Singtel - OCBC Investment 2017-11-10: Investing Now For Higher Future Growth

Singtel - OCBC Investment 2017-11-10: Investing Now For Higher Future Growth SINGTEL Z74.SI

Singtel - Investing Now For Higher Future Growth

  • 1HFY18 dragged by weak Airtel contribution.
  • Recorded divestment gain of S$2b.
  • Lower margin on higher ICT business mix.

Core 1HFY18 within expectations 

  • Singtel’s 1HFY18 operating revenue grew 7.6% YoY to S$8.60b driven by growth across all business segments – consumer (+2.3%), enterprise (+5.5%) and digital life (+105.5%). This resulted in a 3.7% YoY growth in 1HFY18 EBITDA to S$2.56b, which is in-line with our expectations as it met 49.5% of our FY18 forecast. 
  • However, Singtel’s enterprise business mix is shifting to have a higher proportion of ICT-related contribution, which is the main driver for a 1.1ppt decline in 1HFY18 EBITDA margin to 29.8%. 
  • Singtel also recorded an exceptional gain of S$2.0b in 2QFY18 on the divestment of NetLink Trust. In addition, associates’ underlying profit contributions fell 3.7% due to weaker Airtel performance amid intense competition in India. 
  • Consequently, excluding divestment gains, core 1HFY18 underlying NPAT declined 3.8% YoY to S$1.84b but was up 2.7% if Airtel was excluded. Singtel will be paying an interim dividend of S$0.068/share (1HFY17: S$0.068) and a special dividend of S$0.030/share (1HFY17: Nil).

Long-term positive outlook intact 

  • We remain positive over Singtel’s longer-term outlook given its focus to grow its cyber security, ICT solutions capabilities, digital advertising and other digital-related businesses. As Singtel continues to drive investments to further enhance its ICT capabilities as it builds up its ICT-related business portfolio, we expect the proportion of ICT-related revenue in its enterprise segment to continue to rise.
  • Separately, Amobee (including Turn), which is its digital advertising arm classified under digital life segment, has already turned EBITDA positive in 2QFY18, and we expect its performance to further improve as Amobee continues to leverage on enlarged scale and synergies with Turn Inc.

Reiterate BUY 

  • That said, we expect muted performance over the near-term as its consumer business faces headwinds in both the Singapore and Australia mobile markets amid intensifying competitive landscape. Contributions from associates will remain fairly weak as Airtel’s weakness persists.
  • All said, we believe the investments Singtel is currently making are positive in helping to drive longer-term growth, especially given the highgrowth potential of these digital industries.
  • Hence, on in-line results, reiterate BUY with an unchanged FV of S$4.19.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-11-10
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 4.190 Same 4.190