Nomura: XLSMART's Q1 Performance Meets Expectations, Maintains Neutral Rating

Overview

Nomura Securities released an earnings review for XLSMART Telecom's Q1 2026 performance, noting that operational results met expectations. Although the company reported a net loss, this was primarily due to the integration phase following the Axiata-Smartfren merger. The report maintains a Neutral rating with a target price of IDR 3,300, considering it a positive long-term catalyst if the market recovery momentum continues.

Core views

In terms of performance, 1Q26 revenue was IDR 11.8 trillion, down 0.7% QoQ but up 37.4% YoY, accounting for approximately 24% of the full-year forecast. Growth was driven by the consolidation of the Axiata-Smartfren merger, demand during Ramadan/Eid, and mobile ARPU expansion. EBITDA was IDR 5.4 trillion, up 31.3% QoQ and 25.0% YoY, accounting for about 25% of the full-year forecast, showing significant improvement from the distorted data in 4Q25 affected by integration-related operating expenses, indicating normalization of the merged entity's cost structure. The company reported a net loss of IDR 717 billion, which was within expectations. Regarding operational strategy, 1Q26 marked the second consecutive quarter of operational improvement, supported by the resilient performance of the Data/VAS segment, which remains the key revenue growth driver at IDR 10.9 trillion (up 38% YoY). The increase in data yields fully offset the deliberate contraction in the subscriber base, with total mobile subscribers down 5% QoQ to 69.4 million. This reflects the disciplined 'quality over quantity' strategy of management, including eliminating free giveaways, enforcing minimum entry package prices, and clearing inactive SIM cards. For outlook and valuation, management guides 2026F revenue growth in line with industry expectations, with EBITDA growth expected to be roughly double revenue growth, and capital expenditures projected to remain high at around IDR 15 trillion. Merger synergies are expected to materialize approximately eight quarters post-merger (i.e., 2Q27E). Valuation is based on DCF analysis, with the target price of IDR 3,300 implying a 2026F EV/EBITDA of 5.5x.

Analysis framework

The institution adopted a separate analysis perspective for operational and financial aspects, attributing the net loss to one-time merger integration costs while focusing on the improving trends in EBITDA and revenue to assess core business health. In subscriber growth analysis, the institution applied a 'volume-price split' logic, noting that while subscriber numbers (volume) declined, the increase in ARPU (price) validated the strategy's effectiveness, prioritizing quality over scale. Valuation employed a DCF model, incorporating expectations for the timing of merger synergy realization (2Q27E) and factoring long-term catalysts into valuation considerations.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  DCF Discounted Cash Flow

  The report uses a DCF model to calculate the target price, assuming a risk-free rate of 6.2%, equity risk premium of 7.4%, and terminal growth rate of 2.5%, resulting in a WACC of 9.0%. This is a common method for assessing intrinsic value, particularly suitable for post-merger companies with clear cash flow projections.

• Industry/Sector Analysis FrameworkVolume-Price Split

  Volume-Price Split (ARPU vs. Subscriber Trade-off)

  In telecommunications industry analysis, revenue growth can be decomposed into subscriber numbers (volume) and ARPU (price). The report notes the company's deliberate subscriber contraction but ARPU increase, reflecting a 'quality over quantity' strategy. This volume-price trade-off analysis helps assess the sustainability of revenue growth.

• Event Gaming & Behavioral FinanceEvent-driven analysis

  Merger Synergy Realization Cycle

  The report clearly identifies the timing for merger synergy realization (eight quarters post-merger), typical of event-driven analysis, helping investors set expectation timelines and understand the relationship between short-term losses and long-term value realization.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• XLSMART Telecom (EXCL.JK)

  Coverage target, directly benefiting from post-merger synergies and data business growth

  Strengths

  Resilient growth in Data/VAS segment, sustained ARPU increase, cost structure normalization

  Weaknesses

  Net loss position, subscriber base contraction, high integration-related operating expenses

  Risks

  Macro condition volatility, changes in customer spending, service pricing adjustment uncertainty, operating expense fluctuations

Key data

• 1Q26 RevenueIDR 11.8 trillionQoQ -0.7%, YoY +37.4%
• 1Q26 EBITDAIDR 5.4 trillionQoQ +31.3%, YoY +25.0%
• 1Q26 Net LossIDR 717 billionQoQ -60.7%, YoY -286.4%
• Mobile Subscribers69.4 millionDown 5% QoQ
• Mobile ARPUIDR 47,300Up 6% QoQ
• Target PriceIDR 3,300Based on DCF analysis
• 2026F EV/EBITDA5.5xImplied by target price

Impact & implications

The report suggests that despite short-term net losses, operational improvements (EBITDA growth, ARPU increase) indicate normalization of the post-merger cost structure. If the market recovery momentum continues, broad topline growth and margin improvements may persist in coming quarters, serving as a long-term positive catalyst for the stock. However, given recent stock performance, the institution maintains a Neutral rating, implying limited upside as current prices largely reflect existing positives.

Risks

• Macro conditions better or worse than expected
• Customer spending higher or lower than expected
• Service price adjustments leading to data price volatility
• Operating expenses higher or lower than expected
• Potential subscriber uncertainty from biometric SIM registration requirements effective July 2026
• High capital expenditures may impact cash flow

What to watch

• Whether merger synergies materialize as expected in 2Q27E
• Impact of biometric SIM registration requirements effective July 2026
• Upcoming 5G spectrum auction participation and network differentiation progress
• Whether EBITDA growth continues to outpace revenue growth (~2x)