Singapore Telecommunications (ST SP) - Maybank Kim Eng 2017-05-18: Dividend Oasis

Singapore Telecommunications (ST SP) - Maybank Kim Eng 2017-05-18: Dividend Oasis SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - Dividend Oasis


Many earnings risks; dividends the one constant 

  • 4Q17/FY17 net profit was in line with our and the consensus est. The main YoY drag on profit was India competition hitting Airtel, but that was expected. 
  • FY18 rev/profit guidance is decent, but silent on the potentially negative impact of competition in India (Reliance Jio) and Australia (TPG). 
  • Still, we expect Singtel’s dividends to remain the most secure and stable (current yield 4.7%), despite higher-than-expected spectrum cost vs forecasted declines for the other two telcos. 
  • HOLD with unchanged forecasts and SGD3.70 DCF-based TP (WACC 5.3%, LTG 1%).


4Q17/FY17 results in line 

  • The stable 4Q and full-year results were in line with our forecasts, which already included competition-hit results from Airtel. 
  • Full-year underlying NP rose 3% YoY to SGD3,915m and for 4Q17 +0.8% YoY to SGD988m. Excluding Airtel, underlying NP rose 4.5% for the full year and 7% for 4Q17. This reflected a strong consumer business in Singapore and Australia, and growth in Telkomsel. 
  • Full-year group revenue fell 2.5% mainly because of the cuts in mobile termination rates in Australia; it was stable otherwise.


Resilient business mix despite Airtel 

  • Group consumer revenue/EBITDA grew 7% YoY/QoQ. Singapore consumer was flat as weak voice revenue offset data growth, but EBITDA margin improved on lower operating costs. Australia did better on a stronger AUD and cost control. 
  • Group enterprise was mixed, with revenue +3% YoY but EBITDA down 2% due to price competition in Australia. 
  • Group digital life losses shrank 7.5% YoY. 
  • Associate profits were flat due to poorer results from Airtel, Globe and AIS, but Telkomsel’s 17% growth offset the decline.


Silent on competition risks in India/Australia 

  • FY18 guidance was also in line with forecasts, calling for mid-single digit growth for revenue and low-single digit growth for EBITDA; it was silent on associates’ performance, especially Airtel. While we have assumed that Airtel will remain under pressure until FY19, downside risk may be larger than expected. 
  • Guidance also does not appear to have accounted for TPG-related risks in Australia. 
  • Reiterate HOLD with unchanged estimates and TP.


Swing Factors


Upside

  • AUD reverses its weakening trend against SGD. Every 1% gain in AUD translates to 0.5% gain in Optus revenue, as Optus accounts for c.55% of group revenue.
  • If TPG is unable to cope with expanding into two new mobile markets simultaneously, incumbents will get some breathing room.

Downside

  • May not be able to maintain > 70% payout if it needs to reserve cash for spectrum, network or other investments, especially if associate dividends start to flag.
  • Competitive pressures on Bharti Airtel become more intense, leading to greater-than-expected profit decline.
  • TPG’s entry into both Singapore and Australian mobile markets becomes more problematic than expected.




Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-05-18
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.70 Down 3.70



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