Singapore Telecommunications - Maybank Kim Eng 2018-05-17: Making The Adjustments

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SINGTEL SGX: Z74

Singapore Telecommunications - Making The Adjustments

A bit short; maintain HOLD

• SingTel's FY18 core EPS was 4% and 2% short of Factset consensus and our estimates, as a strong SGD and soft associate income offset cost efficiency. 
• A new fixed DPS policy of SGD0.175 for FY19-20E could provide some comfort against earnings pressure.
• We revise FY19/20E core EPS by +1%/-5%, which reduces our SOTP Target Price to SGD3.57. Maintain HOLD given a lack of catalysts.
• Among its listed associates, we have BUYs on Globe and AIS. For Singapore telco exposure, we prefer Singtel for its more insulated, diversified earnings.

Regional currencies plus weak associate income

• With regional currencies depreciating against the SGD in 4QFY18, Singtel’s FY18 revenue and core profit of SGD17.53b and SGD3.54b came in at 99%/101% and 98%/96% of MKE/consensus estimates.
• Operational EBITDA of SGD5.09b slightly beat as repairs and maintenance, selling and staff expenses were well-controlled. However, competition-induced pressures on revenue and expenses at associates Bharti and unlisted Telkomsel drained away the positives.

Mixed impact on forecasts; lower target price

• We revise EPS to account for FY19E guidance of single-digit revenue growth and stable EBITDA. While management guides for SGD500m of expense savings in FY19E, our associate income has been revised by -10%/-10%.
• The net impact on our SOTP Target Price is a drop to SGD3.57 from SGD3.69.

Dealing with pressure on several fronts

• Cost-control instituted and a revised payout policy are meant to reassure investors of the company’s cashflow and balance-sheet strength. These are wise moves, in our view.
• A worsening or resolution of the competitive environment in its major markets is the main risk or potential source of upside.

Swing Factors 

Upside 

• Strong growth in enterprise and Digital Life to economies of scale. 
• Ebbing competitive heat in India. 
• Subsidies per smartphone drop. 

Downside 

• Wireless margin compression triggered either by TPG in Singapore and / or Australia or pre-emptive strikes by incumbents. These are not likely in consensus forecasts. 
• Long-term capex for 5G rollout not likely priced in. 
• Worse-than-expected cannibalisation of wireless voice, SMS and roaming by data. 

Luis Hilado Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-17

SGX Stock Analyst Report HOLD Maintain HOLD 3.57 Down 3.690