SingTel - CIMB Research 2017-08-11: 1QFY18 In Line Despite Airtel Drag

SingTel - CIMB Research 2017-08-11: 1QFY18 In Line Despite Airtel Drag SINGTEL Z74.SI

SingTel - 1QFY18 In Line Despite Airtel Drag

  • SingTel's 1QFY18 core net profit fell 3.5% yoy on lower associate earnings, particularly Airtel.
  • Results in line, with 1QFY18 at 24% of our FY18F forecast.
  • Maintain Add with unchanged target price of S$4.10. Attractive yields of 4.7-5.1%.

1QFY18 results in line

  • Singtel’s 1QFY18 core net profit was in line, forming 24%/23% of our/consensus FY18F forecasts. Core net profit fell 3.5% yoy (-7.4% qoq) mainly due to Airtel (-62.1% yoy, associates: -2.5% yoy). 
  • Singapore profits were also lower (-4.9% yoy), while Optus's contributions were steady yoy due to a stronger A$. In constant currency terms, core net profit was down 5.4% yoy.

Singapore: Lower earnings; Amobee breaks even for the first time

  • Singapore EBITDA eased 1.0% yoy (+12.6% qoq), while core net profit fell a steeper 4.9% in 1QFY18 (+17.2% qoq) on higher net interest cost. Consumer EBITDA fell 2.9% yoy as the year-ago quarter had some staff/traffic accrual reversals. Despite stable revenue, Enterprise EBITDA was lower by 2.0% yoy due to higher costs related to investments in cyber security and ICT capabilities.
  • Digital Life (DL)’s LBITDA narrowed by 34.2% yoy to S$24m as Amobee achieved EBITDA breakeven for the first time, partly offset by higher cost at HOOQ.

Optus: Weaker earnings on higher depreciation & interest cost

  • Optus’s service revenue rose 2.2% yoy (-0.9% qoq) on higher NBN migration and consumer mobile service revenue (+1.5% yoy). Ex-device repayment plan (DRP) credit, the latter was up 6.8% yoy. Postpaid subs grew a decent 54k qoq (+1.1%), while prepaid users fell 18k qoq (-0.5%). Blended ARPU fell 2.9% yoy/qoq (ex-DRP, stable yoy).
  • EBITDA rose 2.6% yoy (+10.7% qoq), despite a 0.7% pt lower margin (-3.6% pts qoq).
  • Core net profit fell 3.6% yoy (-25.2% qoq) on higher depreciation and interest cost.

Associate earnings: Sharp fall at Airtel

  • Associate contributions in S$ terms fell 2.5% yoy mainly due to Airtel (-62.1%) but also AIS (-20.8%) and Globe (-10.8%), partly buffered by Telkomsel (+16.9%) and Intouch (1QFY17: nil).
  • Qoq, associate earnings were steady as lower earnings at AIS (-5.5%), Intouch (- 14.1%) and Bharti (-2.8%) were offset by higher contributions from Globe (+12.7%) and Telkomsel (+1.6%). 
  • Overall, 1QFY18 associate earnings were in line, at 25% of our FY18F forecast.

Guidance on capital management initiatives in 1HFY18 results

  • Singtel will provide guidance with regards to the utilisation of cash proceeds from NetLink NBN Trust’s IPO when it announces its 1HFY18 results.
  • Singtel reaffirmed its FY18 guidance for revenue to grow in the mid-single digits (Australia Mobile: low single digit growth, Singapore: low single digit decline), EBITDA to grow by the low-single digits and capex at S$2.6bn.

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

  • Maintain Add with an unchanged SOP-based target price of S$4.10. 
  • Singtel’s FY18F EV/OpFCF of 18.0x is at an 8% 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 NetLink Trust’s recent listing. 
  • Downside risk: keener competition in Australia, India and Singapore. 
  • Singtel remains our preferred Singapore telco pick.

FOONG Choong Chen CFA CIMB Research | http://research.itradecimb.com/ 2017-08-11
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.100 Same 4.100