HLIB Research said Axiata's regional exposure with focus on emerging countries may deliver great growth potential.
PETALING JAYA: Axiata Group Bhd
’s Indonesian unit is expected to see robust prepaid average revenue per user (Arpu) and subscriber expansion through the second half (2H) of this year.
Citing a recent briefing, Kenanga Investment Bank Research noted the optimistic outlook on PT XL Axiata Tbk’s (XL) prepaid segment is underpinned by minimal churn from high-quality customers, personalised marketing powered by artificial intelligence (AI) on XL’s app, and ongoing implementation of AI-guided dynamic pricing in selected regions.
This should support the overall performance of Axiata, which owns 61.5% in XL.
Kenanga Research maintained its “outperform” call on Axiata, with an unchanged target price of RM3.
In the second quarter ended June 30, 2024 (2Q24), XL’s prepaid net adds surged sequentially to 868,000 from 141,000 in 1Q24, while Arpu expanded to 91,000 rupiah from 87,000 rupiah.
The increase in net adds was attributed to improvements in network quality by XL in regions where it previously had a low market share.
“Looking ahead, XL expects its prepaid base to remain resilient due to minimal churn, driven by the group’s ongoing efforts to attract high-quality customers,” Kenanga Research wrote in its report.
“Prepaid Arpu is expected to remain due to effective and personalised marketing powered by AI on XL’s app,” it added, noting existing users that downloaded the digital app saw a 15% to 20% increase in Arpu. As at 2Q24, own-app users reached 32.1 million after expanding by 5.1 million users year-on-year (y-o-y).
According to Kenanga Research, XL expects seasonally higher costs in 2H24 on the back of lumpy costs for annual regulatory fees for spectrum renewal; execution of certain enterprise projects, and year-end marketing campaigns.
On the other hand, it noted XL expects the 2024 effective tax rate to normalise to its guidance of 20% after it spiked to 23% in 1H24, given one-off adjustments following the finalisation of XL’s tax reporting in 2Q24.
“XL is cautious about weak macroeconomic indicators in 2H24, which may allude to growing financial pressure on the middle class,” it said.
“This may undermine XL’s ability to raise prices, as affordability concerns increase, alongside rising prices for food staples,” it added.
Meanwhile, Hong Leong Investment Bank (HLIB) Research reiterated “hold” on Axiata, with an unchanged target price of RM2.71. “We like its regional exposure with focus on emerging countries which may deliver great growth potential,” HLIB Research said.
“While we believe that CelcomDigi merger will reward Axiata over the long term, regulatory and economic risks are major concerns,” it noted, adding other potential corporate exercises that may unlock value included tower asset and digital businesses listings.
HLIB Research said XL’s core profit after tax of 490 billion rupiah, up 8% y-o-y for 2Q24, and one trillion rupiah, up 58% y-o-y for 1H24, came in above expectation, accounting for 56% of street full-year estimates.
“The positive surprise was thanks to stronger-than-expected earnings before interest, tax, depreciation and amortisation (Ebitda) margin,” it noted.
Overall, XL maintained its 2024 guidance of high single-digit revenue growth, Ebitda margin of around 50% and capital expenditure of eight trilllion rupiah.
