CIMB XL Axiata Initiating coverage - Par excellence

(EXCL IJ / EXCL.JK, OUTPERFORM, Tgt. Rp4,750, Telecommunications)

We initiate coverage of XL Axiata with an OUTPERFORM rating and DCF-based target price of Rp4,750 (WACC 12.6%). XL is Indonesia's third-largest telecom group with an enviable track record and we suspect it could have overtaken Indosat as the second-largest cellco in 1Q10. With a 3-year EPS CAGR of 70%, we believe XL provides the best exposure to Indonesia's robust mobile industry and is our top regional telco pick. Growth would be driven by rising revenue, improving margins, flattening depreciation and falling interest expense. Likely re-rating catalysts are positive earnings surprises and market-share gains, in our opinion. Our forecasts are 30-37% above consensus.