SingTel - RHB Invest 2016-02-15: Lacking Outright Catalysts

SINGTEL SINGAPORE TELECOMMUNICATION Z74.SI

SingTel - Lacking Outright Catalysts

We see a lack of outright catalysts for SingTel, with competition having steepened in Australia coupled with challenging mobile revenue/EBITDA prospects in Singapore on the back of unrelenting roaming revenue pressure and difficulties monetising data.
Our SOP-based TP drops to SGD3.70 (from SGD3.90, 3% upside) after adjusting the valuations of its mobile associates.

Reiterate NEUTRAL. That said, we expect the good traction in the enterprise space to continue, underpinned by government projects and demand for cloud computing.

Management expects minimal impact from the shutdown of its 2G network by Apr 2017 (network has been fully depreciated). Instead, it sees better opportunities to grow data revenues with 2G users shifting over to 3G/4G.
The focus going forward will continue to be on driving greater data usage on the back of voice substitution and managing traffic cost.
SingTel said roaming revenue contribution has fallen to some 23% of mobile service revenue vs 26% a year ago although the roaming business remains profitable.
We note that Singapore postpaid ARPU (excluding IDD) has flattened-out in recent quarters which could be explained by the higher take-up of ARPU-dilutive SIM-only plans.
On the timeline for the spectrum auction, management said this remains the purview of the Infocomm Development Authority (IDA).
There were no major surprises from the results call.

Singtel is witnessing greater aggression by rivals in response to its postpaid promotions (MyPlan). Optus’ mobile service revenue growth has decelerated from a high of 6.3% in 4QFY15 to 0.9% in 3QFY16 as the impact of the device repayment plans (DRP) works into its postpaid base.
Postpaid ARPU, however, rose 3.3% QoQ due to a bigger mix of higher-ARPU customers gained during the quarter.

Our core earnings forecasts are unchanged. Key risks to our forecasts/ recommendation are:
1. stronger-than-expected competition in Singapore/Australia, and
2. higher-than-expected group capex, and
3. persistent strength/weakness in the AUD.
We note that the AUD and IDR have rebounded by 1-2% QoQ after sliding by 6-12% in 1HFY16.

Despite receding forex risks, Singtel lacks outright re-rating catalysts in our view with protracted concerns over:
1. competitive headwinds affecting Optus, and
2. potential margin downside from rising content cost and competition.
Our SOP-based TP drops to SGD3.70 after updating the valuations of its regional mobile assets (including our latest downward revision on the TP of Advanced Info Service (ADVANC TB, BUY, TP: THB190.00).
At our TP, Singtel trades at implied 12-13.2x FY16/FY17 EV/EBTDA which compares with 8-10x of its local/regional peers.
Its prospective dividend yields are decent and in line with its local rivals’ 5-6%.

Singapore Research Team RHB Research | http://www.rhbinvest.com.sg/ 2016-02-15

RHB Research SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 3.70 Down 3.90