SingTel - CIMB Research 2017-05-18: 4QFY17 All Good But For Airtel

SingTel - CIMB Research 2017-05-18: 4QFY17: All Good But For Airtel SINGTEL Z74.SI

SingTel - 4QFY17: All Good But For Airtel

  • 4QFY17 results were in line, bringing FY17 core net profit to 2% above our forecast.
  • Singapore’s EBITDA was flat yoy. Digital Life (DL)’s negative EBITDA narrowed 7.5% yoy.
  • Optus’ EBITDA was also flat yoy. Both postpaid & prepaid saw strong net adds qoq.
  • Associates’ earnings fell 1.3% yoy, dragged largely by Airtel.
  • Maintain Add with unchanged target price of S$4.10. Attractive yields of 4.7-5.1%.

FY17 results in line despite weaker Optus & associates 

  • Singtel’s 4QFY17 core net profit inched up 0.8% yoy (-0.6% qoq). This was in line, with FY17 coming in 2% above our forecast (consensus: spot on). 
  • Higher profits in Singapore (+16.6% yoy) were offset by lower profits at Optus (-3.0% yoy) and associates (-1.3% yoy). 
  • In constant currency terms, core net profit was down 1.4% yoy. 
  • Singtel maintained a final DPS of 10.7 Scts, which places the payout ratio for FY17 at 73%.

Singapore: EBITDA flat; core earnings up on lower taxes 

  • Singapore EBITDA was flat yoy (-4.0% qoq) in 4QFY17. 
  • Consumer EBITDA rose 4.9% yoy due to higher other income and revenue (mobile: -0.8%, home: +3.3%). 
  • Enterprise EBITDA eased 0.7% yoy, with higher revenue offset by a 1.1%pt drop in margin. DL’s negative EBITDA narrowed 7.5% yoy to S$36m. 
  • Core net profit in 4QFY17 was up 16.6% yoy (-13.8% qoq), driven by lower taxes and net interest cost.

Optus: A flat quarter but strong mobile net adds 

  • Optus’s 4QFY17 service revenue was steady yoy (+1.0% qoq) as higher NBN revenue was offset by lower enterprise (-4.5% yoy) and consumer mobile revenue (-3.2% yoy) Ex-device repayment plan (DRP) credit, the latter was up 3.2% yoy. 
  • Postpaid subs grew by another strong 83k qoq (+1.7%), while prepaid users rose 64k qoq (+1.7%). Blended ARPU fell 5.6% yoy (ex-DRP: flat yoy), but steady qoq. EBITDA was flat yoy (+14.0% qoq), with margin down 0.4%pt yoy (+5.7% pts qoq) to 35.2%.

Associate earnings: Dampened by sharp earnings fall at Airtel 

  • Associate contributions in S$ fell 1.3% yoy due largely to Airtel (-60.2%) and to lesser extent, AIS (-21.3%) and Globe (-17.0%), partly buffered by higher contributions from Telkomsel (+17.5%) and InTouch (4QFY16: nil). 
  • Qoq, associate earnings rose 2.5% due to Telkomsel (+3.5%) and full quarterly contribution from InTouch (+305%). 
  • Overall, FY17 associate earnings were 3% ahead of our forecast.

No major surprises for FY18 guidance 

  • For FY18, Singtel guides for a mid-single digit revenue growth, EBITDA to grow low single digit and capex at S$2.6bn. Spectrum payments will amount to c.S$1.0bn. Singtel targets to reduce DL’s negative EBITDA to S$100m (FY17: -S$122m). 
  • Dividend payout policy of 60-75% of core net profit is unchanged. 
  • We cut FY18-19F core EPS by 0.7- 2.8% for lower Optus and Bharti earnings on more intense competition. We expect Singtel’s core EPS to ease 4.0% in FY18F before rebounding 4.2%/4.1% in FY19F/20F.

Maintain Add; No change to target price of S$4.10 

  • Due to the small earnings revision, we have kept our SOP-based target price of S$4.10.
  • Singtel’s FY18F EV/OpFCF of 18.0x is at a 7% premium over the ASEAN telco average, supported by attractive FY18-20F yields of 4.7-5.1%. 
  • Potential rerating catalyst is a special dividend after the IPO of NetLink Trust
  • Downside risk is more intense competition in Australia, India and Singapore. 
  • Maintain Add on Singtel, which remains our preferred Singapore telco pick.

FOONG Choong Chen CFA CIMB Research | http://research.itradecimb.com/ 2017-05-18
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.100 Same 4.100