XL Axiata (EXCL.IJ IDR 2.200 BUY.TP IDR 3.000) Expect strong revenue momentum and FCF generation to continue in FY24

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XL Axiata (EXCL IJ)

Expect strong revenue momentum and FCF generation to continue in FY24

We expect EXCL’s revenue momentum to continue in FY24; high single digit growth guidance is based on continuous ARPU improvement and homes connect.
We raised FY24-25F NP 18%/37%; we raised revenue but lowered EBITDA margin below 49% to account for stronger rollout of fixed BB.
We maintain Buy rating with unchanged TP: Rp3,000, implying 4.9x EV/EBITDA.

Going the extra mile in mobile with 4Q23 revenue growth.

XL 4Q23 revenue performed better than we and cons expected. XL attributed this to 2 substantial price increases applied during 2H23. Secondly, XL argues that its quality subs (buying reloads) increased vs. its rotational subs (buying starterpacks) effectively leading to more ARPU. We adopt this view as XL relies increasingly more on sales via apps (29.2mn users using myXL/Axisnet 4.4%yoy, ~51% of its subs). XL indicated that it outperformed the sector thus we reckon also that XL was more aggressive and gained revenue share in 4Q.

FY24 guidance; 4Q23 momentum can be carried over to 1H24 at least.

We adopt XL’s high single digit FY24 revenue growth guidance and we expect now 7.5%yoy growth vs. 5.5% previously. This is based on a) the effort to churn rotational subs to continue and generate higher ARPU b) XL’s 12% penetration in its 2mn home passes, implies ample capacity to grow organically without Linknet currently (can reach 50% in planned rollouts). XL guides EBITDA margin to be as in FY23, towards 50%, but the bar is still high in FY24 if we account for the growth in fixed BB (lower margin model).

Tight liquidity for 2 corporate actions, but XL still has CF headroom.

XL aims to buy LINK’s subs in 2Q24. XL may also need to buy spectrum soon (both 700MHx and 26GHz) if the presidential elections are concluded in the 1^st round and Kemkominfo proceeds with the auctions. XL’s CF could be tight, it has Rp1tr cash, and FCF ~Rp5tr after interest & tax (BRIDS FY24 estimate), but XL can raise debt with 2.7x ND/EBITDA currently. We thus estimate EBITDA margin to be below 49% in FY24-25 to account for spectrum.

Unchanged TP of Rp3,000: Higher revenue, but lower EBITDA margin.

XL’s liquidity is confined at the moment but it will go all-in for revenue (our 7.4% growth is on the safe side) to organically generate the required CF. We raised FY24-25F NP (estimates do not include effects of Linknet subs), reiterating our BUY call on EXCL with TP:Rp3,000 which implies 4.9x EV/EBITDA. Downside risk stems from high spectrum costs.

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