COMPANY_NOTES EXCL_20110810

1H11 Results: Focus in Data Business


Following the publication of 1H11 results, we altered down our earnings estimates, factored in lower Data revenue this year (from Rp7.7tn in our previous estimates to Rp7.3tn currently), and also taking into account higher capex. Our revised earnings of revenue of Rp18.3tn vs Rp18.9tn previously, with WACC 10.4% and LTG 2%, results in lower TP of Rp6,700/share (previously of Rp7,250). Meanwhile, adjusting for the latest trend of growth in Data businesses, EXCL increased its capex guidelines from Rp5triliun to Rp6triliun, and around 50% will be spent in 3G. Data segment is a lower margin products as compared to the SMS segment and Voice, hence sufficient volume that requires capacity must follow to maintain profitability. We estimate 11% earnings growth this year: note our estimates is at the lower end of that of consensus’.

The share price has fallen by 10% since our recent note reflecting, in our view, YoY growth this year. At yesterday’s closing price of Rp 5,350, EXCL is trading at 5.6X 2011E EV/EBITDA falling to 5.4X 2012 EV/EBITDA, and 14.1X 2011E PER falling to 13.5X 2012E PER. In terms of PEG Ratio 2011, at present, at 1.77 EXCL commanded favorably to TLKM at 2.36.

Data Business. Revenue from Data and Value Added Service in 1H11 continued contributed importantly, +47% YoY, and +13.6% QoQ . In 2Q11, growth from Data represented the highest, while Voice and SMS experienced a negative growth of 0.7%, and 2.2%, QoQ, respectively. Alert of the trend, EXCL revised up its capex plan for this year, from Rp5tr previously to Rp6tr, of which more than half will be spent for data /3G services vs. only around 30% on the previous guidance.

Tariff and Network Quality No Longer Strategic Weapons. At present, EXCL has managed to monetize minutes through stable tariff. EXCL, also open up, all of its tower for lease for other phone operators, adopting the view that network scope no longer competition factor. Thus, at present, to beat competition, we understand EXCL, is at the stage to optimize customers’ experiences through its products portfolio by means of right marketing strategies and efficient and quality network.

Recommendation. At a PEG ratio lower than that of TLKM, EXCL valuation is not demanding. We favor EXCL plan to accelerates capex plan on Data businesses. In view of its track record to implement strategies for growth we maintain our BUY recommendation with target price of Rp 6,700/share.