Indonesian Telcos: Merger of XL Axiata and Smartfren

Communications

New Street Research

While this deal has been well flagged, finally getting it done is positive and bodes well for overall Indonesian ARPU. Valuation of the combined entity is better than it might have been from an XL Axiata perspective. Synergies targeted appear surprisingly large and while the market is likely to be sceptical this means that there is significant potential upside if management can deliver, especially given the relatively low pre-synergy multiple (4.6X EV/EBITDA). New Street has a Buy rating on Indosat (TP IDR 3,125), Telkom Indonesia (IDR 4,500) and XL Axiata (IDR 5,000).

- 13 December, 2024

XL Axiata (EXCL IJ) & Indosat (ISAT IJ) Indonesia

Communications

New Street Research

XL reported a strong set of results with revenue and EBITDA ahead of consensus. As expected, mobile ARPU rose 7.7% Y/Y on the price increase in Q1, driven by prepaid. More positively, XL has upgraded top line guidance to high-single digit growth. ISAT also performed well during the quarter and upgraded its EBITDA guidance (as New Street had predicted it would). XL and ISAT’s mobile performance are indicative of a rational mobile market as operators look towards better monetisation opportunities. New Street's TP of IDR 5,000 for XL offers 100%+ upside and implies a valuation multiple of 6.2x FY24 EV/EBITDA, while their TP of IDR 11,000 for ISAT implies a valuation multiple of 5.5x FY24 EV/EBITDA.

- 04 August, 2023