Singtel - UOB Kay Hian 2016-02-15: 3QFY16 Benefitting From Flight To Safety And Quality

Singtel - UOB Kay Hian 2016-02-15: 3QFY16 Benefitting From Flight To Safety And Quality SINGTEL Singapore Telecommunications Z74.SI 

Singapore Telecommunications (ST SP) 3QFY16: Benefitting From Flight To Safety And Quality 

  • Singtel’s results were in line with expectations. 
  • EBITDA margins for consumer businesses in Singapore and Australia were seasonally lower. Contribution from Bharti was dragged lower by depreciation of African currencies. 
  • Earnings were crimped by depreciation of the Australian dollar in FY16. 
  • We expect stronger growth of 5.1% in FY17 driven by Optus and regional mobile associates. 
  • Maintain BUY. Target price: S$4.42. 


  • Singapore Telecommunications’ (Singtel) net profit of S$955m for 3QFY16 was in line with our expectation. The results included a net loss of S$8m from newly-acquired cyber security specialist Trustwave. 

• Group Consumer: Slower growth aggravated by weakness in Australian dollar. 

  • In Singapore, revenue from mobile, fixed broadband and residential pay TV grew 0.4%, 0.8% and 3.7% yoy respectively. Singtel added 24,000 post-paid subscribers, boosted by take-up for SIM-only plans. EBITDA from Singapore expanded 8.9% yoy due to cost discipline with selling & administrative and cost of sales reduced by 8.7% yoy and 8.4% yoy respectively. 
  • In Australia, revenue from mobile grew 1%. Optus registered net addition of 89,000 for post-paid subscribers if we exclude wholesale deactivation due to the loss of TPG’s MVNO contract. Revenue from fixed line grew 5.5%, driven by addition of 16,000 National Broadband Network (NBN) broadband customers and take-up for Optus TV. Selling & administrative expenses were reduced by 9.3%. EBITDA from Optus expanded 5% in local currency terms but contribution was affected as the Australian dollar depreciated 8.4% yoy against the Singapore dollar. 

• Group Enterprise: Investing in new capabilities to secure future growth. 

  • Revenue growth was driven by ICT and managed services across Singapore (+6.3% yoy) and Australia (+35.7% yoy). Data & Internet revenue from Singapore grew 4.2% yoy. Singtel maintained its leadership in international IP-VPN and domestic data in Singapore. It has also enhanced its capabilities in cyber security, cloud computing and smart nation solutions. 
  • EBITDA from Singapore grew 3% yoy while EBITDA from Australia grew 7% yoy in local currency terms. Trustwave contributed revenue of S$75m and EBITDA of S$3m but incurred net loss of S$8m. 

• Group Digital Life: Rationalisation improved gross margins. 

  • Revenue grew 23% yoy, driven by advertising revenue from mobile, video and social media. Negative EBITDA was trimmed by 18% due to business rationalisation. Amobee secured new customers - Microsoft, FIAT and Lexus. 
  • Group Digital Life has sharpened its focus to three businesses, namely digital marketing (Amobee), regional premium video (HOOQ) and advanced analytics & intelligence capabilities (DataSpark). 

• Regional Mobile Associates: Bharti affected by currency turmoil in Africa. 

  • Bharti added 8.1m subscribers in 3QFY16 and its subscriber base expanded 8.6% yoy in India. Operating revenue grew 9% yoy, driven by growth of 73% yoy for data traffic and 18% yoy for data ARPU. EBITDA from India surged 13% with tight control on operating expenses. 
  • Unfortunately, there was sharp depreciation of some African currencies, which caused revenue and EBITDA from Africa to fall 14% yoy and 16% yoy respectively. On a group basis, PBT from Bharti declined 4.4% due to spectrum-related finance costs and interest on finance lease for towers. 
  • Telkomsel added 4.1m subscribers in 3QFY16 and its subscriber base expanded 12% yoy in Indonesia. Operating revenue grew 14% yoy driven by growth of 9% yoy for voice and 48% yoy for data. EBITDA increased 9% yoy despite higher operation & maintenance costs from the accelerated rollout for 3G. PBT grew 5% yoy hampered by higher depreciation. 
  • AIS gained 0.7m subscribers in 3QFY16. Service revenue was stable but EBITDA declined 3% yoy due to higher handset subsidies and marketing expenses to drive adoption of 3G, which offset the positive impact from lower regulatory costs from migration to 3G. PBT grew 10% due to lower depreciation on fully depreciated 2G assets. 
  • Globe Telecom added 2.8m subscribers in 3QFY16 and its subscriber base expanded 20% yoy. Service revenue increased 15% yoy boosted by growth from data. EBITDA grew 17% yoy despite higher network costs, handset subsidies and marketing expenses. Unfortunately, PBT declined 3% yoy due to higher depreciation arising from consolidation of BayanTel and interest expenses. 
  • BayanTel is a provider of data and communications services such as dedicated domestic and international leased lines, frame relay services, Internet access and managed data services. 


• Reaffirms guidance for FY16. 

  • Revenue is expected to grow at mid single-digit while EBITDA is expected to increase at low single-digit. We expect growth at Singtel to be driven by its regional mobile associates. 

• Targets to expand home services in Singapore. 

  • Singtel will offer 10Gbps fibre broadband service based on Next Generation 10GPON or Gigabit Passive Optical Network to residential customers starting Feb 16. Customers can enjoy bandwidthintensive activities such as downloading, gaming and streaming concurrently through ultra-high-speed 10Gbps connections. 
  • Singtel customers can get 3-9 months’ worth of complimentary Netflix subscriptions when they re-contract or sign up for mobile plans or fibre entertainment bundles from 22 January to 22 July. Customers will be able to watch Netflix through their Singtel TV settop boxes from April onwards. 

• Secured additional spectrum in Australia. 

  • Optus has successfully acquired 1800MHz spectrum of 2x20MHz in five regions and 2x25MHz in seven regions for S$196m. The new spectrum is in contiguous lots with alignment between its metropolitan and regional spectrum assets, thus reducing dead zones and giving customers a seamless 4G experience across urban and rural boundaries. 
  • The new spectrum would support growth in demand for data services in regional Australia. Optus’ mobile network currently covers 98.5% of population and its 4G services are available to 90% of population. 


  • We maintain our earnings forecasts. 


  • Maintain BUY. Our target price is S$4.42 based on DCF (COE: 5.8%, terminal growth: 1.0%). 


  • Singtel is the least affected by a fourth mobile operator in Singapore as overseas businesses account for about 70% of its bottom line. 
  • Singtel will benefit from growth at its regional mobile associates, such as Telkomsel in Indonesia, Bharti Airtel in India, Advanced Info Service in Thailand and Globe Telecom in the Philippines. 
  • Singtel is the largest and most liquid defensive stock listed on the Singapore Exchange and deserves to trade at a premium.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-15
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.42 Same 4.42