Singtel - OCBC Investment 2018-05-18: Keep Calm And Collect Dividends

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SINGTEL SGX: Z74

Singtel - Keep Calm And Collect Dividends

• Core FY18 largely in-line.
• Weaker contributions from associates.
• FY18 final dividend of 10.7 S-cents.

Core FY18 met 96% of our FY18 estimate

• Singtel’s FY18 operating revenue grew 4.9% to S$17.5b, largely driven by the Australia Consumer (+3.9%) and Group Digital Life (+100.4%) segments.
• On weaker EBITDA margin at the Enterprise segment due to higher ICT sales mix, FY18 EBITDA grew by a lower 1.8% to S$5.09b, which is in-line with our expectations as it met 100% of our FY18 forecast. However, share of associates’ pre-tax profits fell 14.7% to S$2.46b.
• In addition to adverse currency movements, associates’ contributions were mainly impacted by:
  1. Airtel (-60%) due to steep cut in mobile termination rates and disruptive price competition in India,
  2. NetLink NBN Trust (-49%) on reduced stake, as well as
  3. Telkomsel (-3%) on heightened price competition in Indonesia coupled with higher operating costs.
• Consequently, FY18 core NPAT (excluding divestment gain) fell 8.4% to S$3.54b.

Unexciting outlook guidance

• Looking ahead to FY19, Singtel expects the group’s consolidated revenue to grow by low single digit and EBITDA to be stable.
  • Operating revenue in the core business is expected to grow by low single digit while EBITDA is likely to remain stable.
  • Mobile service revenue from Singapore is expected to decline by mid-single digit level but is expected to grow by low single digit in Australia.
  • Group ICT revenue is expected to increase by mid-single digit, which includes cyber security revenue that is expected to grow by low-teens.
  • Operating revenue at Amobee Group is expected to grow by mid-teens and EBITDA is projected to increase.
• Capex on an accrual basis and cash basis is expected to both be lower at ~S$2.2b.
• Finally, group free cash flow is guided to be ~S$1.9b, and dividends from regional associates are expected to be around S$1.4b.

Stable dividend outlook

• Singtel also guided for dividends to be maintained at 17.5 S-cents for FY19 and FY20, and thereafter revert to payout ratio of 60%-75% of its underlying net profit. 
• As we factor in Singtel’s guidance and for further dilution of Enterprise blended margin as ICT sales mix grows, we lower our Fair Value to S$4.10 (prev: S$4.15).
• We remain positive on Singtel’s longer- term outlook for its growing exposure in digital-related businesses, and entrenched position in the regional mobile markets.

Eugune Chua OCBC Investment | https://www.iocbc.com/ 2018-05-18

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