XLSmart Telecom Sejahtera: Limited upside post-merger
- Merger completed and XLSmart launched in April 2025, with integration in progress
- FY25F/FY26F/ FY27F EBITDA forecasts raised by 3%/12%/48%, assuming phased synergy capture and integration costs
- Maintain HOLD with a TP of IDR2,800 and a ~4x 12-month EV/EBITDA
ROIC likely to be uneven through integration. ROIC is expected to bottom at 4.1% in FY25F. The step down reflects integration expenses and accelerated depreciation on legacy equipment weighing on earnings, while the larger asset base after the merger lifts invested capital ahead of the benefits, reducing capital turns and compressing margins in the near term. FY26F onward, we see a steady rebuild to 9.3% in FY26F, supported by site consolidation and lease savings, vendor harmonisation, and a single network and IT stack that lowers operating costs, better spectrum use that lifts capacity and service quality, and more sales and care through owned apps that raise ARPU and reduce churn and cost to serve. To push ROIC higher, EXCL should prioritise capital productivity over pure revenue growth by keeping network capex disciplined, deepening infrastructure sharing, selectively monetising assets, and leaning into FMC bundles and targeted enterprise offerings to lift revenue quality without heavy incremental capex. In short, ROIC dips with integration and then improves as synergies land and spending normalises.
Limited upside for XLSmart post-merger. We see the merger as a positive development for the industry, as it consolidates spectrum resources and reduces market fragmentation, paving the way for a healthier environment during the ARPU upcycle. That said, we remain cautious about the governance structure of the new entity. Unlike the Indosat-Hutchison merger, which benefited from Ooredoo’s significant ownership stake, which provided clear leadership and minimised conflicts, the equal ownership split between Axiata and Sinar Mas (34.8% each). This might introduce potential risks of a governance stalemate. EXCL’s decision to retain three brands (XL, Axis, and Smartfren) may prove operationally demanding compared to ISAT’s more complementary brand consolidation.
Management has guided USD100-200mn (IDR1.6tn-3.2tn) gross synergies in FY25F, rising to USD300-400m by FY26F. However, revised capex of IDR20-25tn is expected to be incurred throughout FY25F/26F according to the management. As such, we estimate IDR12tn in each of the FY25F/26F, below the consensus estimates of IDR17.8tn and IDR13.4tn in FY25/26F.
We revise FY25F/26F/27F revenue by +21%/+35%/+33% and EBITDA by +3%/+12%/+48%, reflecting Smartfren’s consolidation and early scale benefits from the merged platform. As per the revised estimates, we expect EXCL’s revenue and EBITDA to achieve +11% and +14% CAGRs, respectively, over FY25F-27F. We project FY25F revenue to rise 21% y/y, in line with management’s expectations, primarily driven by a ~48% y/y growth in total subscribers after the integration with Smartfren. We project FY25F EBITDA to rise ~3% y/y, consistent with management’s low- to mid-40% margin guidance, supported by early OPEX synergies and greater self-serve via own apps. This would be partly offset by integration costs and the initial Smartfren mix in the near term, with margins forecasted to reach 44% in FY25F and 45% in FY26F. Our revised capex estimates to IDR12tn in each of the FY25F/26F, consistent with management’s IDR20-25tn guidance throughout the FY25F/26F, reflecting continued investment in network integration and efficiency gains from the larger platform.
Maintain HOLD for EXCL with a TP of IDR2,800; earnings outlook challenged by potential dilution from the Smartfren merger. While the merger with Smartfren presents long-term strategic potential, we expect an earnings dilution in the near term. Smartfren posted a net loss of ~IDR1.3tn in FY24, approximately IDR325bn per quarter, enough to significantly offset EXCL’s 1Q25 standalone net profit of IDR385bn. Moreover, EXCL’s decision to retain three brands (XL, Axis, and Smartfren) may prove more operationally demanding compared to ISAT’s more complementary brand consolidation. Unlike Indosat-3, which combined two mass-market propositions under a unified distribution strategy, EXCL must bridge a gap between XL/Axis’s more premium positioning and Smartfren’s younger, lower-income target segment. This segmentation misalignment could complicate brand positioning, network migration, and distribution synergy realisation. EXCL’s share price has been more resilient, up 30% YTD, outperforming ISAT (-13%) and TLKM (+20%), despite delivering softer financial performance than ISAT, whose 2Q25 revenue and EBITDA declined 4% and 7% y/y, respectively. EXCL trades at a 5.0x 12-month forward EV/EBITDA, a premium to ISAT and just below TLKM, despite facing integration risks and monetisation headwinds. Management has guided USD100-200mn (IDR1.6tn-3.2tn) gross synergies in FY25F, rising to USD300-400m by FY26F. We maintain our HOLD call for EXCL, and our TP of IDR2,800 is based on a 4x 12-month EV/EBITDA, in line with EXCL’s five-year historical average.
FY Dec | 2Q2024 | 1Q2025 | 2Q2025 | % chg y/y | % chg q/q |
Revenue | 8,613 | 8,601 | 10,494 | 21.8 | 22.0 |
Cost of Goods Sold | (823) | (950) | (1,173) | 42.6 | 23.5 |
Gross Profit | 7,791 | 7,651 | 9,321 | 19.6 | 21.8 |
Other Oper. (Exp)/Inc | (6,397) | (6,301) | (9,376) | 46.6 | 48.8 |
Operating Profit | 1,394 | 1,350 | (55.2) | (104.0) | (104.1) |
Other Non Opg (Exp)/Inc | 32.4 | (83.1) | (743) | nm | 794.7 |
Associates & JV Inc | #,##0;(#,##0) | #,##0;(#,##0) | #,##0;(#,##0) | nm | nm |
Net Interest (Exp)/Inc | (765) | (744) | (1,067) | (39.4) | (43.3) |
Exceptional Gain/(Loss) | 0.0 | 0.0 | 0.0 | nm | nm |
Pre-tax Profit | 661 | 523 | (1,865) | nm | nm |
Tax | (171) | (135) | 258 | (250.7) | (291.4) |
Minority Interest | 0.0 | 0.0 | 0.0 | nm | nm |
Net Profit | 490 | 388 | (1,607) | nm | (513.8) |
Net profit bef Except. | 490 | 388 | (1,607) | nm | (513.8) |
EBITDA | 4,503 | 4,321 | 4,487 | (0.4) | 3.8 |
Margins (%) |
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Gross Margins | 90.4 | 89.0 | 88.8 |
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Opg Profit Margins | 16.2 | 15.7 | (0.5) |
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Net Profit Margins | 5.7 | 4.5 | (15.3) |
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