Comprehensive Analysis of XL Axiata and Other Key Companies
Date: December 12, 2024
Broker: PT Maybank Sekuritas Indonesia
Overview of XL Axiata’s Strategic Moves
XL Axiata, Indonesia’s third-largest mobile network operator, has recently announced a significant merger with Smartfren, forming a new entity called XLSmart Telecom Sejahtera. This merger is expected to transform the competitive landscape of telecommunications in Indonesia, with XLSmart poised to become a formidable player.
Details of the Merger
The merger values XL Axiata (EXCL) at IDR2,350/share and Smartfren (FREN) at IDR25/share. Both Axiata and Sinar Mas will hold equal shares of 34.8% in the merged entity, with Sinar Mas acquiring an additional 13.1% stake from Axiata for up to USD475 million. The merger is expected to complete by mid-2025, with the effective date set for April 15, 2025.
Strategic Implications
The merger will enhance XLSmart’s position in the Fixed Mobile Convergence (FMC) market, leveraging Axiata’s international bandwidth and Sinar Mas’ local network capabilities. Management anticipates synergies of USD300-400 million in the next 3-5 years, driven by a 20-30% reduction in network sites.
Financial Performance and Projections
XL Axiata is forecasted to see a revenue CAGR of 6.2% from FY23 to FY25, reaching IDR38.7 trillion. The company aims to maintain an EBITDA margin of 52% by FY25-26. Despite a high gearing ratio of 2.7x in FY25, the merger is expected to boost profitability and competitiveness.
Investment Recommendation
Maybank Sekuritas Indonesia maintains a BUY rating on XL Axiata with a target price of IDR3,200, reflecting a 44% upside potential. The anticipated synergies and improved market position post-merger justify this optimistic outlook.
Environmental, Social, and Governance (ESG) Initiatives
XL Axiata is committed to sustainability, with goals to reduce carbon emissions by 45% by 2030. The company has implemented green energy initiatives, such as solar panels and energy-efficient base stations, to support this target.
ESG Performance
With a medium risk score of 27.8, XL Axiata is actively addressing environmental and social issues. The company has increased the percentage of women in its workforce to 30% and has enhanced employee training hours significantly.
Comparative Analysis of Other Key Players
Axiata Group
Axiata Group, a major shareholder in XL Axiata, has been involved in multiple mergers in different regions. However, its track record has shown mixed results, highlighting the challenges of integrating diverse operations.
Telkom Indonesia (TLKM IJ)
Telkom Indonesia remains a dominant player in the FTTH market with its IndiHome product. The company is expected to continue leveraging its strong domestic network to maintain its leadership position.
Indosat (ISAT IJ)
Indosat has successfully merged with Hutch in early 2022, resulting in positive revenue growth and improved market share. The merger has enhanced its competitive standing in the Indonesian telecommunications market.
True Corporation
True Corporation’s merger with DTAC in Thailand has been successful, with the company retaining its TDD spectrum and planning further expansion in the region. The merger has resulted in discernible synergies and market growth.
Conclusion and Future Outlook
The merger between XL Axiata and Smartfren is a pivotal development in the Indonesian telecom sector. With strategic partnerships and a clear focus on sustainability, XLSmart is well-positioned for future growth. Investors are advised to consider the long-term benefits of this merger and the potential for enhanced shareholder value.
