Singtel - RHB Invest 2017-08-11: Dragged Down By Airtel

Singtel - RHB Invest 2017-08-11: Dragged Down By Airtel SINGTEL Z74.SI

Singtel - Dragged Down By Airtel

  • Singtel's 1Q18 results broadly in line. 
  • 1QFY18 (Mar) core earnings fell 3.5% YoY (-7.4% QoQ) from the combination of seasonal factors and weaker associate contributions (specifically India’s Airtel) alongside the 3% sequential weakness in the AUD/SGD. Stripping out India, core earnings would have grown 3% YoY and were stable on constant currency terms. 
  • Operating revenue grew a strong 8.3% YoY, supported by the maiden contribution (effective Apr 2017) from Turn Inc – its latest adjacent acquisition, while EBITDA was up 2.7% YoY from ongoing cost management initiatives. 
  • Results were weaker QoQ due to slide in the AUD and higher withholding tax on associate dividends in 1QFY18, meeting 23% of RHB/consensus estimates.


  • Mobile communications revenue narrowed 1% QoQ on seasonality, with the continuing weak usage and roaming revenues leading the 3.6% YoY erosion. This was notwithstanding the stronger mobile data growth. Its peers had earlier reported YoY revenue contractions of 1-2% in 1Q17. 
  • EBITDA was weaker YoY from the increase in handset cost, but up 10% QoQ from the higher cost base in 4QFY17. 
  • Prepaid subscriber (sub) base fell 21,000 during the quarter due to the 2G network shutdown, though ARPU was steady QoQ at SGD18.00. 
  • Postpaid ARPU declined for the second consecutive quarter to SGD65.00, with average data usage of 3.5GB/sub/month, relatively unchanged from the previous quarter.


  • Optus’ mobile service revenue was stable QoQ (+1.5% YoY), supported by steady postpaid ARPU and 54,000 postpaid subscriber additions. EBITDA nonetheless fell QoQ on higher next-generation network (NGN) migration payments and other income in the preceding quarter and traffic cost. 
  • Optus’ 4G population coverage inched higher to 96.4% as at 1QFY18 (96.1% at end March).

Group enterprise (GE). 

  • GE revenue was softer QoQ on seasonality. While revenue grew 1.1% YoY, EBITDA fell 2% due to higher cost from the introduction of new services and continued losses at its cyber-security arm, Trustwave (-SGD13m EBITDA).

Associate contributions fell for the second consecutive quarter at –2.6% YoY. 

  • Continuing aggressive price competition from 4G newcomer, Reliance Jio (RJIO), led to the sharp 42% YoY slippage in Airtel’s share of contribution (though +13.3% QoQ). 
  • Telkomsel benefitted from the strong Lebaran uplift (+3.2% QoQ/+17.7% YoY), while Advanced Info Service (AIS) (ADVANC TB, NR) and Globe Telecom fared weaker due to higher network cost and depreciation respectively.

Group Digital Life (GDL) losses narrowed further, with Amobee turning EBITDA positive. 

  • GDL revenue more than doubled YoY to SGD273m with the acquisition of Turn Inc, while GDL EBITDA losses narrowed QoQ to SGD24m (4QFY17: SGD36m loss) as Amobee (including Turn) achieved EBITDA breakeven. This was partly offset by the scaling up of HOOQ, its regional over-the-top (OTT) business that has presence in four markets (India, Indonesia, the Philippines and Thailand). 
  • GDL losses, in our view, appear on track to meet the guidance of reduced EBITDA losses of SGD100m for FY18 (FY17: SGD120m loss).

Maintain NEUTRAL 

  • We make no change to our forecasts, NEUTRAL recommendation and SOP TP of SGD3.90 (4% upside, 13.6x FY18F EV/EBITDA). Management has reinstated the previous guidance with a one-time gain of SGD2bn to be booked in 2QFY18 from the recent sell-down in NetLink Trust (NETLINK SP, NR) pursuant to its recent IPO. 
  • Singtel’s stock has outperformed its peers by 10-12% YTD, reflecting its regional exposure and lower susceptibility to deepening domestic competition, and continues to be our preferred SG telco pick.

Key risks are: 

  1. Stronger-than-expected competition in the Singapore/Australian mobile markets;
  2. Forex volatility; 
  3. Higher-than-expected losses from new businesses.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-11
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.900 Same 3.900