Singapore Telecommunications (ST SP) - Maybank Kim Eng 2017-11-09: Ripples And Not Waves

Singapore Telecommunications (ST SP) - Maybank Kim Eng 2017-11-09: Ripples And Not Waves SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - Ripples And Not Waves


2QFY18 results were mixed 

  • SingTel’s 2QFY18 consolidated revenues at SGD4.37b (+3% QoQ / +7% YoY) were in line with MKE and FactSet consensus estimates at 47% and 49% of the full year. 
  • To recall, we anticipate higher handset sales and subsidies this coming December quarter. 
  • Operational EBITDA at SGD1.29b (+2% QoQ; +5% YoY) was in line with estimates with opex generally tracking revenue growth and hence EBITDA margins were generally stable. 
  • Pre-tax associate income at SGD659m (-10% QoQ; -11% YoY) was weak due to Bharti and Globe with the former due to continued intense competition while the latter from higher depreciation charges. 
  • A 22% QoQ and 10% YoY decline in taxes salvaged the situation and hence core profit at SGD929m (+2% QoQ; -5% YoY) was 51% of MKE and 46% of consensus.


Enterprise and Digital Life led and will lead the way 

  • The enterprise and fixed broadband side of both Singapore and Australia were the revenue growth drivers, as expected, while wireless remained under pressure. 
  • Increased contracts in the lower margin, but higher volume ICT space are pressuring margins driving revenue growth.
  • SingTel, in our view, has the most defensive business structure among the Singapore telcos due to this and due to its exposure to leading regional associates.


Investment pipeline intact 

  • The majority of SGD2.3b proceeds from the Netlink Trust IPO is reserved for spectrum payments and growth investments in the digital space. The scaling up process both organically and inorganically for Amobee (Not Listed) has led to it becoming EBITDA positive this FY. 
  • SingTel is likely to adopt the same model for the rest of Digital Life and the enterprise cyber security division. 
  • We have not factored in acquisitions in our current forecasts.


Plentiful changes but minor impact 

  • Aside from lowering our FY18E tax rate assumption, we incorporate the latest FX rates, our latest Intouch and Globe forecasts and TP, and SingTel’s recent stake increase in Bharti to 38.64%. These impact our FY18E, FY19E and FY20E core profit forecasts by -0.1%, +0.7% and +1.3%.
  • Our sum-of-the-parts (SOTP) based TP is raised by 1.3% to SGD3.87.


Swing Factors


Upside

  • Strong growth in enterprise and Digital Life to economies of scale.
  • Ebbing competitive heat in India.
  • Subsidies per smartphone drop.

Downside

  • Wireless margin compression triggered either by TPG in Singapore and / or Australia or pre-emptive strikes by incumbents. These are not likely in consensus forecasts.
  • Long-term capex for 5G rollout not likely priced in.
  • Worse-than-expected cannibalisation of wireless voice, SMS and roaming by data.







Luis Hilado Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-11-09
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.87 Up 3.830



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