Singtel - OCBC Investment 2015-11-30: Resilient outlook; maintain BUY

Singtel - OCBC Investment 2015-11-30: Resilient outlook; maintain BUY SINGTEL Singapore Telecommunications Z74.SI 

Singtel: Resilient outlook; maintain BUY 

 Expects low single-digit growth 
 Free cash flow remains strong 
 Offers regional exposure 


Keeps most of FY16 guidance unchanged 

  • After its recent 2QFY16 results, Singtel has largely kept its guidance largely unchanged for FY16. 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. 
  • Meanwhile there is 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. 

Downplays threat from 4th telco in Singapore 

  • Over in its Consumer business in Singapore, Singtel has downplayed the threat from the emergence of a fourth telco in Singapore. Although two companies – Consistel and MyRepublic – have expressed interest, it notes that both of them do not have any experience in running a mobile network/business. 
  • Management notes that the outcome could also depend on several factors, including IDA's auction (likely in 1H16), a level playing field and level of investment (easily S$300m). 
  • Market watchers believe that a new entrant would be able to garner less than 5% of market share from the incumbents; but do not rule out a near-term disruption in pricing. 

Maintain BUY with S$4.17 fair value 

  • Although Singtel offers the lowest dividend yield of around 4.5% among the three telcos, it offers something the other two does not – exposure to the regional and developing markets, which should offer higher growth potential. 
  • While the continued weakening of the AUD against the SGD could have an impact on Singtel, we believe that it should not affect its strong cash-flow generating abilities. 
  • Maintain BUY with an unchanged S$4.17 fair value.


Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2015-11-30
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 4.17 Same 4.17


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