EXCL - Focused on enhancing infrastructure capabilities

EXCL's FY22 EBITDA came in-line with ours/consensus’, as it grew 5.9% qoq in 4Q22. Nevertheless, lower net profit by 64.3% qoq in 4Q22 translated into FY222 net profit of IDR1.12 tn, or missed ours/consensus by 14.2%/13.0% given higher interconnection expenses, depreciation and finance costs. EXCL strives to push adoption of own apps to bolster growth, while further developing convergence through XL Satu. Maintain BUY, with a price target of IDR3,300, implying 3.4x 2023F EV/EBITDA, while it is currently trading at 2.5x, or slightly above -2SD 5-year historical mean. 4Q22 earnings dragged by higher finance costs EXCL booked an EBITDA of IDR3.86 tn in 4Q22, growing 5.9% qoq thanks to 4.9% qoq lower cash cost given to adjustment relating to tower rent negotiation. This brought 4Q22 EBITDA margin at 51.1% and translated into FY22 EBITDA of IDR14.2 tn, achieving 101.4%/100.4% of ours/consensus. The renegotiation, however, has also resulted in higher depreciation and finance costs by 12.1% and 27.6% qoq in 4Q22, respectively, pushing net profit down to IDR132 bn in 4Q22 or FY22 net profit to IDR1.12 tn which was 14.2%/13.0% below ours/consensus. Maintains stable ARPU despite tight competition Despite relatively flattish revenue growth of 0.4% qoq in 4Q22 to IDR29.14 tn, the figure represented 102.4%/101% of ours/consensus, as data revenue went down slightly. On the other hand, data traffic increased 3.0% qoq in 4Q22 in the midst of lower data yield to IDR3.2/MB, which indicated tightening competition during the quarter, on top of higher contribution from ex-Java. Despite the competition, EXCL managed to add c. 200K subs in 4Q22, while maintaining ARPU at IDR40K/sub, which, in our view, related to its customized product offerings. Betting on digital transformation With plans to exercise price hikes in coming weeks, management expects that revenue growth to be in line or better than industry. EXCL has been pushing adoption of AI-driven apps for myXL and Axisnet that so far managed to book a 62% yoy increase in MAU throughout 2022. The adoption of own apps allow subs to purchase personalized package including distinctive sharing features, which in our view, should be able to improve customer stickiness while optimizing ARPU. To improve infrastructure capabilities, EXCL strives to reach 60% of fiberized 4G BTS that is currently standing at 54%. The highly fiberized BTS are needed to enhance 4G service, incoming 5G and further develop convergence products whose penetration now stands at 37% through XL Satu. On fixed broadband, EXCL plans to exercise asset light strategy that enables it to be more capex efficient by synergies and backbone sharing. Reiterate BUY on hopes of improved competition landscape We maintain our BUY call with lower target price of IDR3,300 (previously: IDR3,650), implying 3.4 x 2023F EV/EBITDA within 5Y historical mean. We note several performance catalysts, namely 1) re-pricing potential amid improving competition; 2) EXCL's efforts to speed up convergence preposition and 3) digital transformation. Meanwhile, the downside risks include 1) stiff competition; and 2) higher finance costs.