SingTel - UOB Kay Hian 2018-08-10: 1QFY19 Competition Heats Up In Indonesia And India

SingTel - UOB Kay Hian Research 2018-08-10: 1QFY19 Competition Heats Up In Indonesia And India SINGTEL SGX:Z74

SingTel - 1QFY19 Competition Heats Up In Indonesia And India

  • Singtel’s 1QFY19 results were below our expectation on increased competition in Indonesia and India.
  • Telkomsel saw contraction in revenue from voice and SMS while growth in data revenue slowed. Bharti Airtel suffered severe ARPU erosion due to competition from Reliance Jio.
  • Recovery is in sight as Telkomsel’s pricing has since improved towards late-June after the Lebaran holidays. Bharti Airtel’s revenue has stabilised on a sequential basis.
  • Maintain BUY with a lower target price of S$4.05.


  • Singapore Telecommunications (Singtel) reported an underlying net profit of S$733m for 1QFY19, below our forecast of S$794m.

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Group consumer: Optus fending off competition.

  • Optus added 31,000 post-paid mobile customers and its post-paid subscriber base expanded 6.7% y-o-y. Post-paid ARPU declined 2.6% y-o-y due to higher mix of SIM-only plans and price competition for data (increase in data allowance). Mobile service revenue increased 5.4% y-o-y. Mass market fixed revenue was flat due to the temporary suspension of migrating customers to the National Broadband Network’s (NBN) hybrid fibre co-axial (HFC) network. EBITDA increased 2.8% y-o-y.
  • In Singapore, mobile service revenue declined by 3.8% y-o-y due to lower voice usage, including iDD and roaming, caused by voice to data substitution. It added 16,000 post- paid subscribers, mainly SIM-only plans. Post-paid ARPU declined 5.3% y-o-y to S$46. 6% y-o-y with the 2018 FIFA World Cup contributing additional venue of S$15m. 
  • EBITDA declined 2.6% y-o-y.

Group enterprise: ICT commands lower margins.

  • Group enterprise revenue fell 3.2% due to the completion of large infrastructure projects last year. Revenue from the data and internet segment contracted 3.9% y-o-y due to price competition for traditional carriage services. Revenue from managed and security technology services increased 4% y-o-y to S$97m. 
  • Staff costs decreased 3.9% y-o-y due to reduction in headcount and lower staff incentive accruals. 
  • Group enterprise's EBITDA margin contracted 1.2ppt y-o-y to 29.5%.

Group digital life: Short-term headwinds.

  • Revenue from digital marketing decreased 7.1% y-o-y due to the timing of marketing spend by certain customers. Amobee leverages on Turn’s programmatic platform to double revenue from the agency trading business. 
  • Group digital life incurred a negative EBITDA of S$23m.

Regional mobile associates: Affected by intense competition in Indonesia and India.

  • Contributions from regional mobile associates declined 42% y-o-y to S$391m. Contributions from AIS, InTouch and Globe Telecom grew 14.1%, 18.5% and 16.8% y-o-y respectively. Unfortunately, Bharti incurred losses of S$63m while contribution from Telkomsel weakened 38% y-o-y to S$237m.
  • Telkomsel suffered a steep 23% y-o-y decline for voice and SMS revenue and slower growth of 11% y-o-y for data revenue from intense data pricing competition. EBITDA declined 27% due to higher operations and maintenance costs due to accelerated deployment of 4G network. 
  • Contribution from Telkomsel was further hampered by a 9% depreciation of the rupiah against the Singapore dollar.
  • Contributions from Bharti Airtel were affected by a mandated reduction in mobile termination rates and disruptive price competition from Reliance Jio, which caused mobile ARPU to decline 32% y-o-y to Rs105. It added 40.4m mobile subscribers, including 28m from the acquisition of Telenor India. 
  • Contribution from Bharti Airtel was further hampered by an 8% depreciation of the rupee against the Singapore dollar.


Guidance for FY19.

  • Management guided for low single-digit growth for revenue and a stable EBITDA for FY19. Mobile service revenue should grow by a low single-digit for Australia and decline by mid-single-digit for Singapore. 
  • Dividends from mobile associates are expected to be unchanged at S$1.4b. Cash capex is budgeted to drop S$0.2b to S$2.2b after three years of intense capex for Australia. Free cash flow is expected to improve S$0.1b to S$1.9b for FY19.
  • Barring unforeseen circumstances, management intends to maintain ordinary dividends at 17.5 S cents for the next two financial years and, thereafter, revert back to paying 60- 75% of underlying net profit.

Working on cost rationalisation.

  • Singtel focuses on digitalisation and automation to improve customer engagement and deliver productivity gains and cost savings. Management targets cost savings of about S$500m in FY19.
  • Telkomsel was affected by intense price competition during the mandatory pre-paid SIM cards registration. Pricing has since improved towards late-June after the Lebaran holidays.
  • Bharti Airtel’s revenue has stabilised on a sequential basis.
  • It plans to list its African unit, Airtel Africa.


  • We cut our net profit forecast for FY19 by 13.5% and by 15.1% for FY20 due to reduced contributions from Telkomsel and Bharti Airtel.


  • Maintain BUY. 
  • Our target price for Singtel has been cut to S$4.05, based on DCF (required rate of return: 6.25% (previous: 6.0%), growth: 1.5%).

Jonathan Koh CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-08-10
SGX Stock Analyst Report BUY Maintain BUY 4.09 Down 4.220