SINGTEL
Z74.SI
SingTel - 2QFY17 Associates help to buffer weak Optus
- 2QFY17 core net profit up a marginal 0.4% yoy. Higher associate earnings offset by lower profits at Optus and in Singapore.
- Results in line, with 1HFY17 core net profit at 51% of our FY17 forecast.
- Maintain Add with unchanged target price of S$4.50. Attractive yields of 4.5-5.5%.
2QFY17 results in line despite weak Optus
- SingTel’s 2QFY17 core net profit rose a marginal 0.4% yoy (+2.5% qoq). This was in line, with 1HFY17 at 51% of our FY17 forecast (consensus: 49%).
- Associate earnings rose 10.8% yoy, which was largely offset by lower profits at Optus (-18.7% yoy) and in Singapore (-6.6% yoy). A 1HFY17 DPS of 6.8 Scts was declared (1HFY16: 6.8 Scts).
- SingTel lowered its FY17 guidance:
- revenue to fall by low single-digits (previous: low single-digit growth) on steeper mid-teens decline at Optus (previous: low-teens) due to heightened competition; and
- EBITDA to be stable (previous: low single-digit growth).
Singapore: Narrower DL losses
- EBITDA rose 1.1% yoy (+0.2% qoq) in 2QFY17 on higher service revenue, which offset a 1.2%-pt margin erosion to 31.7%. Consumer EBITDA fell 1.9% yoy on lower other income (otherwise, +2.6% yoy).
- Enterprise EBITDA was flat yoy, with higher revenue offset by a lower margin. Digital Life’s (DL) negative EBITDA narrowed 17.6% yoy to S$28m.
- Core net profit in 2QFY17 was down 6.6% yoy (+4.5% qoq) due to higher depreciation and higher net interest cost.
Optus: A weak quarter but strong postpaid mobile net adds
- Optus’s service revenue fell 11.4% yoy (+2.5% qoq) in 2QFY17 on lower mobile revenue (-20.6% yoy) due to termination rate (MTR) cuts since Jan 2016.
- Postpaid subs grew by a healthy 91k qoq (+1.9%), the strongest in four years, while prepaid users fell 21k qoq (-0.6%). Blended ARPU was down 20.9% yoy (ex-MTR changes: +2.0% yoy) but steady qoq.
- EBITDA fell 10.3% yoy (-1.9% qoq) on higher cost of sales due to content investments (BPL) and higher equipment cost. The margin eased 0.5% pts yoy (- 2.3% pts qoq) to 30.0%.
Associate earnings: Improvement led by Telkomsel and Bharti
- Associate contributions in S$ improved 10.8% yoy due largely to Telkomsel (+22.2%) and Bharti (+73.3%).
- Qoq, associate earnings fell 3.4%, led by AIS (-29.7%) and Globe (-41.3%), partly buffered by higher earnings at Telkomsel (+12.2%).
- 1HFY17 associate earnings were ahead of expectations at 54.9% of our FY17 forecast.
Maintain Add call and SOP-based target price of S$4.50
- SingTel’s FY18F EV/OpFCF of 17.3x is at 16% premium over the ASEAN telco average but this is supported by attractive FY17-19F yields of 4.5-5.5%.
- Downside risks are more intense competition in Australia, India and Singapore. SingTel is our preferred Singapore telco pick as it:
- has a better medium-term earnings growth outlook, and
- will be least impacted by the potential entry of a fourth mobile player.
LIM Siew Khee CFA
CIMB Research
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http://research.itradecimb.com/
2016-11-10
CIMB Research
SGX Stock
Analyst Report
4.500
Same
4.500
