SingTel - CGS-CIMB Research 2019-02-14: 3QFY19 India Troubles

SINGTEL (SGX:Z74) | SGinvestors.io SINGTEL (SGX:Z74)

SingTel - 3QFY19: India Troubles

  • SingTel’s 3QFY3/19 core net profit fell 28% y-o-y. Results missed consensus forecast.
  • Post-revision, we forecast core EPS to fall 17.7%/2.7% y-o-y in FY19F/20F, then recover 5.6% in FY21F. DPS stays at 17.5 Scts p.a. in FY19-21F.
  • Maintain ADD with an unchanged SOP-based target price of S$3.40.

Weak 3QFY19 results missed consensus expectations

  • SINGTEL (SGX:Z74)’s weak 3QFY19 core net profit was barely within our expectations but missed consensus, with 9MFY19 forming 72%/67% of our/consensus FY19F forecasts.
  • Core net profit fell 28.4% y-o-y (-4.9% q-o-q) due to lower associate (-30.6% y-o-y), Singapore (-22.7% y-o-y) and Optus (-29.3% y-o-y) profits. In constant currency terms, core net profit was down 26.9% y-o-y.
  • SingTel lowered its FY19 Group EBITDA guidance to a low single-digit decline (previous: stable), mainly for lower Group ICT and Optus revenue growth.

Singapore: Consumer, Enterprise and DL were all weaker y-o-y

  • Singapore EBITDA/core net profit fell 6.9%/22.7% y-o-y but improved 7.4%/6.2% q-o-q in 3QFY19. Consumer EBITDA fell 3.2% y-o-y (+7.7% q-o-q) mainly on lower mobile service revenue. Enterprise EBITDA fell 7.6% y-o-y (-0.8% q-o-q) due to pricing pressure in legacy services and investments in cyber business and digitalisation programmes.
  • Digital Life’s (DL) LBITDA widened 16.3% y-o-y to S$16m but halved q-o-q as 2QFY19 was hit by one-off adjustment for accrual of stock option expenses.

Optus: Lower earnings y-o-y due to competition

  • Service revenue fell 5.1% y-o-y (-0.6% q-o-q) on lower consumer mobile service revenue (- 3.5% y-o-y) and NBN migration payments. With the lifting of the NBN HFC suspension, SingTel expects migrations to gather pace in future quarters.
  • Postpaid subs grew a healthy 129k q-o-q (+2.4%), while prepaid users fell 72k q-o-q (-2.0%). Blended ARPU declined 6.3% y-o-y (-0.8% q-o-q) due to higher mix of SIM-only plans and data price competition.
  • EBITDA/core net profit fell 8.7%/25.4% y-o-y but rose 5.2%/14.7% q-o-q.

Bharti Airtel’s losses widened significantly q-o-q

  • Associate contributions in S$ terms fell 30.6% y-o-y and a sharp 22.7% q-o-q, as the share of Airtel’s losses widened substantially to S$86m (2QFY19: -S$6m, 3QFY18: +S$25m).
  • Elsewhere, contributions from Telkomsel/AIS were down 8.4%/9.5% y-o-y but improved by 5.2%/1.4% q-o-q.
  • Globe earnings were up 42.8% y-o-y (-29.8% q-o-q).

Maintain ADD with unchanged SOP-based target price of S$3.40

  • We cut our FY19F/20F/21F core EPS by 0.3%/5.3%/5.4%, mainly to factor in more pessimistic consensus forecasts for Bharti. However, we retain our SOP-based target price as consensus fair value for Bharti has only been reduced slightly. Refer to FIg5 in the attached PDF report for breakdown of SOP-based target price.
  • SingTel’s FY20F EV/OpFCF of 15.5x is at c.13% premium to the ASEAN telco average, but backed by FY19-21F yields of 5.8% p.a. Refer to Fig6 in the attached PDF report for comparison of ASEAN telco stocks.
  • Potential re-rating catalyst: earnings recovery from 2HFY20F.
  • Downside risk: keener competition.
  • SingTel is our preferred Singapore telco pick.

FOONG Choong Chen CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-14
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