SingTel - RHB Invest 2015-11-13: Dating NetFlix

SingTel - RHB Invest 2015-11-13: Dating NetFlix SINGTEL SINGAPORE TELECOMMUNICATION Z74.SI 

SingTel (ST SP) - Dating NetFlix 

  • There were no major surprises from Singtel’s results call. 
  • Maintain NEUTRAL with a SOP-adjusted SGD3.90 TP (from SGD4.07, 1% upside) after updating our valuations on its associates. 
  • Competitive headwinds Down Under and the SGD’s strength are de-rating catalysts with over two-thirds of its core earnings derived from outside of Singapore. 
  • Singtel’s fairly attractive prospective dividend yields of 4.6% should lend share price support. 

 Netflix coming to a screen near you. 

  • Management does not rule out an exclusive tie-up with Netflix Inc (Netflix) (NFLX US, NR), the largest on demand video streaming service in the US for the Singapore market. We think a partnership will: 
    1. further boost it pay-TV content proposition, 
    2. mitigate the threat from over-the-top (OTT) streaming applications, and 
    3. create stickiness. 
  • Optus’ recent tie-up with Netflx in Australia is a key win, in our view, to strengthen its fixed/mobile broadband business. It would also counter the threat from TPG Telecom (TPG) (TPM AU, NR) the second largest fixed broadband operator in Australia, which recently merged with iiNet (IIN AU, NR). 

 Competition heating up Down Under. 

  • Optus continues to execute well with postpaid subs addition of 57,000 in 2QFY16 (1QFY16: 38k), driving mobile service revenue growth of 3.3% YoY (+1.1% QoQ) and 8.7% EBITDA uplift in AUD terms. However, competition has intensified further with rivals bundling in more data allowance on their tiered plans, making it more difficult to monetise the growth in data traffic. 

 No room for four. 

  • As with its peers, Singapore Telecommunications (Singtel) believes the market does not need a fourth mobile network operator (MNO), citing the world class mobile infrastructure and intense market competition. 
  • It views the 900 megahertz (MHz) spectrum up for re-farming (expiring Mar 2017) as crucial to meet mandatory rollout targets and for 4G capacity. 
  • We note that Singtel has also utilised the spectrum to boost LTE coverage indoors. It expects the Infocomm Development Authority of Singapore (IDA) to finalise the auction framework in 1Q16. 

 Maintain NEUTRAL. 

  • We make no change to our forecast post the results call. 
  • Our SOP TP is lowered marginally to SGD3.90 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.

Singapore Research Team RHB Research | http://www.rhbinvest.com.sg/ 2015-11-13
RHB Research SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 3.90 Down 4.07