Maybank Kim Eng 2015-08-13: Singtel - 1Q16 Results; Negatives priced in; time to revisit. Upgrade to HOLD.

SINGTEL Z74.SI

Negatives priced in; time to revisit

In-line results reflect broad operational gains that negated currency volatility in Australia and Indonesia.
Stock has retreated 10% since our downgrade in Apr on competitive concern that is still a long way off in 2018.
U/G to BUY from HOLD with SOTP TP of SGD4.50.
Catalysts in stronger operational metrics in both Singapore and Australia.

1QFY3/16 results in-line. Underlying net profit rose 1.6% YoY to SGD895m (24% of FY16E) including the impact of an 11% decline in AUD and 6% fall in IDR.
In constant currency terms, underlying net profit rose 4.6%.
Singapore, Optus and associates turned in good operational showings.
Group Digital Life also narrowed losses.
Singtel Singapore reaped strong data usage benefits as a rising number of customers exceeded their caps (28% vs 13-17% for its rivals) and its industry-leading postpaid ARPU widened the gap with M1.
Optus’ momentum continued as it delivered double-digit gains in AUD terms although diluted to single-digit by AUD weakness.
Associates’ growth slowed to single-digit levels mainly due to weaker African currencies affecting Bharti’s subcontinent earnings, but the rest held up well.
Digital Life also appears to be turning a corner with a SGD23m gain on divestment.
EBITDA loss is expected to be reduced from SGD216m last year to SGD150-180m on positive traction from Amobee.
Group FCF fell 18% YoY as expected, as capex was ramped up in Australia.

Singtel’s share price has fallen 10% since we downgraded in Apr, factoring in competitive concerns that are still a long way off in 2018.
Despite likely lack of upside to dividends due to the rising capex cycle, yield has improved to ~5%.
Singtel maintained its payout ratio guidance of 60-75% and affirmed its guidance for this year.
We think the stock has priced in the negatives and upgrade to BUY.
SOTP TP slightly lowered to SGD4.50 (from SGD4.55) as we trim FY16 EPS by 2% to account for weaker AUD.
We estimate 1.5% sensitivity to our SOTP valuation for every 10% move in AUD.

Gregory Yap | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-13

BUY Upgrade HOLD 4.50 Down 4.55