Singtel - OCBC Investment 2015-11-12: Maintain BUY with lower S$4.17 FV

SINGTEL Z74.SI

Singtel: Maintain BUY with lower S$4.17 FV

 1H core met 48% of FY forecast

 Sees slower Singapore mobile growth

 But free cash flow remains strong

Singtel this morning reported its 2QFY16 results, which were mostly in line.
Revenue slipped 2.9% to S$4184m, weighed by the 13% decline in the AUD; but in constant currency terms, operating revenue grew 5.1%. EBITDA was 3.3% lower at S$1290m; but +4.5% in constant term.

Reported net profit slipped 0.8% to S$1030m (+3% in constant currency terms), while core earnings was down 0.5% at S$974m (+3.8% in constant currency terms).
1HFY16 revenue edged 0.8% lower at S$8393m, meeting 48% of our full-year estimate, while reported net profit climbed 5.3% to S$1971m; core earnings inched up 0.5% to S$1870m, also meeting 48% of our FY16 estimate.
Singtel declared an interim dividend of S$0.068/share, unchanged from a year ago.

Going forward, Singtel has largely kept its previous guidance unchanged.
It continues to expect group revenue to grow by mid-single digit level; EBITDA to increase by low-single digit level.
It has kept capex at S$2.3b on a cash basis (but S$3b on accrual basis, with S$1.1b for Singapore, S$1.9b for Australia); free cash flow to come in around S$1.5b, with regional associates to contribute around S$1.1b in dividends.
For its core business, revenue is expected to increase by mid-single digit level; EBITDA to rise by low-single digit level. But due to lower contributions from mobile roaming, Singtel has pared its guidance for Mobile Communications revenue from mid-single digit growth to low-single digit level for FY16.
No change to Australia Mobile Services revenue growth of low-single digit. Group ICT is still likely to grow by mid-single digit level; Group Digital Life’s negative EBITDA to remain around S$150- 180m.

As 1HFY16 results were mostly in line with expectation, we opt to keep our full-year estimates unchanged.
However, we are paring our SOTP-based fair value from S$4.38 to S$4.17 to account for the lower market value of its listed associates; but we continue to like the company’s defensive business and strong free cash flow. Hence we maintain our BUY rating.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2015-11-12

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 4.17 Down 4.38