SingTel - CIMB Research 2016-05-12: 4QFY16 ~ Associates the key growth driver

SINGTEL Z74.SI

SingTel 4QFY16: Associates the key growth driver

Results in line. FY16 core net profit was up 1.7% yoy on higher associate earnings.
We project better FY17 core earnings growth, driven by further rise in associate earnings and modest growth from Singapore and Optus.
Maintain Add with unchanged SOP-based target price. Decent yields of 4.7-5.3%.

SingTel’s 4QFY16 core net profit rose 3.3% yoy (+2.7% qoq). Higher earnings from associate and Optus despite weaker A$ and Rp more than offset a drop in Singapore earnings. In constant currency terms, core net profit was up 6% yoy. FY16 core net profit (+1.7% yoy) was in line, just 2% above our forecast (consensus: -2%).
As expected, SingTel declared a final DPS of 10.7 Scts, bringing the full-year DPS to 17.5 Scts (FY15: 17.5 Scts), with a payout ratio of 72.0%.

EBITDA rose 1.8% yoy in 4QFY16 on higher revenue, which offset a 1.6%-pt service margin erosion to 26.9%. Consumer EBITDA fell 2.3% yoy on lower other income (otherwise, +0.9% yoy). Enterprise EBITDA was 2.5% lower yoy due to higher costs. Digital Life’s (DL) EBITDA improved 37.9% yoy to -S$39m (3QFY16: -S$33m).
Core net profit in 4QFY16 was down 23.8% yoy (-20.4% qoq) due to recognition of fair value losses, coupled with higher interest expense and depreciation.

Optus’s service revenue fell 11.3% yoy (-13.4% qoq) in 4QFY16 on lower mobile revenue (-17.5% yoy) due to termination rate (MTR) changes since Jan 2016 (excluding this, -1.6% yoy). Postpaid subs fell 24k qoq (-0.5%), its second consecutive quarter of decline, while prepaid users rose 17k qoq (+0.5%). Blended ARPU fell 16.3% yoy (ex-MTR changes: +4.9% yoy, +2.3% qoq).
EBITDA rose 2.2% yoy (+7.8% qoq) due to lower staff and selling and admin costs. The margin jumped 4.0% pts yoy (+7.5% pts qoq) to 35.6%.

Associate contributions in S$ improved 16.1% yoy due largely to growth at Telkomsel (+31.8%). Qoq, associate earnings rose 10.1% mainly due to higher contribution from Globe (+65.4%) and Telkomsel (+15.2%) but partially offset by Bharti (-5.9% qoq). In 4QFY16, Rp (+2.0%) rose, Rs (-2.9%) and PHP (-1.1%) fell while THB was largely steady vs. the S$ qoq. Overall, FY16 associate earnings (+9.5% yoy) were in line. Maintain Add with unchanged SOP-based target price of S$4.50
We have maintained our earnings forecasts and SOP-based target price. SingTel trades at an FY17F EV/OpFCF of 16.6x (ASEAN telco average: 14.2x) and offers decent FY17-18F dividend yields of 4.7-5.3%. Potential catalysts include a rebound in regional currencies and earnings improvements at Optus.

FOONG Choong Chen CFA CIMB Securities | http://research.itradecimb.com/ 2016-05-12

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 4.50 Same 4.50