RHB Securities 2015-08-14: Singtel - 1QFY16 Results Call Highlights. Maintain NEUTRAL.


1QFY16 Results Call Highlights 

  • Singtel scores well across key mobile metrics with Optus clawing back market share and its Singapore mobile business trumping its peers. 
  • That said, we think share price upside will be capped by concerns over escalating competition Down Under against the backdrop of a feeble AUD. 
  • Maintain NEUTRAL based on revised TP of SGD4.07 (2.3% upside) from SGD4.00. 
  • Singtel’s dividend yield is the lowest among the SG telcos and its CY16 EV/EBITDA valuation is at a premium. 

 Competition steepens. 

  • Optus said the mobile landscape Down Under remains competitive with both Vodafone Hutchison (VHA) and Telstra (TLS AU, NR) unveiling attractive offers. 
  • More specifically, VHA has increased the level of data allowance for users while Telstra had responded with a Bring Your Own Device (BYOD) plan and lowered its fixed/NBN broadband pricing. 
  • Optus believes it is well positioned to take on additional competition given the strong bundling value proposition (fixed, mobile and video), a key differentiator. 

 Right-sizing GDL. 

  • Singtel has sharpened its strategy in the digital business and will now focus on: 
    1. digital marketing (Amobee), 
    2. regional premium video content (via HOOQ) and 
    3. advanced analytics (DataSpark). 
  • As part of the exercise to streamline its Group Digital Life (GDL) business, it transferred a few digital services segments (AMPed, Dash, Hungry-Go-Where, inSing.com and Newsloop) to the Singapore consumer business, which explained the 50% QoQ reduction in GDL EBITDA losses to SGD31m. 
  • It has reaffirmed its full year GDL EBITDA loss guidance of SGD150-180m, which implies that losses may expand in successive quarters. 

 Maintain NEUTRAL. 

  • We have left our forecast unchanged. Our SOP TP is raised marginally to SGD4.07 (from SGD4.00) after factoring in: 
    1. the updated market valuations of its listed associates, 
    2. the current net debt position and 
    3. our latest TP on AIS. 
  • Singtel’s implied CY16 EV/EBITDA of 13x is at a premium to its local peers of 9-10x and the average regional comparables of 8-12x, while its dividend yield pales in comparison. 
  • Key risks to earnings are: 
    1. the stronger-than-expected mobile competition in Singapore and Australia, 
    2. extended AUD weakness and 
    3. higher-than-expected losses from its GDL investments.

Singapore Research | http://www.rhbgroub.com/ RHB Securities 2015-08-14
NEUTRAL Maintain NEUTRAL 4.07 Up 4.00