Telco
Navigating the 3Q24 Soft Season Challenges and Capitalizing on 4Q24 Opportunities
- TSEL moderates its TSEL Lite promotions and 30-day 6GB packs to avoid downtrading amid soft outlook, and in turn, soften the competition.
- We continue to see pathways for ARPU upsides for IOH through online/ offline channels and for XL through its recent price increases.
- We believe telcos are equipped to meet our FY24 and FY25-26 est. We maintain OW rating with top picks ISAT and TLKM.
Strategic Approaches to Ensure ARPU Stability and Upside in 2H24
In what is traditionally a soft 3Q for data traffic, TSEL has shifted away from offering 30-day 6GB quotas to avoid subscriber concentration in lower denominations. Additionally, both TSEL and IOH assured that subscriber acquisitions account for <5% of their respective revenue capacity, thus protecting growth from competition risks. Consequently, we anticipate the sector’s revenue may decline by -0.5% to -1.0% qoq in 3Q24 amid soft consumer spending conditions. However, we expect IOH and XL to maintain ARPU upsides for 60% and 45% of their bases, respectively, to support growth outlook, and for TSEL’s CVM engine to support ARPU stability. Hence, we project the sector to grow by +1.5% to +2.0% qoq in 4Q24.
TSEL Strategy Update: Adjusting Promotions to Mitigate Downtrading
For TSEL, we observe: a) the promotion of 30-day 6GB Sakti packs in the Rp11-21k range is noticeably absent compared to 2Q24. TSEL's CVM strategy will steer clear of low-quota pack promotions to mitigate the risk of significant downtrading amid weak market conditions; b) a moderated promotion of TSEL Lite, which has been absent from TSEL’s website since Jul24. Consequently, we believe market intensity for TSEL in 3Q24 is unlikely to exceed that of 2Q24, where it experienced flattish subscriber growth.
IOH's Growth Enhancement Strategy: App Promotions and eSIM Offers
IOH’s "Hot Promos" available in its app, averaging c.15 offers/sub, are designed to enhance ARPU outlook, potentially increasing it to Rp55k (the level guided by IOH for app purchases), vs. 2Q24 blended ARPU of Rp38.4k. Additionally, we deduce that subs purchasing through other channels are averaging ARPUs of Rp30k and below. Concurrently, IOH promotes growth by offering starter pack eSIM at Rp25k/ 4GB, with the eSIM available online.
XL Announces 5% Nationwide Price Increase: Focus on Inelastic Subs
XL confirmed a nationwide average price increase of 5% for its packages. It added 900k subs in 2Q24, but we expect these new additions will require time to mature in terms of monetization. As we navigate a subdued demand period, we anticipate that the price increases will be selectively applied to the inelastic segment in its subscriber base across its distribution channels.
Maintain OW rating; preferred picks are ISAT and TLKM
We expect Telcos to navigate the soft 3Q24 season and capitalize on the opportunities in 4Q24. Thus, we expect TLKM/IOH/XL to deliver revenue growth of ~+1.5-2%/+10%/+8% yoy for FY24, potentially meeting our and consensus estimates. We maintain our sector OW rating, with ISAT (Buy, TP Rp13,300) as our top pick due to its significant monetization upsides, and TLKM (Buy, TP Rp4,250) due to its attractive valuation. The main downside risks are prolonged soft demand and reemergence of price competition.
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