Singtel - RHB Invest 2017-05-19: Chilly Down Under

SINGTEL Z74.SI

Singtel - Chilly Down Under

We retain our NEUTRAL rating on Singtel post the results call, with SOP-based TP lowered to SGD3.90 (from SGD4.00, 4% upside) following forecast revisions.
Key queries during the call centred on the competitive landscape in Australia and capex.
Singtel is now up against the unmistakable fourth entrant (TPG) across both the Singapore and Australian markets. We believe this could cap share price upside as investors take stock of greater earnings risks beyond its home turf.

Downside risk is nonetheless limited by its fairly attractive and sustainable dividend yield of 5%.

While Singtel added the highest number of postpaid subscribers (subs) in the industry at 42,000 in 1Q17, postpaid APRU slipped 4.3% YoY to SGD67 as the strong growth in mobile data was not sufficient to offset pressures on roaming and usage revenue.
The higher take-up of SIM-only plans also contributed to a further dilution in ARPU. Consequently, mobile service revenue fell 2% YoY. 63% of its postpaid base are on tiered data plans with 40% of this exceeding their bundled data.

Optus continues to see strong subscriber growth, adding 147,000 subs during the quarter – a five year high. We expect the strong momentum to continue on the back of the improvement in 4G network coverage (96.1% population coverage).
Management expects to close the coverage gap with Telstra (98% population coverage) by 2018, which alongside the strong content bundling would put it in a solid position to fend off competition from TPG Telecom (TPG), which would likely compete on price.
While competition remains intense across all segments, Optus would look to further optimise its cost base via digitalisation initiatives, and to capitalise on group-wide procurement savings.
On network/tower sharing, management indicated it had commercially negotiated with Optus, and is already sharing certain sites with Vodafone Hutchison (VHA).

We cut our FY18/19 core earnings forecasts by 8-13%, mainly to factor in higher acquisition and retention activities at Optus, with the entry of TPG and higher capex as per management’s guidance.
Our forecast had earlier modelled in the entry of TPG in the Singapore market from 2018. FY20 forecast has also been introduced.

Our SOP TP is lowered to SGD3.90 after rolling over our forecast base year to FY18, and reflecting the latest marked-to-market valuations of its key associates.
Singtel remains our preferred exposure to the Singapore telcos sector on market cap consideration and its balance sheet strength.
Key risks include stronger-than-expected competition, forex volatility and higher-than-expected losses from adjacent businesses.
Upside risk could stem from the listing of Netlink Trust (NLT) in the not too distant future.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-19

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.90 Down 4.000