SingTel - RHB Invest 2018-03-15: Opportunity Beckons

SingTel - RHB Invest 2018-03-15: Opportunity Beckons SINGTEL Z74.SI

SingTel - Opportunity Beckons

  • We believe Singtel’s 7-14% underperformance over the past 6-12 months, following the Singtel share price sell-down, offers a good opportunity to accumulate, with forward EV/EBITDA valuations at -1SD of its historical 5- year mean. 
  • Competitive risks, while still prevalent in Singapore, India and Indonesia, are buttressed somewhat by the improving risk-reward profile at Optus and Singtel’s decent forward dividend yield of 5%. 
  • Maintain BUY on our preferred Singapore telco with an unchanged SOP-based Target Price of SGD4.10 (20% upside).

Open to more stakes. 

  • Singtel recently completed the purchase of an additional 1.7% stake (85.45m shares) in Bharti Telecom (to 48.9%) for SGD539.4m. This effectively raised its effective stake in Bharti Airtel (Airtel) to 39.5%, from 38.6%.
  • We do not rule out futher stake increases as the group takes a longer-term view on its associates. This is despite rising competitive risks across key markets.
  • The earlier proceeds from the sale of Netlink Trust (NETLINK SP, NR) totaling SDG1.1bn (net of shareholder advance) provides headroom for further opportunistic acquisitions, in our view.

Still on the offensive. 

  • Our channel checks and anecdotal evidence indicate that subsidies offered for the recently-launched Samsung S9 and Samsung S9+ remain aggressive. This is as the Big-3 telcos actively re-contract and lock-in subscribers ahead of TPG Telecom’s (TPG) entry, and as more mobile virtual network operators (MVNO) join the fray. We expect the industry subscriber acquisition cost (SAC) to remain elevated in the short to medium term.
  • We note that Singtel’s subsidies are mid-way across its rivals and are 3-9% lower (on average) than the subsidies offered on the Samsung S8 and Samsung S8+ models. Here, M1 (M1 SP, NEUTRAL, Target Price: SGD1.95) continues to have the most attractive subsidies at the lower-end/entry level plans. 
  • To recap, Singtel’s Singapore consumer EBITDA fell by a sharp 22% q-o-q (-9.2% y-o-y) in 3QFY18 (Mar) as SAC surged 33% from higher retention benefits and new smartphone launches, which included the iPhone X.

Zeroing in on the MVNO. 

  • The market recently witnessed the entry of 2 new mobile virtual network operators (MVNO) – Zero Mobile (ZM) and Zero 1 (Z1) which ride on Singtel’s network. This brings the total number of MVNOs to three (after Circles.Life (CL)). 
  • ZM’s X plan is currently the lowest-priced contract-free unlimited data offering in the market at SGD75/month (SGD65/month during the promotion period), undercutting M1’s mySIM98 unlimited data plan (SGD98/month on a 12-month contract).
  • We see the threat from ZM as mitigated by subs already locked into contracts and attractive bundled and handset offers. We expect at least two new MVNOs to surface over the next few weeks or months (likely hosted by StarHub (STH SP, NEUTRAL, Target Price: SGD2.65) – one potentially to aimed at foreign workers.

Maintain BUY. 

  • We update our model to reflect the higher effective stake in Airtel. The impact is minimal on our SOP valuation. The stock trades at an adjusted 12.4x 2019F EV/EBITDA, -1SD below its historical 5-year mean. 
  • A key risk is stronger-than-expected competition.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2018-03-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 4.100 Same 4.100