SingTel - CIMB Research 2017-11-09: 2QFY18 Largely In Line But Special DPS Disappoints

SingTel - CIMB Research 2017-11-09: 2QFY18: Largely In Line But Special DPS Disappoints SINGTEL Z74.SI

SingTel - 2QFY18: Largely In Line But Special DPS Disappoints

  • SingTel's 2QFY18 core net profit fell 4.1% yoy, mainly on lower Airtel and Singapore earnings.
  • Results in line, with 1HFY18 at 48% of our FY18F forecast. Special DPS of 3.0 Scts was lower than expected.
  • We maintain our Add call and target price of S$4.10. Yields are attractive at 4.6-5.0%.

2QFY18 results largely in line; special DPS lower than expected

  • Singtel’s 2QFY18 core net profit was largely in line, with 1HFY18 forming 48%/47% of our/consensus FY18F forecasts. Core net profit fell 4.1% yoy (+2.2% qoq), mainly due to Airtel (-67.1% yoy, associates: -4.5% yoy). Singapore profits were also lower (-8.4% yoy) while Optus's contributions eased 0.9% yoy, cushioned by a 5% stronger A$. In constant currency terms, core net profit was down 4.9% yoy.
  • A 1HFY18 DPS of 6.8 Scts (1HFY17: 6.8 Scts) was declared, which implies a 60% payout ratio. Singtel is also paying out a special DPS of 3.0 Scts. This is lower than our expectations (10-13 Scts) as Singtel is only returning S$500m out of the total S$2.3bn proceeds from the divestment of NetLink Trust (NLT)
  • Singtel says the balance will be used for spectrum payments and growth investments.

Singapore: Earnings weighed down by higher interest cost

  • Singapore EBITDA eased 0.4% yoy (+0.8% qoq) while core net profit fell a steeper 8.4% in 2QFY18 (+0.7% qoq) on higher interest cost, depreciation and effective tax rate. Despite lower revenue, consumer EBITDA grew 6.4% yoy, mainly on lower subsidies (timing of smartphone launches). 
  • Enterprise EBITDA fell 7.5% yoy due to a higher mix of lower-margin ICT business, higher opex and one-off gains in 2QFY17.
  • Digital Life’s (DL) LBITDA narrowed by 49.5% yoy to S$14m as Amobee turned EBITDA-positive (S$11m) for the first time, partly offset by higher costs at HOOQ.

Optus: EBITDA growing; net profit lower on higher depreciation

  • Service revenue rose 4.0% yoy (+4.3% qoq) on higher NBN migration and consumer mobile service revenue (+2.1% yoy). Ex-device repayment plan (DRP) credit, the latter was up 6.4% yoy. 
  • Postpaid subs grew a healthy 75k qoq (+1.5%) while prepaid users fell 24k qoq (-0.6%). Blended ARPU was steady yoy (+2%, ex-DRP) and up 3.0% qoq.
  • EBITDA rose 4.4% yoy (-0.2% qoq), in line with higher service revenue. Core net profit fell 5.4% yoy (-6.4% qoq) on higher depreciation and interest cost.

Associate earnings: sharp fall at Airtel

  • Associate contributions in S$ terms fell 4.5% yoy due to Airtel (core net profit fell 67.1%) and lower contribution from NLT after a reduction in its stake to 25%. These were partly offset by higher profit at Globe (+65.0%) and AIS (+20.1%) and contribution from InTouch (2QFY17: nil).
  • Qoq, associate earnings fell 5.5%. Besides reduced contribution from NLT, Telkomsel (-2.2%) and Bharti (-14.2%) earnings were lower, partly offset by higher contributions from Globe (+8.6%) and AIS (+4.0%). 
  • Overall, 2QFY18 associate earnings were in line, at 48% of our FY18F forecast.

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

  • We keep our Add call and our SOP-based target price of S$4.10. 
  • Singtel’s FY18F EV/OpFCF of 18.1x is in line with the ASEAN telco average, supported by attractive FY18-20F yields of 4.6-5.0%. 
  • A potential re-rating catalyst is earnings recovery in FY19F. Downside risks include keener competition in Australia, India and Singapore.
  • Singtel remains our preferred Singapore telco pick.

FOONG Choong Chen CFA CIMB Research | http://research.itradecimb.com/ 2017-11-09
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.100 Same 4.100