CIMB Telecommunications Sector Note - XL's 1Q09 results disappoint

Excelcomindo's 1Q09 core net profit, when annualised, was just 18% of our forecast and 8% of consensus. This was due to higher-than-expected amortisation and depreciation charges. However, revenue and EBITDA were in line with our forecasts, though substantially missing consensus. XL is now behaving more like an incumbent than a challenger. All in all, we continue to believe that competition will be benign in 2009. Maintain NEUTRAL on the telecom sector as we believe there is better upside for cyclical stocks in the current market rally. Our top pick is Telkom (Neutral, target price Rp8,500) given its stronger franchise vs. Indosat.