SingTel - OCBC Investment 2016-08-11: 1Q17 Earnings Broadly In Line

SINGTEL Z74.SI

SingTel - 1Q17 Earnings Broadly In Line

Singtel reported its 1QFY17 results this morning, which saw revenue fall 7% YoY to S$3908m, impacted by the decline in mobile termination rates in Australia, 3% depreciation of the AUD, higher mobile service credits from device repayment plans, and lower equipment sales.
However, EBITDA was stable at S$1236m (-0.4%), as the decline in mobile service revenue was mitigated by lower traffic expenses in Australia.
Reported NPAT was flat at S$944m, while core NPAT was up 7% at S$954m, meeting 26% of our full-year forecast; although revenue only met 23%, we judge the results to be broadly in line.

Going forward, Singtel has affirmed its previous guidance for FY17 i.e. it expects consolidated revenue and EBITDA for the group to both grow by low single digit.
Mobile Communications revenue from Singapore is expected to be stable; but Mobile service revenue from Australia is to decline by low teens, due to decline in mobile termination rates.
Group ICT revenue may increase by low teens, while Cyber Security revenue is likely to come in around S$450-550m.
While revenue from Amobee Group is likely to grow by mid single digit, the group expects Group Digital Life to record negative S$150- 180m EBITDA.
Capex spend will be around S$2.8b (cash basis is around S$2.4b); free cash-flow to be around S$1.5b, and dividends from its regional associates would be around S$1.2b.

Weakening AUD aside, we think that the 1Q results are tracking pretty close to our estimates and prefer to leave them unchanged for now. But based on the latest share prices of its listed associates, our SOTP- based fair value slips slightly from S$4.29 to S$4.26.
Given the limited upside from here, we maintain our HOLD rating; we would look to engage close to S$4.00 as we continue to like its long-term prospects as it transforms itself into Telco 2.0.

Carey Wong OCBC Investment | http://www.ocbcresearch.com/ 2016-08-11

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