Singtel - Maybank Kim Eng 2016-02-15: Deserves safe-haven status

SINGTEL Singapore Telecommunications Z74.SI

Singapore Telecommunications (ST SP) - Deserves safe-haven status

Singtel reported resilient 3QFY3/16 results, in line with expectations.
Despite a weaker AUD, economic headwinds and losses from newly-acquired Trustwave, revenue, EBITDA and core net profit were maintained. It achieved this by investing in higher-growth markets to drive growth (e.g. 4G network in Australia) and cutting costs where necessary (mainly in the Singapore consumer business).

Group revenue rose 1% YoY in 3Q and EBITDA was stable despite an 8% fall in the AUD during the quarter.
Underlying net profit fell 1.5% YoY to SGD955m mainly due to a tax credit in 3Q15 that was not repeated and the recognition of SGD8m in net loss from the Trustwave acquisition in 3Q16.
Adjusted net profit rose 3.5% YoY.
Regional associate contributions rose 5%, mainly from Telkomsel (+2%), AIS (+7%) and NetLink Trust (+85%).

While Singapore consumer revenue shrank on more cautious consumer sentiment, data growth remained intact and EBITDA rose 8% on lower opex.
Strongly-rising 4G subscriptions continued to drive Australian mobile growth in AUD terms.
Enterprise offset the slower consumer business with growth in both Singapore and Australia.
Finally, Digital Life continued to narrow losses, with negative EBITDA down 18% YoY.
Guidance maintained Singtel maintained its guidance for FY03/16.
Group revenue is expected to rise by a mid-single digit and EBITDA to grow by a low-single digit, while Group Digital Life’s projected negative EBITDA remains at SGD150- 180m.
Full-year capex is still expected to be SGD3b, mainly for Australia (SGD1.9b). 9M16 group revenue reached 72% of our full-year forecast, while net profit achieved 74% of full-year forecast.

No new competitor to take up a new mobile operator licence. The three incumbents keep their spectrum allocations, including bands reserved for fourth telco.
AUD reverses its weakening trend against SGD. Every 1% gain in AUD translates to 0.5% gain in Optus revenue, as Optus accounts for c.55% of group revenue.

May not be able to maintain 70% dividend payouts if it needs to reserve cash to pay for spectrum or network investments, especially if associate dividends flag.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-15

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 4.40 Down 4.41