Singtel - Maybank Kim Eng 2015-11-13: Demonstrating Capacity for Resilience

SINGTEL Singapore Telecommunications Z74.SI

Singapore Telecommunications (ST SP) - Demonstrating Capacity for Resilience

2QFY16 in line. Topline hit by weak AUD but bottomline bolstered by associates’ contributions.
Full year guidance maintained despite tweaks to Singapore mobile contributions.
Maintain BUY. SOTP TP trimmed slightly to SGD4.41 (from SGD4.50) on lower Bharti TP.

Singtel reported in line 2QFY3/16 results.
Revenue and EBITDA fell 3% YoY due to a lower AUD (-13%) and IDR (-6%), but rose 5% in constant currencies. However, NP was stable at SGD1.03b due to 4% higher share of associate profits, primarily from a 21% rise in Telkomsel’s SGD contributions in Indonesia and contributions from NetLink Trust.
1H16 NP accounted for 50% of FY15E.

The major premise behind our BUY is intact, mainly mobile growth in Singapore and Australia.
Singapore mobile revenue grew 2% with more upgrades to higher-tier plans. Similarly broadband grew 5% on more upgrades to higher-speed plans.
IDD’s 9% fall is not a concern, in our view, as this reflects customers’ switch from voice to data, where the value is still being captured. The value-capture is intact but merely shifts from one line to another.
Optus is also on track to capitalise on its recent market share gains via major content deals with Netflix and BPL.
Finally, Digital Life is on track to reduce EBITDA losses.
Singtel maintained its full-year guidance.
While Singapore mobile growth was cut from mid to low single-digit, this was again due to customers switching from voice roaming to data roaming. Further, Singtel is able to maintain margins by negotiating lower interconnect rates with overseas operators.
We maintain our BUY call on Singtel, our top telco pick.
SOTP TP is trimmed slightly to SGD4.41 from SGD4.50, mainly on a lower fair value assumption for Bharti Airtel where growth has been interrupted by African currency volatility. Bharti’s contribution to 2Q16 results fell 25% YoY.
No changes to forecasts.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-13

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 4.41 Down 4.50