XL Axiata and Indosat Sign Deal on Network Equipment Sharing. More Tie-Ups to Come.

The Urge to Merge - EM Telcos Look at Consolidation

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Thematic (Sector/Industry)

Indonesia Telecom services / Thematic (Sector/Industry)

<a href="https://www.smartkarma.com/entities/15028" target="_blank" data-smartkarma-citation="entities:15028">Xl Axiata Tbk Pt</a> (XL Axiata) returned to positive revenue growth in 4Q15 helped by voice pricing, rather than data pricing. We do expect data prices to increase from here but in any case data remains the main driver of growth. Data traffic was up +50% YoY leading to data revenue growth of +29.6% YoY. Our bullish expectations for Ebitda margins were exceeded, rising 150bps sequentially to 39% (NSRe: 38.5%). Further improvements in margins are expected given the XL/ Indosat 4G network sharing agreement.The  announcement of a rights issue to pay off US$ debt helping to further improve the balance sheet.We are positive on the Indonesian telecom sector and this result is evidence of market repair being underway. We look at the potential for network sharing in Indonesia and believe the potential benefits are significant. There are country specific reasons to think this is so. While Indonesian telecoms seem to be a consensus BUY right now we believe network sharing benefits are larger than many realize. A move to a sustainable growing industry (again) can driven earnings and multiples higher. A virtuous circle can be created with sufficient investment to meet the government's own digital goals.

Xl Axiata Tbk Pt (XL Axiata) returned to positive revenue growth in 4Q15 helped by voice pricing, rather than data pricing. We do expect data prices to increase from here but in any case data remains the main driver of growth. Data traffic was up +50% YoY leading to data revenue growth of +29.6% YoY. Our bullish expectations for Ebitda margins were exceeded, rising 150bps sequentially to 39% (NSRe: 38.5%). Further improvements in margins are expected given the XL/ Indosat 4G network sharing agreement.The  announcement of a rights issue to pay off US$ debt helping to further improve the balance sheet.We are positive on the Indonesian telecom sector and this result is evidence of market repair being underway. We look at the potential for network sharing in Indonesia and believe the potential benefits are significant. There are country specific reasons to think this is so. While Indonesian telecoms seem to be a consensus BUY right now we believe network sharing benefits are larger than many realize. A move to a sustainable growing industry (again) can driven earnings and multiples higher. A virtuous circle can be created with sufficient investment to meet the government's own digital goals.

XL Axiata: Back to Growth in a Recovering Market. Network Synergies Will Be Signifcant.