by BNP Paribas
Lower earnings forecast; revised TP: IDR6,600
We lower our EBITDA forecast for 2011-13 by 2.5-6.2%. XL’s three-year EBITDA CAGR is now 6.4% (previous: 8.7%). We have also factored in an increase in capex from IDR5t to IDR6t pa in 2011-13, in line with management’s latest guidance. As a result, our DCF-based TP is reduced by 9.0% to IDR6,600, offering 30.7% upside potential.
Lower Voice & SMS revenues but data growth is strong Voice and SMS revenues in 1H11 were below expectations. Key reasons: 1) loss of market share in the low-end prepaid segment, 2) shift in spending towards data, and 3) market maturity. For capex, XL will accelerate the roll-out of its data network coverage and upgrade the backhaul due to stronger-than-expected growth in the data business.
Trading at lower-end of historical EV/EBITDA trading band XL trades at 5.0x 2012E EV/EBITDA, which is a 5.8% premium to Indosat and a 6.1% discount to Telkom. Valuation is now at the lower-end of its 18-month trading band. Besides attractive valuation, we forecast dividend yield will rise from 2.1% in 2010 to 5.1% in 2013E. Downside risks are intense price competition and short-term cost pressures.
Overall, we forecast XL’s EBITDA will deliver a three-year CAGR of 6.4% (previous: 8.7%), which now ranks it behind Indosat (ISAT IJ, BUY) (three-year CAGR: +7.3%) but ahead of Telkom Indonesia (TLKM IJ, BUY) (three-year CAGR: +4.4%).
Higher capex to accelerate data network roll-out
During its 2Q11 results conference call, management raised its 2011 capex guidance from IDR5t to IDR6t.
This is due to acceleration in the roll-out of its data network coverage and upgrade of its transmission/backhaul network to support the stronger-than-expected growth in the data business.
Thereafter, we have assumed that capex remains steady at IDR6 tpa in 2012-13E.
While we sense an urgency to chase after data revenue opportunities, we believe XL’s management remains cognisant of the returns on its investments. In addition, we believe XL could also achieve additional capex savings in the next 12-24 months by entering into network sharing initiatives with industry players, particularly with regards to building out the transmission/backhaul network.
Revised TP of IDR6,600 offers 30.7% upside potential
On the back of our earnings and capex revisions, we have reduced our DCF-based TP by 9.0% to IDR6,600,which offers 30.7% upside potential. For our DCF calculation, we use a WACC of 10.9% (cost of equity: 14.4%, after-tax cost of debt: 6.0%) and a terminal growth rate of 3.0%. Our revised TP implies a fair 2012 EV/EBITDA of 6.3x.