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


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. 

What’s New 

  • 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. 

What’s Our View 

  • 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