Singapore Telecommunications (ST SP) - Maybank Kim Eng 2017-05-18: Dividend Oasis

SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - Dividend Oasis

4Q17/FY17 net profit was in line with our and the consensus est. The main YoY drag on profit was India competition hitting Airtel, but that was expected.
FY18 rev/profit guidance is decent, but silent on the potentially negative impact of competition in India (Reliance Jio) and Australia (TPG).
Still, we expect Singtel’s dividends to remain the most secure and stable (current yield 4.7%), despite higher-than-expected spectrum cost vs forecasted declines for the other two telcos.
HOLD with unchanged forecasts and SGD3.70 DCF-based TP (WACC 5.3%, LTG 1%).

The stable 4Q and full-year results were in line with our forecasts, which already included competition-hit results from Airtel.
Full-year underlying NP rose 3% YoY to SGD3,915m and for 4Q17 +0.8% YoY to SGD988m. Excluding Airtel, underlying NP rose 4.5% for the full year and 7% for 4Q17. This reflected a strong consumer business in Singapore and Australia, and growth in Telkomsel.
Full-year group revenue fell 2.5% mainly because of the cuts in mobile termination rates in Australia; it was stable otherwise.

Group consumer revenue/EBITDA grew 7% YoY/QoQ. Singapore consumer was flat as weak voice revenue offset data growth, but EBITDA margin improved on lower operating costs. Australia did better on a stronger AUD and cost control.
Group enterprise was mixed, with revenue +3% YoY but EBITDA down 2% due to price competition in Australia.
Group digital life losses shrank 7.5% YoY.
Associate profits were flat due to poorer results from Airtel, Globe and AIS, but Telkomsel’s 17% growth offset the decline.

FY18 guidance was also in line with forecasts, calling for mid-single digit growth for revenue and low-single digit growth for EBITDA; it was silent on associates’ performance, especially Airtel. While we have assumed that Airtel will remain under pressure until FY19, downside risk may be larger than expected.
Guidance also does not appear to have accounted for TPG-related risks in Australia.
Reiterate HOLD with unchanged estimates and TP.

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.
If TPG is unable to cope with expanding into two new mobile markets simultaneously, incumbents will get some breathing room.

May not be able to maintain > 70% payout if it needs to reserve cash for spectrum, network or other investments, especially if associate dividends start to flag.
Competitive pressures on Bharti Airtel become more intense, leading to greater-than-expected profit decline.
TPG’s entry into both Singapore and Australian mobile markets becomes more problematic than expected.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-05-18

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.70 Down 3.70