Superior network and synergy benefit
EXCL’s 2Q25 net losses were primarily due to accounting treatments that reflected non-cash expenses. On a normalized basis, EXCL still managed to book IDR 5tn EBITDA (47.4% margin) and IDR 313bn PAT (3% margin). Post-merger, EXCL now owns 152 MHz of spectrum, providing a competitive advantage in delivering superior network quality for subscribers. Additionally, the merger is expected to generate a synergy benefit of USD 300–400mn once integration is completed. We maintain our BUY rating with target price of IDR 3,300.

Restructuring and integration

· One-off expenses. EXCL recently released its 2Q25 results, the first performance report of the merged entity XL Smart. The company reported IDR 10.5tn in revenue, IDR 4.5tn in EBITDA (42.8% margin), and a net loss of IDR 1.6tn. The negative bottom line was primarily due to one-off integration expenses (IDR 379bn), accelerated depreciation (IDR 739bn), and impairment on Link Net (IDR 802bn). The accelerated depreciation pertains to network equipment related to the 900 MHz spectrum, which must be returned to the government by the end of 2026. Excluding these one-off expenses, EXCL actually reported a normalized profit (after tax) of IDR 313bn.

· Integration costs will continue to appear in upcoming quarters. EXCL’s integration expenses were primarily spent on network-related expenses, including the dismantling of towers. XL Smart operates 67,000 sites, and the company targets to dismantle 17,000 duplicate sites. In the long run, management expects positive impact from lower lease liabilities and ROU assets, which should translate into lower depreciation and finance expenses. Also, a portion of the integration costs in 2Q25 was allocated for employee incentives and updating regions about the merger's commercial aspects.

· Despite below-expected subscribers… EXCL reported 82.6mn subscribers as of June 2025, significantly below the previous pro-forma estimate of ~94mn. Management clarified that the difference is due to varying subscriber definitions adopted by XL and Smartfren (XL considers a subscriber active if he/she has used the service for at least 75 days). Additionally, EXCL's post-merger ARPU dropped to IDR 36,000 (prev: IDR 40,000).

· …we remain optimistic about ARPU improvement going forward, supported by higher-quality service and broader network coverage. The first key step after the merger was the implementation of national roaming, allowing Smartfren users to access XLL’s existing BTS (base transceiver stations). This expansion delivers larger coverage, with 156 new cities now accessible to Smartfren subscribers. XL Smart's competitive advantage lies in its wide spectrum. Post-merger, the company now owns 152 MHz of spectrum bandwidth, serving approximately 83 million subscribers.

Aggressive post-merger integration target

· Timeline. The integration is expected to be completed in 6-8 quarters, faster than IOH’s integration process, with an anticipated USD 300–400mn synergy benefit. Integration costs may be incurred during this period, with management expecting additional IDR 1tn in integration costs in 2H25. However, the synergy benefits are also expected to materialize, with a target of USD 100–200mn that will not only cover the costs but also contribute to posted profits.
· Capex allocation. Though EXCL has set a capex allocation target of IDR 20–25tn for 2025, it only deployed IDR 2.3tn in 1H25. Therefore, we believe the company may require additional time to fully utilize the remaining budget. The capex is primarily allocated towards equipment replacement to prepare for the 850 MHz and 2300 MHz spectra acquired from Smartfren, as well as for future spectrum auctions. Funding for this capex will mainly come from internal cash flow and debt financing, while also leveraging favorable payment terms from vendors.

Maintain Buy with target price of IDR 3,300

We remain confident in EXCL’s potential growth and the synergies to be unlocked. Therefore. we maintain BUY rating with a new target price of IDR 3,300 (reflecting 5.9x EV/EBITDA 2026F multiple). Our target price is derived from a 5-year DCF model, assuming 11.2% discount rate and 2% terminal growth rate.

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Pulp & Paper - Paper Rings, Shiny Things

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