Singapore Telecommunications (ST SP) - Maybank Kim Eng 2018-02-08: Give And Take

Singapore Telecommunications (ST SP) - Maybank Kim Eng 2018-02-08: Give And Take SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - Give And Take


Pulling in opposite directions 

  • Following 3QFY18 results we adjust our FY18E core profit forecasts and SOP Target Price for SingTel on the back of:
    1. lower handset subsidy expectations but increased revenue pressure from oncoming competition and
    2. lowered earnings and equity valuation of regional associates. 
  • Our lower Target Price of SGD3.69 offers 7% upside and we maintain HOLD. We remain cautious due to the rising competition, both existing and upcoming, in most of its markets.



3QFY18 had ups and downs 

  • 3QFY18 consolidated revenues at SGD4.6b (+5% q-o-q, +4% y-o-y) were 26% of previous MKE and current FactSet consensus full year estimates. A postpaid push and national broadband network (NBN) migration revenues in Australia coupled with the contribution of recently acquired Turn (Not Listed) in Singapore offset soft mobile and declining fixed line revenues. 
  • Operational EBITDA at SGD1.29b (+0.1% q-o-q, +6% y-o-y) was 27% of MKE and 25% of consensus for the quarter as weak iPhone demand led to lower q-o-q subsidies. Pre-tax associate income at SGD553m (-16% q-o-q, - 23% y-o-y) was only 63% of MKE full year estimates as significant weakness was seen across all regional associates except Thailand. 
  • Lower q-o-q depreciation and finance expenses helped cushion the profit drag from associates. 9MFY18 core profit came in at 75% of MKE and 72% of consensus estimates.


Balancing act 

  • We reduced our consolidated revenue forecasts on the back of lower handset sales and higher pressure on tariffs as more subscribers will be off contract. Lower handset subsidies will lead to operational EBITDA uplift. 
  • A reduction in our associate forecasts dampens core profit and hence our FY18E/19E/20E is impacted by -1%/+4%/+0.3%.


Target Price reduced, HOLD maintained.

  • We make no changes to our WACC assumptions and our DCF based SOTP Target Price is reduced by 5% to SGD3.69. Maintain HOLD. 
  • The actual intensity of competition that emerges in Singapore and Australia are the key downside/upside risks to our forecasts and outlook.



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/ 2018-02-08
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.69 Down 3.870



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