 17.7
Digi Digi.com 12.9 12.4 20.7 19.7
Maxis Maxis 13.2 12.8 24.3 23.2
T Telekom Malaysia 7.4 7.2 24.8 23.0
Philippines
TEL Philippine Long Distance 7.9 7.4 15.0 14.3
GLO Globe Telecom 8.0 7.6 19.0 17.6
Thailand
ADVANC AIS (Advance Info Services) 9.5 9.0 15.8 14.9
DTAC Total Access Communication 5.7 5.2 17.8 15.2
Average All 8.5 8.1 nm 21.3
9.4 9.0 18.4 17.2 Average Excl. Indonesia
Figure 32. Regional comparison
Source: Bloomberg, TRIM Research
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 17
Valuation: Neutral with 7% upside to TP Rp2,600
We initiate EXCL with a Neutral on the back of: 1) Promising sign of QoQ EBITDA recovery as Axis already
turned break-even (EBITDA) and positive result of the company’s transformation strategy so far; 2) Benefit from
Indonesia’s strong demand for data consumption; 3) Healthier competition among industry players supporting
better effective service price (esp. data price).
Our DCF-based TP uses WACC of 9.3% and terminal value of 4x EV/EBITDA. This is lower than Indonesia’s telco
industry leader, Telkomsel (TLKM’s subsidiary), which we valued using terminal value’s EV/EBITDA of 9x consid-
ering that TLKM’s (~45%) market share is bigger than EXCL’s (~19%) and TLKM’s better balance sheet com-
pared to EXCL’s.
EXCL is trading at 5.7/5.5x of 2016E/17E EV to EBITDA. This is below TLKM which we think is justified consider-
ing Telkomsel’s market leader position and strong balance sheet (with lower IDR weakness risk) relative to EXCL
and also ISAT. However, the valuation is significantly higher than ISAT (2016E/17E consensus at 2.8/2.8x), de-
spite EXCL’s EBITDA market share (~14%) is lower than ISAT (~19%) among Big 3 operators. In terms of PE
valuation, EXCL trades at –31.5x 2016E PE and 40.1x 2017E PE vs. (2016E/17E PE for TLKM 17/15x and ISAT
17/12x).
Compared to regional peers, EXCL trades at a discount to average regional telco excl. Indonesia of 9.4/9.0x
2016E/17E EV to EBITDA. We estimate that EXCL still booked core loss next year and recover to positive in
2017E). However, its 17E PE is still significantly higher than average regional telco excl. Indonesia.
Risks
Foreign exchange risk
As telco operator is a capital intensive business and its capex, e.g. for network equipment, tends to be imported
with payment to vendor using USD, the company used USD loan to help to finance its capex. Meanwhile, most of
the company’s revenue is in IDR. IDR weakness to USD could cause higher forex loss, interest expense, and low-
er profit, and also higher principal payment for the USD loan leading to higher risk of liquidity. IDR weakness to
USD also cause increase in fund amount required to finance its capex and rise in operational cost. This might
lead to lower network upgrade, expansion, less maintenance, and/or less purchase of items and services, which
might cause the company provide service with quality not as high as before and lower its ability to compete.
Competition Risk
We think the telco industry in Indonesia is very competitive. If competitor lower its price substantially as its mar-
keting strategy to grab market share for some times, it might cause the company losing its price-sensitive sub-
scribers and follow to decrease its price as well to remain competitive. This could lead to price war causing the
industry cannot monetize its investment properly nor growing its business in a sustainable way.
Technology change risk
As technology kept evolving, if the company cannot or too slow to invest in new technology which the industry
already adopted, the company could lose its competitiveness, such as in form of declining ARPU.
Interest rate risk
The company is exposed to risk from interest rate changes for its interest bearing debt. If interest rate goes up,
it cause higher interest expense and lower bottom line.
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 18
Company Background
PT XL Axiata Tbk was founded in 1989 as a trading and general services company under the name of PT Gra-
hametropolitan Lestari. It then entered the telecommunications industry in 1996 as Indonesia’s first private
cellular mobile telephone company and went public in 2005.
As of today, 66.5% of XL’s shares are owned by Axiata through Axiata Investments (Indonesia) Sdn. Bhd. and
the remainder 33.5% by public.
