SingTel - CIMB Research 2016-02-12: 3QFY16 ~ Associates drives growth

SINGTEL Z74.SI

SingTel 3QFY16: Associates drives growth

Core net profit up 2.6% yoy in 3QFY16, driven largely by higher associate earnings.
Results in line with 9MFY16 at 76% of our FY16 forecast.
Maintain Add with unchanged SOP-based target price. Decent yields of 4.9-5.7%.

SingTel’s 3QFY16 core net profit was up 2.6% yoy (-2.0% qoq), ex-S$39m tax credit in 3QFY15. This was driven by higher associate earnings, while earnings from the Singapore operations and Optus also inched up. This was despite weaker A$ and Rp and consolidation of Trustwave’s losses for the first full quarter.
In constant currency terms, core net profit was up 5.5% yoy.
The earnings were in line with our expectations, with 9MFY16 at 75.7% of our FY16 forecast (consensus: 72.5%).

EBITDA rose 3.6% yoy in 3QFY16 on higher revenue, which offset a 1.0% pt service margin erosion to 28.2%.
Consumer EBITDA rose 8.9% yoy on lower customer acquisition and retention costs.
Enterprise EBITDA was flat yoy after consolidating Trustwave’s losses (ex-Trustwave: +2.5%).
Digital Life’s (DL) EBITDA improved 18.1% yoy to -S$33m (largely flat qoq).

Optus’s service revenue grew 3.3% yoy (+2.8% qoq) in 3QFY16 largely due to growth in its Enterprise business (+9.7% yoy, +7.2% qoq).
Consumer mobile service revenue grew marginally (+0.9% yoy, +1.4% qoq).
Postpaid subs fell 26k qoq, its first decline in two years, but ARPU was up 3.4% yoy.
Prepaid users rose 61k qoq, after two consecutive quarters of declines, but partially offset by a 3.4% decline in ARPU.
EBITDA rose 5.2% yoy (-2.9% qoq), with margins down 0.3% pt yoy (-2.3% pts qoq) to 28.2%.

Associate contributions in S$ improved 4.7% yoy on the back of growth at AIS (+17.5%).
Qoq, associate earnings rose 1.8% mainly due to higher contribution from AIS (+24.6%) and Bharti (+82.5%), but largely offset by lower contribution from Telkomsel (-7.4%) and Globe (-50.2%).
In 3QFY16, Rp (+2.0%) rose, while the Rs, PHP and THB were largely steady vs. the S$ qoq.
Overall, 9MFY16 associate earnings were in line at 73% of our FY16 forecast.

We have maintained our earnings forecasts and SOP-based target price.
SingTel trades at a FY17F EV/OpFCF of 15.5x and offers decent FY16-18F dividend yields of 4.9-5.7%. The share price has slumped from its peak in mid-Apr 2015 on the back of general market weakness and in our view now offers 32% total return potential (including 4.9% dividend yield).
Potential catalysts include a rebound in regional currencies and earnings improvements at Optus.

FOONG Choong Chen CFA CIMB Securities | http://research.itradecimb.com/ 2016-02-12

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