Saturday May 29, 2010
By LEONG HUNG YEE
hungyee@thestar.com.my
PT XL Axiata Tbk is fast becoming one of the jewels in the stable of telecommunication assets within Axiata Group Bhd.
Over the last few years, it has executed its plans well and achieved phenomenal growth. It instigated a well thought-out price war in the Indonesian market, which saw it reap benefits not only in the form of increasing market share but growing its profit margins as well.
No wonder XL’s EBITDA (earnings before interest, tax, depreciation and amortisation) contribution to Axiata for the first quarter ended March 31, 2010, even tipped that of Celcom (M) Bhd.
XL contributed 46% versus Celcom’s 43%. Axiata owns 66% of XL.
Hasnul Suhaimi ... With the capital injection from TMI and now Axiata, the group was on its way to becoming the second largest player in Indonesia.
For its own first quarter ended March 31, 2010, XL’s revenue and EBITDA were up 42% and 92% to 4.2 trillion rupiah and 2.1 trillion rupiah respectively year-on-year.
Its profit after tax rose more than 100% in the same period.
The quarter also saw XL being the first operator in Indonesia to offer minutes, SMS and data access in a single bundle. Accordingly, XL saw subscribers rising by 31% year-on-year to 33 million.
According to president director Hasnul Suhaimi, the group had only 7 million subscribers back in 2005. Its subscribers have grown exponentially in the last four years.
“We’ve managed to grow our revenue three fold in the past four years with a revenue market share of 18% currently, closing the gap with Indosat,” he told StarBizWeek in an interview.
Hasnul pointed out that its EBITDA surged some 142%, in the last three years, outgrew the industry’s average of between 18% to 19%.
No surprise then, that XL’s shares have gained more than 82% in the last six months. It reached a high of 3,750 rupiah on May 14, its highest in at least four years.
Prior to Telekom Malaysia International’s (TMI, now known as Axiata) acquisition of XL in 2005, XL’s revenue market share stood at about 11% with 10 players in the Indonesian telecommunication sphere.
The market in Indonesia is currently dominated by Telkomsel – 35% owned by Singapore Telecom Mobile Pte Ltd and 65% by Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk.
Based on industry statistics, Telkomsel has 72.1 million customers, about 50% of the market.
Hasnul said with the capital injection from TMI and now Axiata, the group was on its way to becoming the second largest player in Indonesia.
“Our market share in terms of revenue could have easily slipped to 5% from 11% then. And maybe we would be number four today if not because of the capital injection and support of Axiata,” he said.
Hasnul expects to overtake second-placed rival Indosat this year, driven by strong subscriber and revenue growth.
Hasnul was appointed as president director of XL in September 2005. Prior to joining XL, he was president director of Indosat and was with PT Telkomsel earlier.
According to estimates, Indonesia currently has about 120 million SIM card users, accounting for a 50% of population penetration and 80% SIM card penetration.
Hasnul said XL currently had 90% geographical coverage in the country and still has excess capacity on its network.
He says XL had taken the decision to slow down its coverage and instead focus on deriving more value out of its existing capacity.
“We have about 9,000 towers combined and we also lease it to others. We also have some 200 BTS (base transceiver stations),” he said, adding that in 2009, XL raked in 600 billion rupiah from leasing its towers.
XL at one point was also mulling the possibility of selling its tower business in Indonesia, but Hasnul said there was no longer a need to do so.
He explained that due to new regulations, any sales of towers would have to be to a local incorporated owner thus the number of bidders dropped and that in turn no longer made it as viable to hive off its tower assets.
He said the average usage on a 24-hour period on its network was about 25% to 30% while it can reach 80% during peak hours.
He said XL was trying to push up its average usage to 40% to 50% by stimulating more traffic optimisation of its assets.
In 2007, XL caught the industry by surprised by dropping its call rate to 1 US cent on average on all minutes from 10 US cents previously. “Lot’s of customers signed up with us and traffic shot up by 30%,” Hasnul said.
He said many felt that XL had lowered its prices so drastically as it was desperate for subscribers.
“They thought we will stop after three months. But they did not know that we had done the numbers and all the preparatory five to six months prior.”
Hasnul explained that the pricing drop did not eat into profits and margins because costs were kept low and increasing volume helped nudge up earnings. Prices during non peak hours, when the network’s capacity was mostly idle, were the ones to have been reduced the most.
XL is also in the midst of securing additional telecommunications spectrum in Indonesia to accommodate its growth in the data market.
Hasnul said the group had secured the spectrum licence but was currently discussing with regulators for a right price.
Going forward, voice would still be growing but SMS may be flat while data would be an important segment, according to Hasnul.
XL’s data service revenue continued to grow in the quarter, with 124 million subscribers, contributing some 7% to total revenue, an increase of 58% quarter-on-quarter.
XL is currently the largest Blackberry distributor in Indonesia.
The group has also managed to lower its net debt to equity ratio of 1.2 times from 4.6 times a year ago and this was due to internally generated funds. XL had become cash flow positive since last year.
“We are comfortable with the current position and do not need to go to the market to raise cash,” Hasnul said.
On its key performance indicators, Hasnul said the group expects its revenue to grow at least in high teens, while EBITDA margin to grow at least in the high 40s.
Hasnul said the company would spend US$450mil to US$500mil on capital expenditure this year.
Capex would be funded internally and the money would mainly be spent to increase network capacity and improve the quality of service, he said.
For some years now, the general perception about XL is that it is more of a defensive play than a sexy growth story. However, the Indonesian telco still has plenty of growth prospects ahead.
Fund managers and analysts continue to like the XL growth story. They say that there was still room for growth in the Indonesian market, which means that for XL, being the third mobile operator, there was still “upside surprises.”
Morgan Stanley rated an overweight on XL, saying it was one of the fastest-growing telcos in Asia and still trades at an attractive valuation.