PT Trimegah Securities Tbk - www.trimegah.com SECTOR FOCUS 19
Income Statement (Rpbn)
Year end Dec 2013 2014 2015F 2016F 2017F
Revenue 21,265 23,460 22,973 24,494 24,737
Revenue Growth (%) 1.4% 10.3% -2.1% 6.6% 1.0%
Gross Profit na na na na na
Opr. Profit 2,901 1,782 981 1,315 1,180
EBITDA 8,659 8,623 8,249 8,975 9,216
EBITDA Growth (%) -11.1% -0.4% -4.3% 8.8% 2.7%
Net Int Inc/(Exp) -339 -1,496 -994 -972 -881
Gain/(loss) Forex -1,037 -1,295 -1,512 0 0
Other Inc/(Exp) -149 5 528 440 440
Pre-tax Profit 1,375 -1,003 -997 782 739
Tax -342 200 335 -263 -185
Minority Int. 0 0 0 0 0
Extra. Items 0 0 0 0 0
Reported Net Profit 1,033 -804 -662 519 554
Core Net Profit 1,942 148 -35 227 224
Growth (%) -34.8% -92.4% nm nm -1.4%
Dividend per share 65 5 0 7 7
growth (%) -51.9% -92.6% nm nm -1.4%
Dividend payout
ratio
52% -5% 1% 12% 11%
Balance Sheet (Rpbn)
Year end Dec 2013 2014 2015F 2016F 2017F
Cash and equivalents 1,318 6,951 3,962 3,291 1,031
Other curr asset 4,526 6,358 5,285 5,981 6,098
Net fixed asset 30,928 35,207 33,824 31,378 28,200
Other asset 3,505 15,114 21,504 21,584 21,366
Total asset 40,278 63,631 64,576 62,233 56,696
ST debt 3,125 3,922 3,228 15,872 3,054
Other curr liab 4,806 11,477 9,178 9,629 9,777
LT debt 14,697 25,707 30,824 14,952 21,898
Other LT Liab 2,349 8,478 7,949 7,928 7,623
Minority interest 0 0 0 0 0
Total Liabilities 24,977 49,583 51,180 48,381 42,352
Shareholders Equity 15,300 14,048 13,396 13,852 14,344
Net debt / (cash) 16,504 22,677 30,090 27,533 23,921
Total cap employed 32,347 48,233 52,169 36,733 43,865
Net Working capital -2,087 -2,089 -3,159 -16,229 -5,702
Debt 17,822 29,628 34,052 30,824 24,952
Cash Flow (Rpbn)
Year end Dec 2013 2014 2015F 2016F 2017F
Net Profit 1,033 -804 -662 519 554
Depr / Amort 5,759 6,841 7,268 7,660 8,036
Chg in Working Cap -1,286 4,838 -1,225 -245 31
Others 1,662 -2,336 0 0 0
CF's from oprs 7,167 8,540 5,380 7,935 8,621
Capex -7,394 -7,095 -6,088 -5,389 -4,947
Others -587 -9,583 0 0 0
CF's from investing -7,981 -16,678 -6,088 -5,389 -4,947
Net change in debt 3,336 4,961 -2,242 -3,228 -5,872
Others -2,012 8,808 -41 10 -63
CF's from financing 1,324 13,769 -2,283 -3,218 -5,935
Net cash flow 509 5,632 -2,991 -673 -2,262
Cash at BoY 809 1,319 6,953 3,964 3,293
Cash at EoY 1,318 6,951 3,962 3,291 1,031
Free Cashflow -227 1,445 -707 2,546 3,674
Key Ratio Analysis
Year end Dec 2013 2014 2015F 2016F 2017F
Profitability
Gross Margin (%) NA NA NA NA NA
Opr Margin (%) 13.6% 7.6% 4.3% 5.4% 4.8%
EBITDA Margin (%) 40.7% 36.8% 35.9% 36.6% 37.3%
Core Net Margin (%) 9.1% 0.6% -0.2% 0.9% 0.9%
ROAE (%) 12.7% 1.0% -0.3% 1.7% 1.6%
ROAA (%) 5.1% 0.3% -0.1% 0.4% 0.4%
Stability Current ratio (x) 0.5 0.6 0.8 0.7 0.6
Net Debt to Equity (x) 1.1 1.6 2.2 2.0 1.7
Net Debt to EBITDA (x) 1.9 2.6 3.6 3.1 2.6
Interest Coverage (x) 2.8 1.0 0.6 0.8 0.9
Efficiency A/P (days) NA NA NA NA NA
A/R (days) 23 18 17 19 18
Inventory (days) NA NA NA NA NA
Interim Result (Rpbn)
2Q14 3Q14 4Q14 1Q15 2Q15
Sales 6,034 5,994 5,919 5,481 5,610
Gross Profit NA NA NA NA NA
EBITDA 2,062 2,061 2,300 1,877 2,000
Opr. Profit 402 103 633 86 218
Net profit -824 -456 98 -758 -93
Core profit 18 -155 201 -67 -141
Gross Margins (%) NA NA NA NA NA
EBITDA Margins (%) 34.2% 34.4% 38.9% 34.2% 35.6%
Opr Margins (%) 6.7% 1.7% 10.7% 1.6% 3.9%
Net Margins (%) 6.7% 1.7% 10.7% 1.6% 3.9%
Core Margins (%) 0.3% -2.6% 3.4% -1.2% -2.5%
Capital History
Date
29-Sep-05 IPO@Rp2,000
PT Trimegah Securities Tbk
Gedung Artha Graha 18th Floor
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190, Indonesia
t. +62-21 2924 9088
f. +62-21 2924 9150
www.trimegah.com
DISCLAIMER
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purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has
been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities.
While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication,
Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is
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consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted
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