SingTel - CIMB Research 2016-08-11: 1QFY17 Associates shining bright

SingTel  - CIMB Research 2016-08-11: 1QFY17: Associates shining bright SINGTEL Z74.SI

SingTel - 1QFY17: Associates shining bright

  • 1QFY17 core net profit up 6.6% yoy on higher associate earnings.
  • Results in line, with 1QFY17 at 25% of our FY17 forecast.
  • Maintain Add call and our SOP-based target price. Decent yields of 4.2-5.0%.

1QFY17 results in line

  • SingTel’s 1QFY17 core net profit rose 6.6% yoy (-2.7% qoq). This was in line at 25% of our FY17 forecast (consensus: 25%). 
  • Group earnings were driven by associates (despite weaker currencies), which was partly offset by lower profits at Optus (weaker A$) and in Singapore. In constant currency terms, core net profit was up 8.8% yoy.

Singapore: Growing enterprise business

  • EBITDA rose 2.0% yoy (+13.7% qoq) in 1QFY17 on higher service revenue, which offset a 1.5%-pt margin erosion to 32.1%. 
  • Consumer EBITDA was largely flat yoy on lower other income (otherwise, +2.1% yoy). 
  • Enterprise EBITDA was up 4.1% yoy due to higher revenue (including Trustwave consolidation). 
  • Digital Life’s (DL) negative EBITDA rose 15.2% yoy to S$36m but narrowed by 7.7% qoq.
  • Core net profit in 1QFY17 was down 4.3% yoy due to higher depreciation. Qoq, it was up 43.7% qoq as 4QFY16 was impacted by recognition of fair value losses.

Optus: A flattish quarter for EBITDA

  • Optus’s service revenue fell 12.7% yoy (-2.9% qoq) in 1QFY17 on lower mobile revenue (-20.3% yoy) due to termination rate (MTR) changes since Jan 2016.
  • Postpaid subs grew 19k qoq (+0.4%), partly held back by deactivation of wholesale subs, while prepaid users fell 24k qoq (-0.7%) due to regulated changes in customer ID verification. Blended ARPU fell 20.9% yoy (ex-MTR changes: +2.5% yoy).
  • EBITDA inched up 0.7% yoy (-12.7% qoq) due to lower cost of equipment but largely offset by higher staff and selling and admin costs. The margin jumped 4.3% pts yoy (- 3.4% pts qoq) to 32.3%. 

Associate earnings: Improvement led by Telkomsel and Bharti

  • Associate contributions in S$ improved 19.4% yoy due largely to Telkomsel (+31.1%) and Bharti (+23.9%). 
  • Qoq, associate earnings rose 2.3% mainly due to higher contribution from Telkomsel (+2.0%), Globe (+5.4%) and Bharti (+2.0%). 
  • In 1QFY17, Rp (-1.7%), Rs (-2.4%), THB (-2.1%) and Php (-1.8%) fell against S$. 1QFY17 associate earnings are a bit ahead of expectations at 27.9% of our FY17 forecast.

Maintain Add call and SOP-based target price of S$4.50

  • SingTel trades at FY17F/18F EV/OpFCF of 20.1x/18.5x (ASEAN telco average: c.14x) and offers decent FY17-19F dividend yields of 4.2-5.0%. 
  • Potential catalysts include a rebound in regional currencies and earnings improvements at Optus while downside risks are more intense competition in Australia, India and Singapore.

FOONG Choong ChenCFA CIMB Research | http://research.itradecimb.com/ 2016-08-11
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.500 Same 4.500