Singtel - OCBC Investment 2016-05-12: Steady Growth Likely in FY17; BUY

Singtel - OCBC Investment 2016-05-12: Steady Growth Likely in FY17; BUY SINGTEL Singapore Telecommunications Z74.SI 

Singtel - Steady Growth Likely in FY17; BUY

  • S$0.107/share final dividend
  • Sees low single-digit revenue growth
  • Still positive on Enterprise business

FY16 results within expectations

  • Singtel’s FY16 results were within expectations. 
  • Revenue eased 1.5% to S$16,961m, about 4% below our forecast, mainly due to the 9% depreciation in the A$ against the S$; in constant currency terms, operating revenue would have been up 4%. 
  • Reported net profit rose 2.4% to S$3,871m, while underlying net profit was up 0.7% at S$3,805m, or just 0.1% below our forecast. 
  • Singtel declared a final dividend of S$0.107/share, bringing the total payout to S$0.175 for FY16, both unchanged from FY15.

Guiding for steady growth in FY17

  • Going forward, Singtel expects both consolidated revenue and EBITDA for the group to grow by low single digit; this likely driven by its Group Enterprise business, where both operating revenue and EBITDA are expected to increase by low single digit. 
  • For its Group Consumer business, Singapore is likely to remain stable; however, Australia could see A$800m revenue decline due to fall in mobile termination rates, but is not expected to have a material impact on Optus’ EBITDA. 
  • For Group Digital Life, revenue from Amobee Group is likely to grow by mid single digit; but expects negative S$150-180m EBITDA due to ramp-up of HOOQ operations. Capex spend will be around S$2.8b (versus S$2.4b in FY16); free cash-flow to be around S$1.5b, and S$1.2b of dividends from its regional associates. 
  • Management also mentioned that it will be looking to divest its stake in NetLink Trust to less than 25% by 22 Apr 2018, as per its undertaking to IDA.

Keep BUY with new S$4.09 fair value

  • As before, we believe that Singtel is probably the least affected by the entrance of a 4th telco here; nevertheless, we will be on the look-out for potential disruptions in the Singapore mobile market. 
  • Updating the share prices of its listed associates, and also making some minor tweaks to our estimates for FY17, our SOTP fair value improves from S$3.96 to S$4.09. 
  • Maintain BUY. 

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-05-12
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 4.09 Up 3.96