Singtel - OCBC Investment 2018-02-09: Opportunities Amid Market Volatility

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SINGTEL Z74.SI

Singtel - Opportunities Amid Market Volatility

• 9MFY18 EBITDA within expectations.
• Long-term outlook remains positive.
• Still the preferred pick within sector.

Optus delivered solid results 

• Singtel’s 9MFY18 operating revenue grew 6.5% YoY to S$13.21b largely driven by Australia Consumer (+4.3%), due to strong growth in mobile subscribers and increased equipment sales, as well as Digital Life (+112.4%) lifted by contribution from the recently acquired Turn, Inc under the Amobee Group. 
• Consequently, 9MFY18 EBITDA rose 4.5% to S$3.85b, which is largely in-line with our expectations as it met 75% of our FY18 forecast. However, 9MFY18 share of associates’ pre-tax profits fell 10.6% y-o-y to S$1.94b, mainly impacted by:
  1. associate in India (-54.3%) due to the disruptive competition as well as the steep cut in domestic IUC rate in India, and
  2. lower contribution from NetLink NBN Trust (-39.1%). 
• While contribution from its associate in Indonesia, Telkomsel, grew 3.1% YoY for 9MFY18, we note that its 3QFY18 contribution fell 8.6% due to higher depreciation charges from network investments and a 6% depreciation of IDR against SGD. 
• Consequently, 9MFY18 underlying NPAT declined 5.2% y-o-y to S$2.74b, and met 71% of our FY18 forecast, but would have been only 0.3% lower if Airtel was excluded.

Long-term positive outlook intact 

• We reiterate our positive view on Singtel’s longer-term outlook given its focus to grow its cyber security, ICT solutions capabilities, digital advertising and other digital-related businesses. As such, we continue to expect the proportion of ICT-related revenue in its enterprise segment to continue to increase ahead. 
• Separately, Amobee (including Turn), which is its digital advertising arm classified under digital life segment, delivered positive EBITDA for the second consecutive quarter, and we expect further improvement leveraging on enlarged scale and synergies with Turn Inc.

Revised Fair Value downwards from S$4.19 to S$4.15 

• Singapore Consumer business landscape remains challenged but we are encouraged by Australia Consumer results. However, on fairly muted contributions from associates ahead, we adjust our forecasts slightly downwards and reduce our Fair Value from S$4.19 to S$4.15. 
• Based on the closing price of S$3.40 on 8 Feb 18, we find Singtel’s valuations attractive, supported by FY19F dividend yield of 5.1%.

Eugune Chua OCBC Investment | http://www.iocbc.com/ 2018-02-09

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 4.15 Down 4.190