5G Rollout And Digital Trends Will Spark New Opportunities

Key Takeaways

• Accelerated digitalization, network optimization, and integrated service offerings are expected to drive both significant margin expansion and outsized top-line growth.
  
• Strategic investments in 5G, bundled services, and digital channels position XLSMART for greater customer retention, stronger pricing power, and sustainable operational advantages.
  
• Slowing organic growth, heavy competition, rising costs, and technological disruption threaten revenue stability, profitability, and financial sustainability due to market saturation and operational challenges.

Catalysts

Provides telecommunication, telecommunications network, and multimedia services for consumers and businesses in Indonesia.

• While analyst consensus expects USD 300-400 million in annual cost synergies from network consolidation, a more bullish view is that enhanced digitalization and accelerated rationalization of up to 20% of tower assets could enable XLSMART to exceed these synergy targets, fundamentally transforming its cost structure and driving faster-than-expected EBITDA margin expansion and improved net earnings.
  
• Analysts broadly agree that ongoing integration of First Media and fixed-mobile convergence (FMC) will drive addressable market and ARPU growth, but this may be understated-XLSMART's multi-brand strategy and disciplined quality subscriber acquisition could catalyze a rapid step-change in ARPU uplift and customer retention, unlocking outsized top-line revenue growth as digital adoption accelerates.
  
• XLSMART's aggressive investment in 5G and high fiberization rates, combined with the surge in smartphone and IoT adoption across Indonesia, position it to gain a disproportionate share of surging data demand-this creates a long runway for double-digit revenue growth from both consumer and enterprise segments as mobile usage and connected devices proliferate.
  
• The digitization of distribution, self-care, and engagement channels such as MyXL and AxisNet is driving scalable operational leverage that can materially lower customer acquisition cost and support sustained margin improvement and higher free cash flow conversion over the long term.
  
• Ongoing industry consolidation and rationalization is paving the way for a healthier pricing environment, which, when combined with XLSMART's expanding suite of bundled services (including fintech, content, and cloud solutions), supports structurally higher ARPU, greater customer stickiness, and robust earnings growth well ahead of current market expectations.

XLSMART Telecom Sejahtera Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on XLSMART Telecom Sejahtera compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming XLSMART Telecom Sejahtera's revenue will grow by 16.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.8% today to 6.3% in 3 years time.
• The bullish analysts expect earnings to reach IDR 3413.4 billion (and earnings per share of IDR 213.8) by about July 2028, up from IDR 1662.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 31.6x on those 2028 earnings, up from 28.5x today. This future PE is greater than the current PE for the ID Wireless Telecom industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 1.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.58%, as per the Simply Wall St company report.

XLSMART Telecom Sejahtera Future Earnings Per Share Growth

Risks

• Market saturation and weak consumer purchasing power in Indonesia, combined with broad smartphone penetration, are already leading to slowing or even declining organic revenue growth, which directly pressures top-line revenues.
  
• The company's recent quarter showed that revenue growth was only achieved through the acquisition and integration of First Media, and without this inorganic boost, core revenues would have declined approximately five percent year over year, indicating a secular challenge to sustainable revenue growth.
  
• Increasing competition and ongoing price wars are resulting in lower ARPU and compressed industry margins, as evidenced by management's discussion of ARPU pressure and the prevalence of highly promotional SIM card arrangements, threatening long-term profitability.
  
• Elevated capital expenditure requirements for network integration, spectrum auctions, and ongoing 5G-to-6G upgrades-coupled with continued negative free cash flow-raise the risk of margin erosion, higher leverage, and potential refinancing difficulties, all of which threaten earnings growth and dividend capacity.
  
• Rapid technological shifts, such as the rise of OTT and non-traditional competitors, alongside low brand differentiation and over-reliance on a single geography, heighten the risk of customer churn, structural revenue erosion, and earnings volatility in future periods.

Valuation

• The assumed bullish price target for XLSMART Telecom Sejahtera is IDR3991.65, which represents two standard deviations above the consensus price target of IDR2619.76. This valuation is based on what can be assumed as the expectations of XLSMART Telecom Sejahtera's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR5000.0, and the most bearish reporting a price target of just IDR1625.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be IDR54074.4 billion, earnings will come to IDR3413.4 billion, and it would be trading on a PE ratio of 31.6x, assuming you use a discount rate of 12.6%.
  
• Given the current share price of IDR2610.0, the bullish analyst price target of IDR3991.65 is 34.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.