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EXCL - 4Q19 Update

EXCITING, AS IT SEEMS

In 2019, EXCL posted a revenue of Rp25.1T, grew by +9.6% (Y/Y) vs. that of 2018 at Rp22.9T and represented 98.5% of our FY19 forecast at Rp25.5T. EBITDA was recorded at 10T, falling short from our initial estimate at Rp10.2T (97.3%). However, expenses were indeed lower than initially expected, as operating income, in fact, exceeded our expectation (108.9% our FY19 estimate). Thus, bottom line, net profit stood at Rp713B, representing 108.3% of estimate, well above our forecast at Rp658B. 

 

TREND CONTINUATION

In 4Q19, EXCL revenue slipped -0.8% (Q/Q) from 3Q19 but actually grew +6.0% (Y/Y) from 4Q18, supported by robust data traffic growth at +39.7% (Y/Y), albeit we notice the falling data rate/GB. In our view, this poses no significant concern, as the muted data rate in 2019 was partially due to the price war after-effect. We believe the irrational pricing war is now over, as suggested by growing number of subscribers to 56.7 million from 54.9 million (+3.2% Y/Y) in 4Q18. The company, however, noted that several competitors had started to aggressively sell cheaper products, which in turn, partially slashed the data rate starting from the start of the second half last year. Therefore, going forward, fierce price competition in the market could become key risk to anticipate in 2020. Given so, although we are confident that EXCL could post another double-digit data traffic growth this year, we estimate data rate/GB to decline by around 9-10% (Y/Y).

 

MARGIN IMPROVEMENT

In FY19, EBITDA margin was seen to improve to 39.7% from 37.1% in FY18. This reflects the Company’s efforts to improve efficiency have already begun to take into effect, offsetting the falling data rate. Going forward, we estimate EXCL to record an EBITDA margin of 40.5% in 2020F, in line with the management guidance at low 40%. Bottom line, our projection for EXCL 2020F net profit stands at Rp1.04T (+45.8% Y/Y).

 

DONE DEAL!

As cited from information disclosure, EXCL agreed to sell 1,728 telecommunication towers to Protelindo, a subsdiary of PT Sarana Menara Nusantara, Tbk. (TOWR), with a total transaction value of Rp2,248B. According to our calculation, the average selling price stood at around Rp1.3B/tower, which was lower than ISAT’s offering price at around Rp2B/tower, earlier last year. The transaction is expected to conclude in 1Q20. 

 

VALUATION

We maintain our BUY recommendation with 12-month target price of Rp4,400/share (previous TP: Rp4,300/share). We arrived at the TP based on DCF (WACC: 9.6%, LTG: 3.0%) and EV/EBITDA multiple approaches of 6.0x, which is around its 3-year mean.

Tue February 11Th, 2020

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