XL Axiata eyes No 2 slot, dividend payout

JAKARTA: Indonesia's XL Axiata said today it expects to overtake rival Indosat this year as the No 2 mobile phone operator in Southeast Asia's biggest economy, driven by strong subscriber and revenue growth.

XL Axiata's president director Hasnul Suhaimi also told Reuters in an interview that dividend payments were likely to resume this year, following a return to profit in 2009, while any decision on increasing the free float was up to the shareholders.

Malaysia's Axiata Group Bhd owns 86.5% of XL Axiata, and Emirates Telecommunications Corp (Etisalat) owns 13.3%, leaving the public holding just 0.2%.

Such a tiny free float makes it hard for fund managers and retail investors to buy the stock. Now a turnaround in the firm's performance has generated more interest from the financial community at a time when political stability and strong economic growth have put Indonesia back on investors' radars.

"Most probably we will pay a dividend" for the 2009 financial year, subject to shareholder approval, Suhaimi said, adding that after making a profit in 2007, XL Axiata had paid out 20% of its normalised income in dividends.

Normalised income in 2009 was about half of net income — or roughly 850 billion rupiah (RM310 million). That would put a 20% dividend payout at about US$18 million (RM61.02 million).

As for selling shares in order to increase the free float, Suhaimi said that two years ago the Indonesia Stock Exchange had asked XL Axiata, which has a market capitalisation of US$2.55 billion, to lift its free float to 20%-25%.

"When, how, and how much is up to the shareholders," he said.

Nick Cashmore, CLSA's Indonesia country head, said investors had "waited for ages" for such a move and could lose patience.

Analysts say improved liquidity would be positive for the stock, which currently trades at a forward 2010 price-earnings ratio of 17.4 times, compared with 13.1 times for the index and 18.4 times for Indosat.

XL Axiata shares, up 45% so far this year, have outperformed the broader index, up just 1%.

This month, XL Axiata reported a better-than-expected net profit of 1.7 trillion rupiah on revenue of 13.88 trillion rupiah, after a loss of 15 billion rupiah in 2008, driven by a 20% surge in its total subscriber base to 31.4 million.

Now, Suhaimi said, the firm is targetting 34-35 million subscribers by the end of 2010.

That could put it ahead of Indosat, the number two player which currently has about 33 million subscribers, according to an analyst. PT Telekomunikasi Selular, or Telkomsel, which is controlled by PT Telekomunikasi Indonesia, is the market leader with 83 million subscribers.

Suhaimi, who spent most of his career at Indosat and was president director there before he moved to XL Axiata in late 2006, has promised US$1,000 incentives to staff to knock Indosat from its number two position.

But he said he pays closer attention to the cellular revenue and is within reach of matching Indosat on that measure.

When Suhaimi joined XL Axiata, he decided to slash prices as much as 90%, hoping to encourage subscribers to talk more on the phone. Traffic rose eight times within a couple of months, but the move sparked a vicious price war which is only just showing signs of ending.

"Now we are penetrating the lower end of the market. It's so cheap you get one (phone) for the children, buy one for your driver. But we can't drop the price more," he said, adding that the firm now uses voice, text messages and Internet packages, and bundling with low-price BlackBerry lookalikes to lure customers.

"Now the growth has to come from data and content," he said, adding "we expect to grow (revenue) faster than the industry average of 10%-12%."

He declined to give a forecast for net profit.

Last year, leases from XL Axiata's telephone towers netted about 600 billion rupiah, he said, from smaller telecoms players including Bakrie Telecom. Suhaimi said he expects revenue from that area to grow about 20% a year. — Reuters