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

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%. 

Results in line 

  • 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%. 

Singapore: Lower DL losses offset softer consumer/enterprise 

  • 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: EBITDA up on lower costs 

  • 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 earnings: Improvement led by Telkomsel 

  • 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