CIMB Securities 2015-08-13: Singtel - 1Q16; Associates save the day. Upgrade to BUY.


Associates save the day 

  • SingTel’s 1Q16 core net profit grew 1.6% yoy (-5.7% qoq). This was in line at 24% of our FY16 forecast (consensus: 23%). 
  • Associate earnings rose, led by Telkomsel, AIS and Globe. Optus’s earnings contribution declined due to the 11% yoy weaker Aussie dollar vs. Singapore dollar. 
  • Singapore profits fell due to higher depreciation and the cessation of fibre rollout/maintenance revenue, but partly cushioned by narrower DL losses. 
  • We upgrade SingTel from hold to Add with an unchanged SOP-based target price (S$4.30). The share price slumped 11.2% over the past three weeks on the back of general market weakness and now offers 15.0% total return (including 4.5% dividend yield). 
  • Catalysts are a rebound in regional currencies and earnings improvements at Optus. 

S’pore: Stronger consumer EBITDA & smaller DL losses 

  • SingTel’s 1Q16 revenue rose 4.2% yoy, while EBITDA gained 2.8% yoy. Margins slid 0.4% pts yoy to 31.6%. Excluding exceptionals, consumer EBITDA gained 5.4% yoy due to higher mobile and fixed broadband revenue. 
  • Enterprise EBITDA fell 3.5% yoy due to the cessation of fibre rollout/maintenance revenue (-0.5% yoy excluding this) since 3Q15. Digital Life’s (DL) negative EBITDA narrowed 16.4% yoy and considerably by 50.2% qoq due to business rationalisation and improved gross margins. 

Optus’s mobile business continues to grow 

  • Optus’s service revenue grew 4.5% yoy in 1Q16, driven by growth at its mobile business (+5.3% yoy). Postpaid net adds stayed healthy at 37k (4Q15: 64k, 1Q15: 4k), with ARPU rising 0.8% yoy to A$59. Prepaid subscribers declined 48k, as Optus focused on improving the quality of new prepaid customers. Prepaid ARPU rose 8.8% yoy to A$28. EBITDA advanced 7.3% yoy, with margins down 1.1% pt to 27.9%. 
  • Optus’ 4G population coverage rose 4% pts qoq to 90% at end-Jul, with the continued rollout of its new 700MHz network. 

Associate earnings tracking in line with our FY16 forecast 

  • Associate contributions in S$ improved 8.6% yoy, with growth at Telkomsel (+11.6%), AIS (+21.6%) and Globe (+9.6%) but partly offset by Bharti’s higher fair value losses. Qoq, associate earnings eased 0.4% due to lower contributions from Bharti Airtel (higher taxes) and AIS. 
  • In 1Q16, all regional currencies fell against the S$ qoq (Rs: -2.8%, THB: -3.2%, Php: -1.2%, Rp: -3.8%). 
  • Overall, 1Q16 associate earnings were in line at 24% of our FY16 forecast.

FOONG Choong Chen CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-13
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