Singapore Telecommunications - Maybank Kim Eng 2016-08-11: Solid Performer

Singapore Telecommunications (ST SP) - Maybank Kim Eng 2016-08-11: Solid Performer SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - Solid Performer

Still our top choice 

  • 1Q17 was in line, with underlying net profit up 7% YoY on strong contributions from Bharti and Telkomsel
  • Mobile data growth across all markets and a strong Enterprise showing in Singapore marked the strongest themes. This should provide solid support for a continued BUY in a year when a new rival is expected, as it will not be able to touch this business. 
  • SOTP is raised 4% to SGD4.69 as we roll over Telkomsel valuations to FY17. 
  • Upside is almost 10%, before dividend yield of 4.5%.

1Q17 in line; good solid quarter 

  • Underlying NP +7% YoY in 1Q17 on strong associates, +15% YoY. Excluding exceptionals, NP was stable. 
  • Mobile data growth was the biggest theme across all markets, mitigating declining voice and roaming revenue. 
  • In Enterprise, cyber security revenue topped SGD100m per quarter following the acquisition of Trustwave
  • Mix-wise, Enterprise is now 40% of group revenue, up from 36% a year ago. 
  • Group EBITDA margin improved YoY and QoQ on lower handset sales and acquisition costs.

Enterprise grew even without M&A 

  • Enterprise revenue rose 5% on the consolidation of Trustwave since Sept 2015. 
  • Excluding Trustwave, we estimate that group Enterprise revenue was flat mainly due to a weaker Australia where corporates were switching to cheaper IP-based voice solutions. 
  • However, Singapore Enterprise excluding Trustwave, should have risen c.2% YoY, by our estimates, in line with the reported EBITDA growth of 2.4% without Trustwave. This growth rate would have been similar to StarHub’s 2% higher Fixed Enterprise revenue in the same quarter.

Maintain BUY; SOTP raised to SGD4.69 

  • We raise our SOTP valuation by 4% as we roll forward Telkomsel valuation to FY17 forecasts. 
  • Telkomsel has been an outperformer, with growth in data and even voice following network upgrades. 
  • Maintain BUY. 
  • Catalysts ahead include potential capital returns from NetLink Trust following Singtel’s mandated exit by Apr 2018. A data boost from the launch of Pokemon Go in Singapore is another potential catalyst, as Singtel’s average data consumption of 2.6GB is the lowest among the three telcos.

Swing Factors


  • 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/ 2016-08-11
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 4.69 Up 4.50