SingTel - CGS-CIMB Research 2018-06-14: Singing A Decent Melody

SingTel - CGS-CIMB Research 2018-06-14: Singing A Decent Melody SINGTEL SGX:Z74 SingTel Investor Day

SingTel - Singing A Decent Melody

  • Singtel hosted its annual Investor Day on 13 Jun 2018.
  • Telkomsel plans to raise reload prices/cut quota in early-Jul. 
  • Major cost transformation underway for Singapore Enterprise & Optus
  • Amobee IPO potentially in 2-3 years.
  • Maintain ADD with an unchanged target price of S$3.90. Attractive yields of 5.4-5.7%.

Key points from 2018 Investor Day

  • Telkomsel plans to reduce data quota by 1-3 Gb for new SIM cards and raise the price of reloads by 5-10% from early-Jul. It has already started removing channel incentives for starter pack sales. While it is still difficult to predict competition, Telkomsel thinks that there is now good consensus among industry players that prices should rise.
  • Group Digital Life (GDL) plans to do an IPO or undertake some other form of exit for Amobee in the next 2-3 years once it has demonstrated consistent growth/profitability and that it is a leading global adtech player. A comparable peer is US-listed The Trade Desk (TTD US), which is currently trading at 8.4x FY18F EV/sales (based on Bloomberg consensus estimates). Applying 5x EV/sales to our FY3/19F revenue of S$1.3bn implies an EV of S$6.5bn for Amobee. Singtel has invested S$1.2bn (including operating losses) in Amobee since 2012. For HOOQ, GDL expects EBITDA breakeven in three years when revenue hits US$80m-100m.
  • Group Enterprise is embarking on cost transformation for the traditional core business (offshoring, lowering cost of local access, product simplification, more self-serve etc.). For cyber security, Singtel will continue to look for more M&As. It believes that there is massive opportunity for consolidation given the biggest player only owns 5% share of an US$85bn market and due to talent shortage in the industry.
  • Bharti Airtel believes that there is opportunity to gain from potential market share displacement in the next 12-18 months due to the Idea-Vodafone merger, leveraging on its superior network and strong execution. Bharti plans to sell a 20-25% stake of its African business in an IPO early next year in London. Valuation could range between 5x and 8x of EBITDA and proceeds will be used to deleverage Bharti's balance sheet.
  • Optus says Telstra has become more price aggressive in recent months. Besides leveraging on exclusive premium content, Optus will keep its prices 15-20% below Telstra’s to gain market share. Optus will buffer this with a major cost transformation programme, alluding that recent cost cuts were just the tip of the iceberg.
  • In Singapore, Singtel believes that TPG will be able to launch by year-end, meeting its first phase rollout obligation (i.e. 95% street coverage). Compared to incumbent's street coverage (>99%) and strong in-building coverage, Singtel says subscribers will surely notice the network quality difference upon TPG’s service launch. It is also likely that more MVNOs will enter the market before year-end, crowding out TPG. Singtel believes the market cannot support four operators and will eventually consolidate.
  • Advanced Info believes the pre-to-postpaid migration trend in Thailand will continue for the next few years, rising from 19% of its mobile subs base to 25% eventually. This is based on comparing GDP/capita to postpaid adoption in other markets in the region.
  • Globe says that mandatory national roaming to accommodate a new player is difficult, as it has no excess capacity to wholesale. It has offered to open access/sell its 8k towers but says that whoever buys the towers will have to upgrade them first to accommodate more tenancies. Its offer does not include fibre lease. Foreign shareholding limits also continue to dissuade potential new entrants.

(Investor Day presentation slides available @ https://www.singtel.com/about-us/investor-relations/presentations)

Maintain ADD with an unchanged target price of S$3.90

  • Maintain ADD with an unchanged SOP-based target price.
  • Singtel’s FY19F EV/OpFCF of 14.0x is at a 19% discount to the ASEAN telco average, supported by attractive FY19-21F yields of 5.4-5.7%.
  • A potential re-rating catalyst is earnings recovery from FY19F. Downside risks: keener competition in Australia, India and Singapore.
  • Singtel is our preferred Singapore telco pick.

FOONG Choong Chen CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-14
SGX Stock Analyst Report ADD Maintain ADD 3.900 Same 3.900