SingTel - RHB Invest 2017-11-09: Bumper Dividends Mask Earnings Miss

SingTel - RHB Invest 2017-11-09: SINGTEL Z74.SI

SingTel - Bumper Dividends Mask Earnings Miss 

  • Singtel’s 2Q/1HFY18 results were below market expectations at 40% of consensus (slightly below our 46%). This was on continued weak associate contributions (-11% YoY). Group EBITDA was up 5% YoY in 2QFY18 on stronger revenue and good cost controls. 
  • Positively, a SGD0.03 special DPS (on top of an interim DPS of SGD0.068/share), or 22% of the SGD2bn sales proceeds from the earlier listing of NetLink NBN Trust, was proposed. The special DPS was largely anticipated and should not come as a surprise, although the market had expected more. 
  • Our forecasts, SOP-based SGD3.90 TP (3% upside) and NEUTRAL recommendation are under review pending the results call with management today.

Earnings miss. 

  • 2QFY18 (Mar) core earnings – excluding gains booked from the sale of NetLink NBN Trust (NETLINK SP, NR) of SGD2.05bn – fell 4% YoY. This was mainly driven by weaker contributions from associates, but improved QoQ (+2.2%) due to lower withholding taxes from dividends. 
  • Revenue grew 3% QoQ on seasonality, improvement in digital – ie Group Digital Life (GDL) – contributions, and further supported by the strength of the AUD/SGD. 
  • 1HFY18 core earnings of SGD1.84bn were slightly below, at 46% of our forecast, but missed consensus’ estimate at 40%.

Other key takeaways: 

  1. Singapore. Mobile communications revenue continues to be impacted by lower usage and roaming revenues – down 3% YoY but flat QoQ in 2QFY18. EBITDA improved sequentially on lower subscriber (sub) acquisition costs, with the timing of new handset launches this quarter. Postpaid ARPU eased for the third consecutive quarter to SGD64.00, with a greater mix of SIMonly plans. Meanwhile, prepaid subs net deletion accelerated to 39,000 (1QFY18: 31,000) due to higher churn from foreign workers;
  2. Australia. Singtel Optus Pty Ltd’s (Optus) mobile service revenue inched higher (+1.4% QoQ) and rose for the second consecutive quarter YoY (+2.2%). This was supported by steady postpaid APRU and strong 75,000 postpaid sub additions. EBITDA was steady QoQ on tight cost controls. 4G population coverage was at 96.5% with 6,382 sites on 4G, of which 5,387 have been upgraded to the 700MHz band; 
  3. Group enterprise (GE). GE revenue rebounded 6.4% QoQ on seasonality and gained 5% YoY, albeit EBITDA margin was compressed due to a higher proportion of lower margin ICT and project-related equipment sales this quarter;
  4. Associate contributions pulled down by Telkomsel and Airtel. Telkomsel’s growth decelerated sharply YoY due to the earlier Lebaran festive holiday and high base in 2QFY17. Airtel, meanwhile, continued to be affected by tight competition. This was more than offset by a stronger showing from Advanced Info Service (AIS) (ADVANC TB, NR) on tight cost management;
  5. GDL’s EBITDA losses narrows further QoQ, as Amobee achieved greater scale economies (EBITDA breakeven in 1QFY18) from the acquisition of Turn Inc (booked in April). This was partially offset by continued investments in HOOQ, its regional overthe-top (OTT) business. The YTD EBITDA loss of SGD74m is tracking in line with the guidance of SGD100m for FY18 (FY17: SGD120m).

Maintain NEUTRAL. 

  • Our forecast, SOP TP of SGD3.90 and NEUTRAL recommendation are under review pending the results call with management later today.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-09
RHB Invest SGX Stock Analyst Report HOLD Maintain NEUTRAL 3.90 Same 3.900