SingTel - RHB Invest 2017-02-10: 3Q/9MFY17 Results Flash Note

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SINGTEL Z74.SI

SingTel - 3Q/9MFY17 Results Flash Note

• SingTel released its 9MFYQ3/17 results yesterday morning.
• 9MFY17 core earnings made up 74%/75% of RHB/consensus estimates- broadly in line.
• 3QFY17 core earnings were up 4.2% YoY (+3.6% YTD) on lower financing cost and stronger associate contributions.

Results

• 3QFY17 core EBITDA was stable YoY (-1% QoQ), supported by cost rationalisation initiatives, notwithstanding the topline pressure (-2% YoY) from stronger competition affecting Optus. 
• On a constant currency basis (AUD gained 3% QoQ against the SGD), group revenue would have dipped 4% YoY.
• Regional associates remained the bright spot with contributions up 3% YoY in 3QFY17 (+ 9% YTD), led by Telkomsel (+31%) which offset the intense price- focused competition by new 4G entrant, Reliance Jio, affecting Airtel (-27% YoY).

Our View 

• No change to our forecast, NEUTRAL rating and SOP TP of SGD4.00 (implied FY18 EV/EBITDA of 12.4x). 
• Stock remains our preferred exposure to SG telcos, being the least susceptible to the threat posed by the potential fourth entrant (TPG). 
• Key earnings risks are: 
  1. stronger than expected competition in the Singapore/Australian mobile businesses, 
  2. forex volatility and 
  3. higher than expected losses from adjacent businesses.

Other highlights

• Singapore mobile service revenue fell 2% YoY (-2% YTD) in 3QFY17 on weak roaming revenue, partially offset by higher data revenue. It was up sequentially on seasonality.
• Underlying mobile revenue trends reflect the shrinkage in traditional usage revenues from OTT cannibalisation and are similar to StarHub and M1 which had earlier reported 2-5% declines YTD.
• Despite the sluggish mobile revenue, subscriber acquisition cost (SAC) jumped 25% QoQ to SGD435 – a new high- which suggests aggressive customer retention to lock-in customers ahead of the new entrant. This contributed to the 5%-pts QoQ decline in Sing EBITDA margin
• Singapore postpaid ARPU held up at SGD69 despite the higher take-up of SIM-only plans as more subscribers took on data-upsized packages (recurring revenues) and exceeded data bundle (37% of postpaid subs on tiered plans exceeded data bundles). Prepaid ARPU dipped QoQ by SGD1 to SGD18 due to a spike in churn from intense competition.
• Like StarHub, Singtel’s pay-TV subs base continued to trend lower due to competition from alternative viewing platforms/OTT.
• Optus mobile service revenue was relatively flat QoQ but EBITDA (in AUD terms) improved on lower traffic and marketing costs. Overall Optus EBITDA was down 5% YTD (AUD terms) as it beefed- up sports content for the new sports channel.
• Group enterprise revenue was stable YoY but EBITDA plunged 9% due to price competition in Australia and investments in cyber security and ICT capabilities.
• Group digital life revenue grew a commendable 23% YTD with reduced EBITDA losses this quarter of SGD23m (9MFY17 EBITDA loss of SGD86m appears to be tracking ahead of its full year guidance of SGD150-180m loss).

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-10

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