THE COMPANY: The Report: Indonesia 2010 indicated that XL Axiata’s (EXCL) positive growth in the first half of 2010 would provide a clear picture of the company’s future. On the back of strategic initiatives, EXCL recorded revenue increases in 2010, which helped to improve share values. EXCL’s total revenues for 2011 grew 27.1% year-on-year (y-o-y) to Rp17.63trn ($2.12bn) compared to 2010. Voice calls contributed 47.95% to total revenue, equalling Rp8.45trn ($1.01bn). SMS revenue was 19.71% of EXCL’s total, earning Rp3.47trn ($416.4m). Promotional tariff plans, tariff optimisation and a number of SMS promotional programmes helped increase EXCL’s total cellular revenue by 26.47% to Rp16.15trn ($1.94bn). The development of social networking applications, such as Facebook and other instant messaging services, served to increase data revenues by approximately 4.15% y-o-y.
DEVELOPMENT STRATEGY: The continued development of business strategies has allowed EXCL to maintain its positive growth into 2011. A key contributor to this has been EXCL’s efforts to maintain market relevance. The company launched a programme called XL go! — a portal for mobile internet access — in 2010. Data and value-added services increased by 85% y-oy to around Rp2.33trn ($279.6m).
New services have been introduced to attract new customers, as well as retain their existing customers, by providing services such as music downloads. XL Music Live and XL Cuaps are two of the products that offer a new mobile internet experience. One of EXCL’s most popular value-added services is XL RBT, which won an award from Sony Music in the category for most downloaded ringback tones.
Another popular programme introduced by EXCL has been free international roaming for its Blackberry services in seven countries, such as Japan, Hong Kong and Singapore. This service allows EXCL’s existing Blackberry users to automatically use their devices in the seven destination countries without the interruption of having to make changes to complicated settings.
Moving forward, voice business will continue to become the firm’s major growth driver. With the steady growth of non-voice business, particularly from data and value-added services, total cellular business could potentially record an upside revenue of 11.69% y-o-y to Rp16.15trn ($1.98bn).
Historically, non-voice revenue has played an important role in mobile revenue growth. In the past five years non-voice has registered a compound annual growth rate (CAGR) of 27.75%, from around Rp2.24trn ($268.8m) to around Rp5.96trn ($715.2m) by the end of 2010. The business segment is seeing excellent growth and contributes more to non-voice profit each year. In 2008 business contributed 27.82% to profits, rising to 36.94% by 2010. With strong promotions and product bundling packages, it is estimated that 2011 will finish stronger than 2010. The business segment has been projected to potentially record growth of 23.55% y-o-y to Rp6.75trn ($810m).
OUTLOOK: EXCL’s delivery of promotions, continuing cost-efficiency implementation and network expansion should contribute to further mobile business growth in 2011. EXCL’s lower debt-to-equity ratio should ease pressure on the company’s interest expense payments. Additionally, EXCL’s strong brand equity will help the company maintain its market share and increase its revenue and customer base.
Forecasts indicate EXCL should record at least a low double-digit growth by the end of 2011, to Rp19.56trn ($2.35bn), in line with the consensus expectation of Rp19.77trn ($2.37bn), with a growing bottom line of around 20.16% to Rp3.68trn ($441.6m). With such historical growth — a registered net revenue CAGR of 22.99% and a net profit CAGR of 23.03% — it is expected that EXCL’s shares will be traded at a premium. With the increasing number of subscriber applications, such as Twitter, online games and ringback tone downloads, as well as the latest developments in technology that drive data consumption demand, the future of EXCL’s non-voice business and revenue growth looks bright.
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