HLIB Research said moving forward, other potential corporate exercises that can unlock values include tower asset and digital businesses listings.
PETALING JAYA: Axiata Group Bhd
’s Indonesian unit PT XL Axiata Tbk has beat earnings expectations in the first quarter of 2024, says Hong Leong Investment Bank Bhd (HLIB) Research.
The research house noted that XL delivered 547 billion rupiah in core profit, accounting for 34% of street full-year estimates.
HLIB Research said the stronger-than-expected earnings before interest, taxes, depreciation and amortisation (ebitda) margin and lower-than-expected tax rate contributed towards the positive results.
Quarterly, its turnover was flat at 8.4 trillion rupiah as the expansion in data and digital services was offset by weaknesses in others.
Data and digital services revenue gained 2% to 7.8 trillion rupiah and accounted for 93% of the first quarter of 2024’s total revenue, while ebitda’s margins added four percentage points which led to an 8% improvement.
For its year-on-year results, the 12% increase in top line was due to the data revenue’s 13% growth, while ebitda grew by 24% to 4.5 trillion rupiah.
Its bottom line grew 168% despite higher depreciation and amortisation.
On its subscriber front, both prepaid and postpaid average revenue per user (Arpu) improved to 43,000 rupiah and 89,000 rupiah, respectively.
“With the improved coverage and more affordable device bundle offerings, data users generated total traffic of 2,609PB in the first quarter of 2024 (1Q24), 3% quarter-on-quarter (q-o-q) and 18% year-on-year (y-o-y),” HLIB Research said.
HLIB Research added the telco group will continue to invest with the aim of providing high-quality Internet services, particularly by expanding 4G coverage.
“It has added 135,000 4G nodes y-o-y while shutting down 3G footprints.
“This brings total base stations to around 163,000 with 62% of sites being fiberised versus 55% fiberisation in 1Q23,” it noted.
HLIB Research said moving forward, other potential corporate exercises can unlock values include tower asset and digital businesses listings as it expects its capital expenditure to be around eight trillion rupiah for FY24.
“We expect revenue growth to be a high single digit while its ebitda margin to be at 50%.
“We believe that the CelcomDigi merger will reward Axiata in the longer term but regulatory and economic risks are a concern.”
HLIB Research reiterated its “hold” call on Axiata with an unchanged target price (TP) of RM2.71 for its strength in regional exposure, which could deliver good growth potential.
Meanwhile, Kenanga Research said it will maintain its “outperform” call on the group for its plans to deleverage and strengthen its balance sheet as the group continues to identify growth prospects for digital telcos and tower assets in emerging markets.
It also added the group had strong asset monetisation prospects for edotco and its digital businesses.
In a note, Kenanga Research said PT XL Axiata Tbk’s y-o-y earnings tripled as data demand surged, while it was also boosted by lower sales and marketing expenses due to improved sales channel mix.
Despite a slight contraction in top line q-o-q, sequential losses at 20% associate Link Net more than halved to 110 billion rupiah.
The research house said to recap, last year in December, XL Axiata and Link Net underwent a structural transformation.
This entailed the upcoming transfer of Link Net’s 750,000 residential subscribers to XL, and the rollout of an additional two million new home passes by Link Net for XL.
“This is aligned with the group’s delayering strategy where XL becomes a ServeCo and Link Net transforms to a FiberCo.
“As ServeCo, XL will offer fixed-mobile converged offerings, whilst Link Net as FiberCo will focus on delivering eight million home passes to XL by 2026,” it noted.
“We also maintain our sum-of-parts TP of RM3.
“Our risks include the strong US dollar weighing on the performance of its digital telcos at frontier markets, gestational earnings and cash flow drag from Link Net’s aggressive expansion and capital expenditure upcycle from the looming implementation of 5G in Indonesia,” it added.
