Singapore Telecommunications - UOB Kay Hian 2016-08-12: 1QFY17 Growth From Associates, Catalyst From Turnaround In A$

Singapore Telecommunications (ST SP) - UOB Kay Hian 2016-08-12:  1QFY17: Growth From Associates, Catalyst From Turnaround In A$ SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - 1QFY17: Growth From Associates, Catalyst From Turnaround In A$

  • Singtel’s 1QFY17 net profit of S$954m (+6.6% yoy) was slightly above our expectation. Telkomsel and Bharti Airtel outperformed with earnings contributions increasing 31% and 5.1% yoy respectively. 
  • Regional mobile associates provide strong organic growth from emerging countries. The turnaround in A$ is another catalyst. Singtel offers a defensive fortress and a decent dividend yield of 4.4%.
  • Maintain BUY. Target price: S$4.70.


  • Singtel's net profit of S$954m for 1QFY17 was slightly above our forecast of S$941m.

Group Consumer: cutting costs to overcome revenue headwinds. 

  • For Singapore, revenue from mobile, IDD and national telephone declined 1.4% yoy, 18.5% yoy (-11% yoy excluding one-off credit of S$5m last year) and 5.5% yoy respectively. Singtel added only 2,000 post-paid subscribers due to termination of 25,000 inactive subscribers on rationalisation of legacy data plans. Post-paid ARPU was stable at S$70/month, held back by lower voice, SMS and roaming revenue. The decline in IDD and national telephone reflects data substitution. EBITDA increased 0.5% yoy due to cost rationalisation.
  • Optus’ mobile revenue declined 19.7% yoy in constant currency due to reduction in mobile termination rate (MTR) effective 1 Jan 16. It added 58,000 branded handset customers. Blended ARPU increased A$1 or 2.5% yoy, adjusted for changes in MTR and device repayment plan. Its NBN customers grew 23,000 qoq due to increased take-up for Optus TV. Staff costs decreased 8.1% yoy with the reduction in headcount. EBITDA increased 2% yoy in constant currency but growth was negated by a 3.1% yoy depreciation in the A$ against the S$.

Group Enterprise: Growth from cyber security. 

  • Revenue grew 5.1% yoy due to contribution from cyber security (classified under ICT) of S$109m. In Singapore, Data & Internet revenue grew 3.1% yoy. Revenue from Australia declined 1.8% yoy in constant currency. TrustWave contributed negative EBITDA of S$5m, thus, EBITDA grew by a slower 1.4% yoy.

Group Digital Life: Amobee continued to scale up. 

  • Amobee’s advertising revenue from mobile, video and social media grew 30.4% yoy. It introduced video advertising campaigns on Twitter and secured new customers Honda and Philips. EBITDA was stable at negative S$36m.

Regional Mobile Associates: Growth from Telkomsel and Bharti Airtel. 

  • Telkomsel added 3.8m subscribers in 1QFY17 and its subscriber base expanded 9.2% yoy. It has 76m data customers, which accounted for 48.3% of its subscriber base. Operating revenue grew 14.5% yoy, driven by voice (+4.4% yoy) and data (+45.7% yoy). EBITDA increased 21% yoy despite higher operation and maintenance costs from the accelerated network deployment. PBT grew 32% yoy with a mild 0.3% depreciation of the rupiah against the S$.
  • Bharti added 4.5m subscribers and its subscriber base expanded 11% yoy in India and South Asia. Operating revenue grew 10% yoy, driven by data traffic (+55% yoy) and data ARPU (+12% yoy). EBITDA surged 17% yoy on tight control in operating expenses.
  • Revenue from Africa rose 2% yoy, driven by data and “Airtel Money” services. Data revenue grew 31% yoy due to higher usage and data penetration. EBITDA increased 12% yoy due to cost efficiencies. On a group basis, PBT increased a slower 5.1% yoy due to higher interest expense, fair value losses and a depreciation of 4.2% in the rupee against the S$.


  • Maintain guidance for FY17. Revenue and EBITDA are expected to grow at low-singledigit on a group basis.


  • We raise our net profit forecasts by 0.4% for FY17 and 0.6% for FY18 to factor in appreciation of the A$ against the S$.


Maintain BUY. 

  • We have performed a scenario analysis based on two possible outcomes: Best case - no new entrant, and worst case - a fourth mobile operator disrupts the status quo. We attribute a probability of 25% for the best case and 75% for the worst case. 
  • Our probability-weighted target price is S$4.70 (best case: S$5.02 (previously S$4.51), worst case: S$4.61 (previously S$4.38)). The risk-reward trade-off is favourable with potential upside of 8-17.6%.


  • Singtel is the least affected by a fourth mobile operator in Singapore as overseas businesses account for about 70% of its bottom line.
  • Singtel will benefit from growth at its regional mobile associates.
  • Singtel is the largest and most liquid defensive stock listed on the Singapore Exchange and deserves to trade at a premium.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-12
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.70 Up 4.380