Integrated Networks And Digital Investments Will Expand Indonesia's Connectivity

Key Takeaways

• The company's expanded infrastructure and digital ecosystem enable strong network optimization, supporting growth in mobile data, ARPU, and future subscriber additions across Indonesia.
  
• Focused integration, operational efficiencies, and targeted digital investments drive higher margins, improved earnings, and position the company for long-term recurring revenue and digitalization opportunities.
  
• Persistent high costs, integration risks, declining ARPU, regulatory hurdles, and intense competition threaten XLSMART's profitability and ability to achieve sustained growth.

Catalysts

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

• The merger of XL Axiata and Smartfren has greatly expanded XLSMART's operational scale and spectrum holdings, enabling rapid optimization of infrastructure and nationwide coverage-this positions the company to capitalize on the continued surge in mobile data consumption across Indonesia, directly supporting top-line and ARPU growth.
  
• Accelerated network modernization and integration-evident in a record pace of site integration and national roaming activation-lays a strong foundation for future expansion into new areas (e.g., rural markets and previously underserved cities), in line with government-backed connectivity initiatives, which should drive future subscriber additions and long-term revenue growth.
  
• Substantial and ongoing operational synergies from the merger (USD 100–200 million in 2025, rising to USD 300–400 million annually post-integration) will reduce structural costs through network consolidation, vendor streamlining, and organizational efficiencies-supporting margin expansion and improved normalized earnings as integration costs subside.
  
• The increasingly rational pricing environment and early price adjustments-combined with growing digital engagement across the company's ecosystem of apps (41 million+ MAUs, with >50% of the user base transacting via owned platforms)-enhance monetization opportunities, foster ARPU resilience, and create stickier, higher-value customer relationships that should support stronger EBITDA and net margins as secular trends in fintech and e-commerce bundling build out.
  
• Targeted investment in digital platforms, home broadband, enterprise connectivity, and next-generation infrastructure positions XLSMART to capture future growth aligned with Indonesia's digitalization and IoT/smart city trends, shifting the company's revenue base toward more recurring, higher-margin lines of business over the coming decade.

XLSMART Telecom Sejahtera Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming XLSMART Telecom Sejahtera's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.2% today to 12.1% in 3 years time.
• Analysts expect earnings to reach IDR 6145.5 billion (and earnings per share of IDR 211.94) by about September 2028, up from IDR -429.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from -109.5x today. This future PE is lower than the current PE for the ID Wireless Telecom industry at 13.9x.
• 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 13.48%, as per the Simply Wall St company report.

XLSMART Telecom Sejahtera Future Earnings Per Share Growth

Risks

• The company faces sustained high capital expenditure requirements to modernize and integrate networks post-merger, which may pressure free cash flow and net margins, particularly as 2025–2026 CapEx will remain significantly elevated and the long-term trajectory for normalization is still unclear.
  
• Despite predicted synergy benefits, labor costs more than doubled due to integration of employees, and management indicated further headcount reductions will be needed; failure to execute these efficiencies or manage employee transitions could delay margin improvements and negatively impact earnings.
  
• Blended ARPU declined after the merger due to the inclusion of lower-yielding Smartfren subscribers, and while management expects ARPU to recover, secular shifts to lower-cost digital solutions and over-the-top services could further erode ARPU and revenue growth over the long term.
  
• The company is required to return the 900MHz spectrum by December 2026, incurring substantial accelerated depreciation and potential network restructuring costs; if replacement spectrum allocations or auctions do not favor XLSMART, network reach and future revenue could be impaired.
  
• Ongoing intense price competition and uncertain pace of market consolidation in Indonesia's telecom sector create risk that industry-wide profitability remains suppressed, potentially preventing XLSMART from achieving higher EBITDA margins or growing top-line revenues as projected over the long term.

Valuation

• The analysts have a consensus price target of IDR2727.955 for XLSMART Telecom Sejahtera based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be IDR50969.0 billion, earnings will come to IDR6145.5 billion, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 13.5%.
• Given the current share price of IDR2750.0, the analyst price target of IDR2727.95 is 0.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.