XL Axiata (EXCL.IJ Rp 2,270; BUY TP Rp 2,800) FY24 results: in-line, resilient 4Q24 performance while awaiting the next milestones in its merger

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XL Axiata (EXCL IJ)

FY24 results: in-line, resilient 4Q24 performance while awaiting the next milestones in its merger

XL posted strong 4Q earnings, with revenue growth driven by the new LINK subs and a resilient EBITDA margin, while mobile faced challenges.
XL strengthens its FMC with an IPTV channels, leveraging an inventory of 6mn HPs, and is open to deploying FWA and 5G to drive growth.
We take a more conservative stance on XL valuation, applying a 4.2x EV/EBITDA for 2025 alongside our DCF, leading to a revised TP: Rp2,800.

In-line earnings, but challenges persist

XL reported a 4Q24 net profit of Rp502bn (+72.2% qoq, +85.3% yoy), driven by revenue growth and a resilient EBITDA margin. Adjusting for the contribution of 750k fixed BB subscribers, mobile revenue appeared soft, attributed to: a) intensified competition, b) weaker purchasing power, and c) challenges from RT-RW WiFi players. Nonetheless, XL increased its traffic amid improved seasonality with steady ARPU. 4Q24 EBITDA stood at Rp4.52tr, with a 50.4% EBITDA margin (-180bps qoq), impacted by the LINK subs. Additionally, XL recorded Rp75bn in one-offs from merger costs and Rp71bn from minority losses. For FY24, XL's net profit totaled Rp1.82tr (+43.1% yoy), in-line with consensus and broadly in-line vs. our forecast. Revenue grew by +6.4% yoy, and the EBITDA margin increased by +280bps yoy. Meanwhile, pretax profit was below estimates due to one-offs, tax normalization helped offset the impact.

Bolstering FMC with IPTV, while preparing for the merger

XL showcases a full stack of linear channels as part of its IPTV solution and FMC strategy. The company firmly stated that it will adhere to this approach, leveraging its inventory of 6mn homepasses (with 1mn subs to date). Additionally, XL has expressed openness to new technologies, including FWA and 5G, to drive Fixed BB subscriber growth, and indicated it would evaluate bidding for the 80MHz spectrum block allocated for fixed wireless. XL is also considering the launch of a new brand to target the lower-end market. Meanwhile, selling the minority in LINK remain on the table, while the XLSmart merger remains on track to commence in 3Q25.

Adopting a conservative Stance and revising XL valuation

While XL has not provided guidance for FY25, we take a conservative stance on expecting modest growth in XL mobile, with upsides mainly from fixed BB. As a result, we revised down our FY25-27 earnings by -30%/-31%/-33%, for now still excluding any potential upside from the upcoming merger. We adjust our valuation to apply 3yr average EV/EBITDA of 4.2x for FY25, 5yr revenue CAGR of 3.4% and an avg EBITDA margin of 48.6%. This leads to our new TP of Rp2,800. We maintain our BUY rating on an undemanding valuation.

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