EXCL Poised Excel Further
Illustration: EXCL Poised Excel Further
EXCL Poised Excel Further. XL Axiata, Tbk (EXCL IJ) remains our top pick for exposure to Indonesian telecoms given. First, its strong management/operational execution. Second, the still-robust prospects within the telecoms sector on a proliferation of cheap and attractive low-priced handsets amid rising take-up of small screen access.
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As well as, management is relatively confident of out-growing the industry and its competitors in 2011. It coming off from another commendable FY10. Whereby 9MFY10 revenue growth already surpassed earlier guidance. furthermore, its key share price re-rating catalysts are: (i) further revenue/EBITDA share gains, (ii) the reinstatement of dividend payment, and (iii) stronger than expected results going forward. Maintain BUY at TP of IDR6300.
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Managed services to cut opex by low single-digit over 3-5 years
Moreover, management sees further opex savings, citing the on-going process to outsource its billings system and server management, from which it is guiding for longer term savings in the low single-digit. Management says it will explore other areas within the network that could potentially be managed more cost effectively by third parties. We note that XL’s support and overhead expenses line were down 13% y-o-y in 9MFY10.
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SMS nipped MOUs in 3Q10
XL’s MOU fell 23% q-o-q in 3Q10, which management reasoned to subscribers taking advantage of the extended bundling promotions on SMS at the expense of voice, as well as the fasting month. We expect usage trends (MOU) to improve sequentially following the introduction of the Rp25/min campaign, resulting in a slight downtick in RPM in 4QFY10.
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Indonesia 2011 Market Outlook
Going forward, XL will look to further rebalance its tariffs based on available capacity (lower tariff during off-peak hours) to drive usage and does not see its RPM (+3% q-o-q) changing significantly. Management sees little upside in capex for FY11, with capacity utilization hovering at an optimal 75% during peak times.
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Small screen data in vogue
XL highlighted that about 40-50% of its subscribers are active mobile internet users with ARPU on par or slightly better than average. It continues to see little business case for big screen take-up in Indonesia and will continue to focus on strengthening small screen adoption to drive overall mobile revenue.
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Maintain BUY
Finally, we see earnings upside from progressively lower opex over the medium-term via the outsourcing of non-core direct expenses and other internal cost reduction initiatives. XL remains upbeat and plays down the recent tariff aggression in the market (led by Telkomsel), and has reaffirmed its guidance to outgrow industry growth, which it projects at 9-10% for 2011. XL stays as our top pick for exposure to the Indonesia telecoms sector.
