SingTel - DBS Research 2018-05-17: Commits To Fixed Dividends For FY19F-20F

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SINGTEL SGX: Z74

SingTel - Commits To Fixed Dividends For FY19F-20F

• SingTel's 4Q18 underlying earnings dropped 18% y-o-y while final dividend was stable – in line with our expectations. 
• Singtel commits to maintain 17.5 Scts DPS over the next two years. 
• Singtel expects S$500m of cost reductions and avoidance in FY19F from digitisation and automation. 
• Maintain BUY with unchanged S$3.85 Target Price. 

What’s New 

4Q18 underlying earnings of S$807m (-18% y-o-y, -10% q-o-q) was in line with our expectations of S$824m.

• Final ordinary dividend per share of 10.7 cents (flat y-o-y) was in line, bringing the total ordinary dividend per share for the year to 17.5 cents (flat y-o-y), representing earnings payout ratio of 81%. 
• Two key reasons for weakness were
  1. Post-tax associate contribution dropping 23% y-o-y to S$401m mainly due to Telkomsel’s contribution declining 22% to S$219m and Bharti’s declining 78% to S$8m.
  2. An absence of ~A$70m of National Broadband Network (NBN) migration fee in 4Q18 which was temporarily halted in November 2017. 

Outlook 

Singtel commits to fixed dividends over the next two years.

• Singtel expects to maintain its ordinary dividends of 17.5 Scents per share for the next two years and will revert to the payout of between 60% and 75% of underlying net profit thereafter. 

Singtel’s earnings could see low-single digit decline in FY19F and possibly improve in FY20F if Bharti stages recovery.

• Excluding the impact of NBN grants, Singtel expects consolidated revenue for the Group to grow by low single digit and EBITDA to be stable despite declining mobile revenue in Singapore. We expect associate’s post-tax earnings contribution to decline 3%-5% in FY19F versus 11% decline in FY18.
• Overall, we expect Singtel to register 1%-4% decline in earnings due to these factors. Bharti is a beneficiary of industry consolidation in India although it’s difficult to predict earnings recovery due to high capex and depreciation. 

Sachin MITTAL DBS Vickers | https://www.dbsvickers.com/ 2018-05-17

SGX Stock Analyst Report BUY Maintain BUY 3.850 Same 3.850