Smart Network Buyout

In our previous sales notes, we favored EXCL over TLKM, and the reasons behind this preference are substantial. 

EXCL, through a series of strategic acquisitions and smart maneuvers, is not just aiming to be a major player but to become the market leader in the telecommunications sector. 

Recently, EXCL made bold moves by acquiring not only FREN but also LINK's network, showcasing their serious commitment to expanding their coverage and capacity. 

The acquisition of 750,000 B2C customers from LINK at an impressive transaction value of IDR 1.87 tn is a testament to EXCL's forward-thinking vision. This story is not just about numbers, but about a daring future vision.

Source: Sucor Research

EXCL not only expands its customer base but also secures the right to use LINK's network, covering 3.3 million homes for the next 10 years, with an option to extend for another 5 years. This isn't just a customer acquisition but a strategic move to strengthen their infrastructure. 

Imagine paying IDR 120,000 per connected home up to a penetration rate of 25%—after which the cost drops to IDR 80,000. It's a smart strategy to maximize investment. 

This decision, driven by EXCL's limited cash availability of IDR 1.15 tn, led them to rely on debt financing. This shows a carefully calculated move, leveraging available resources for maximum growth.

Comparing this to previous industry deals, ISAT acquired over 330,000 subscribers from MNC Play with a customer acquisition cost of IDR 2.7 mn, EXCL's acquisition cost of IDR 2.5 mn seems like a worthwhile bet, given LINK's high ARPU of IDR 324,000 per month—well above the industry average.

Following this transaction, assuming there is no significant loss of Linknet customers, EXCL's FBB customer base will exceed 1 million. 

They will not only become the second-largest FBB player but are also expected to generate an additional IDR 325 bn in revenue by 2024.

Source: Sucor Research

But the story doesn't stop here.

EXCL's consistent strategy through mergers and acquisitions, including FREN, shows they are not just aiming to survive but to dominate.

With a potential customer base of around 95 million and a combined ARPU of IDR 36,000, they are building an impressive future. As of 1Q24, EXCL's ARPU remains at IDR 45,000.

Source: Sucor Research

Another potential highlight is the reduction in net gearing, which could drop to 1.2x, indicating a strong financial management plan. Currently, net gearing is at 1.7x.

Source: Sucor Research

However, every story has its challenges. 

There is a risk that upcoming merger developments might not be well-received by investors, potentially impacting the stock price negatively.

During periods of ARPU growth, higher-than-expected churn rates could occur, potentially reducing the number of paying customers.

With strengthened financials and a large customer base, optimism defines the next chapter in EXCL's story. 

Our analysts recommend 'BUY' for their stock with a target price of IDR 3,500.

EXCL's story is a modern epic in the tech world—a saga of ambition, strategy, and an unlimited vision for the future. It's a lesson for us all that in a changing world, the fastest and most adaptable will lead.