XL Axiata (EXCL.IJ Rp 2,440; BUY; TP Rp 3,300) 1Q24 earnings beat; better outlook with strong revenue momentum and improved cost structure.

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XL Axiata (EXCL IJ)

1Q24 earnings beat; better outlook with strong revenue momentum and improved cost structure.

1Q24 earnings beat due to a better-than-expected revenue momentum with EBITDA margin gains, offering cushion for the next quarters.
XL sees more revenue growth through more reloads via its digital app, while it seeks new footprint in ex-Java leveraging on AI tech.
We raise our FY24-26F est. by +34%/16%/7% and TP to Rp,3300; reiterate Buy rating on its sustainable revenue growth momentum.

Earnings beat on revenue and EBITDA margin trending ahead of estimates.

XL 1Q24 NP of Rp539bn (+107%qoq, 168%yoy) topped expectations, (at 34.0%/32.8% of FY24F ours/cons estimates vs. 13%/16% in FY22/23). This is owed to its positive revenue momentum (Rp8.4tr, -0.2%qoq, +11.8%yoy) well inline with ours/cons est. (at 24.3%/24.5% vs. 23.2% in FY22/23). Moreover, EBITDA margin climbed to 52.8% (+390bps qoq). with Rp4.5tr EBITDA trending ahead of ests. with OPEX reductions in infra and S&M, hence offering cushion for the next quarters. XL also ended 1Q24 with lower financial leases and hence lower interest expense.

Strong grip on its subs managing better ARPU; limited effects from TSEL Lite.

XL experienced little impact from Telkomsel’s new package in 1Q24, as it maintained its 57.6mn subs base (flat qoq), which generated larger traffic (+3.2%qoq, +18.4%yoy). XL delivered sequential ARPU improvement to Rp44k (+2.3%qoq/ 10.0%yoy) which mgmt. attributed to: a) last Nov.23 price improvements and b) removal of hidden subsidies in 1Q24. XL aims to onboard more subs on its digital app (30.3mn active users +1.1% qoq, +4.2% yoy) to sell better customized data plans for further ARPU increments.

XL planning for the longer term; AI tech offers XL topline/EBITDA upsides.

XL’s 2G BTS sequentially increased in 1Q24 to 54.8k (+750K qoq, 1,700k yoy) which bodes well with its reference for expansion in ex-Java with 10-12% more competitive pricing vs. TSEL. It utilizes AI to predict and choose the sites with the best return. Moreover, XL strategically aims the 5G spectrum (hence targets for the high band 26GHz) indicating that it has enough spectrum for 4G. This bodes well with the possibility of a merger with Smartfren who can contribute with low band spectrum.

Reiterate Buy on XL profitability momentum, with higher TP of Rp3,300

We reiterate Buy rating on EXCL at current 4.3x EV/ EBITDA on its improved profitability momentum. We revise FY24-26F est. by +34%/16%/7% to reflect a more optimistic revenue growth and EBITDA margin, and raise our TP to Rp3,300 from Rp3,000 prev.. Key risks is from seeking new footprints resulting into lower revenue and higher OPEX.

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