Digitalization And 5G Rollout Will Energize Indonesia's Telecom Sector

Key Takeaways

• Accelerated integration, network modernization, and expanded coverage position XLSMART for faster-than-expected margin gains and robust top-line growth.
  
• Multi-brand, digital-first strategy and scalable platform uniquely enable the company to capture new revenue streams and drive long-term earnings resilience.
  
• Ongoing technological disruption, high capital needs, integration challenges, and demographic headwinds threaten revenue growth, margin stability, and long-term financial sustainability.

Catalysts

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

• Analyst consensus expects USD 300-400 million in annual cost synergies post-merger, but early integration outperformance and accelerated vendor renegotiations suggest XLSMART could exceed these targets, delivering margin expansion faster and potentially pushing normalized EBITDA margins well above pre-merger levels.
  
• While most analysts expect the addressable customer base to grow through integration and FMC offerings, XLSMART's rapid nationwide roaming rollout and the opening of 156 previously inaccessible cities to Smartfren subscribers sets the company up for a much sharper acceleration in both subscriber growth and ARPU uplift than currently modeled, materially boosting top-line revenues.
  
• XLSMART's sustained and above-market CapEx commitment is not just modernizing its network but is positioning the company as Indonesia's first truly scalable digital platform, poised to capture exponential growth in data demand and expand into untapped segments like enterprise solutions and home broadband-fueling multi-year revenue and profit growth.
  
• The company is structurally positioned to lead the convergence between telecom and fast-growing digital service sectors in Indonesia, leveraging its three-brand structure and digital apps with over 41 million monthly active users to capture cross-sector opportunities in e-commerce, fintech, and content-transforming digital engagement into high-margin, recurring revenues.
  
• XLSMART's uniquely large and efficient spectrum portfolio, combined with early network integration, media-optimized site deployment, and rural market expansion, offers the company operating leverage to capitalize on Indonesia's digitalization and rising middle class, setting up multi-year gains in both market share and earnings resilience as mobile data adoption accelerates.

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 14.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.2% today to 17.6% in 3 years time.
• The bullish analysts expect earnings to reach IDR 9625.1 billion (and earnings per share of IDR 517.89) by about September 2028, up from IDR -429.4 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 13.1x on those 2028 earnings, up from -103.6x today. This future PE is lower than the current PE for the ID Wireless Telecom industry at 13.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.49%, as per the Simply Wall St company report.

XLSMART Telecom Sejahtera Future Earnings Per Share Growth

Risks

• The accelerating shift to digital communication platforms such as OTT apps and VoIP is undermining traditional wireless revenue streams, which could lead to long-term erosion of average revenue per user and limit the company's ability to grow revenues and earnings.
  
• Heavy capital expenditure requirements for network modernization and integration, including the rollout of high-capacity infrastructure and future 5G/6G investments, are expected to significantly raise debt levels and strain cash flow, resulting in prolonged pressure on net margins and potential negative free cash flow.
  
• Demographic pressures in Indonesia, including high market saturation and slowing population growth in core urban areas, will reduce the pace of core subscriber additions and make it increasingly difficult for XLSMART Telecom Sejahtera to sustain top-line revenue growth over the long term.
  
• Integration risks remain elevated, as evidenced by labor costs more than doubling and ongoing uncertainty around ultimate staff rationalization, potentially resulting in higher than anticipated operating expenses and delayed realization of synergies, all of which could keep normalized earnings subdued.
  
• Market competition remains intense despite industry consolidation, with price-sensitive segments driving down ARPU and margins, while technological disruption from new entrants such as satellite internet or private 5G networks poses an existential threat to recurring revenues and earnings stability in future years.

Valuation

• The assumed bullish price target for XLSMART Telecom Sejahtera is IDR4120.53, which represents two standard deviations above the consensus price target of IDR2741.59. 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 IDR54600.6 billion, earnings will come to IDR9625.1 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 13.5%.
• Given the current share price of IDR2600.0, the bullish analyst price target of IDR4120.53 is 36.9% 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.