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


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.

Downside

  • 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


Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......