DEPOK (eNBe Indonesia) - Shares of cellular service provider XL Axiata (EXCL) ended substantially higher by 4% on Monday (Feb 20) even when the company reported weaker net Profit.
XL Axiata, third largest player behind Telkom (TLKM) and Indosat (ISAT), booked Profit attributable to owners of Rp1.1 trillion in 2022, declined 15.4% year on year (y/y) as expenses rose 10.6% y/y to Rp25 trillion, while revenues grew 8.9% y/y to Rp29.1 trillion.
The last quoted price (Rp2,340) reflected PE multiple 23 and valued slightly below equity as investors anticipate further pressure from squeezed margins in the short-medium term whilst higher ARPU recorded last year.
Earlier its peer, Indosat Ooredoo Hutchison (ISAT) also reported a 21.7% y/y decline in Profit attributable to owners in 2022, at Rp5.37 trillion in 2022, as expenses jumped 71.4% y/y to Rp36.1 trillion.
ISAT’s revenue grew 48.7% y/y to Rp46.75 trillion, but this was a result of merger between Indosat and Hutchison 3.
On expenses for XL, interconnection and other direct expenses jumped 87.6% y/y to Rp2.87 trillion. Salaries and employee benefits expenses increased 18.2% y/y to Rp1.3 trillion. Finance costs also rose 16.6 y/y to Rp2.8 trillion.
On revenues, data and digital services contributed Rp26.5 trillion (up 8.1%), voice and SMS contributed Rp1.05 trillion (down 23.1%), and interconnection & other telecommunication services (bundled packages) contributed Rp1.36 trillion (up 43%).
XL also focuses on reducing its debt as it has raised Rp4.9 trillion from offering new shares (rights issue).
The Company said it has paid debt of Rp3 trillion. Per December 2022, XL’s short term loan reached Rp5.3 trillion and long term loan reached Rp2.4 trillion. While Sukuk Ijarah accounted for Rp2.4 trillion and bond debt amounted Rp1.8 trillion.
XL has made an early debt repayment which has the potential to reduce interest expenses by up to around Rp300 billion in 2023.
Said earlier debt payments was made in December 2022 and January 2023–to MUFG Bank, Ltd with a principal balance of Rp900 billion, Bank Central Asia (BBCA) Rp1.2 trillion and Rp900 billion, PT Bank UOB Indonesia Rp360 billion, Bank Permata (BNLI) Rp990 billion and Rp650 billion.
XL’s assets reached Rp87.3 trillion as December 31, 2022, with free cash flow jumping by 94.7% y/y to Rp5.18 trillion. XL allocates capital expenditure (capex) of Rp9 trillion for 2022, used to fund the development of network and to boost revenues.
For this year, XL allocates Rp8 trillion for capex. Last year, XL’s 2G and 4G BTS reached 144,768 BTS, while BTS 4G totaled 91,632 4G units. BTS 4G increased 19% y/y in 2022, with the level of connectivity to the fiber optic network reaching 54%.
XL’s users reached 57.4 million, with blended ARPU (average revenue per user) at Rp40,000, higher than previous Rp37,000.
Also a concern for XL is the debt-funded acquisition of a majority stake in Indonesia’s second-largest fixed broadband operator Link Net (LINK) in June 2022.
XL and its parent Malaysia-based Axiata Group Berhad have acquired 20% and 46% stakes, respectively, in Link Net for a total consideration of Rp8.7 trillion.
This acquisition will worsen XL’s net debt to Ebitda. But said acquisition might help XL to realize some cost synergies through sharing of backbone and transmission network and bundling of mobile and fixed broadband services. Time will tell, of course.***