Singtel (Singapore Telecommunications) - Maybank Kim Eng 2016-05-12: Decent outlook, IPO catalyst

Singapore Telecommunications - Maybank Kim Eng 2016-05-12: Decent outlook, IPO catalyst SINGTEL Singapore Telecommunications Z74.SI 

Singapore Telecommunications (ST SP) - Decent outlook, IPO catalyst 

Respectable growth, more catalysts ahead 

  • FY16 was in line, despite a soft end to the year for revenue. 
  • However, the FY17 outlook is decent given guidance for low single digit revenue and EBITDA growth by Singtel. 
  • In addition, Singtel has reportedly set in motion an IPO process for NetLink Trust, its fibre-optic network infrastructure unit, which could bring in more than SGD3b to beef up its capacity for acquisitions and market share grabs. 
  • Maintain BUY. SOTP TP raised slightly to SGD4.50 as we roll over to FY17E. 

FY16 in line; weak 4Q sales not reflective of outlook 

  • FY16 was in line despite a soft topline in 4Q, affected by reduced mobile termination rates in Australia, consolidation of loss-making Trustwave and weak AUD. 
  • Mobile revenue in Singapore and Australia was also hit by lower handset sales and IDD. 
  • We are not overly concerned about the lower 4Q revenue, as they do not affect margins and EBITDA. In fact, profitability benefited as costs fell faster. 
  • Associates (mainly Telkomsel) carried the day, as they grew 5% in 4Q16 and 8% in FY16. 

Encouraging growth guidance for FY17 

  • Singtel expects revenue and EBITDA to rise by low single digit in FY17. 
  • While revenue growth is expected to trail FY16 slightly, we think the quality of earnings will be better as the high-margin Enterprise business is expected to lead the way, driven by expected low-teens growth of ICT (Managed Services & Business Solutions). It takes over from Consumer, which is increasingly held back by high penetration and growing competition, especially in Singapore. 

Potential catalyst: NetLink Trust IPO 

  • Singtel has to divest at least 75% of NetLink Trust by Apr 2018, going by its agreement with the government. 
  • Currently 100% owned, NLT operates the physical infrastructure of the nationwide fibre-optic network. We understand that management has set in motion a possible IPO. 
  • Assuming a reported valuation of SGD4.5b, it could bring in more than SGD3b, which would give Singtel more firepower to acquire, especially in the Enterprise and Digital Life space. 


Factors Upside 

  • No new competitor to take up a new mobile operator licence. The three incumbents keep their spectrum allocations, including bands reserved for fourth telco. 
  • AUD reverses its weakening trend against SGD. Every 1% gain in AUD translates to 0.5% gain in Optus revenue, as Optus accounts for c.55% of group revenue. 


  • May not be able to maintain 70% dividend payouts if it needs to reserve cash to pay for spectrum or network investments, especially if associate dividends flag. 

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-12
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 4.50 Up 4.40