SingTel - DBS Research 2019-02-14: Accumulate On Any Weakness, Bharti Comes Free

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SINGTEL (SGX:Z74)

SingTel - Accumulate On Any Weakness, Bharti Comes Free

• SingTel’s 3Q19 underlying of S$680m (-25% y-o-y, -5% q-o-q) was broadly in line our estimate of S$705m and below consensus expectation of around S$750m.
• Singtel has guided for low-single digit decline in EBITDA (vs stable earlier), already reflected in our forecast.
• ACCUMULATE SINGTEL (SGX:Z74) on any weakness as current 32% holding company discount vs historical average of 12% suggests value lies therein. BUY with unchanged Target Price of S$3.50.

What’s New

3Q19 underlying profit of S$680m (-25% y-o-y, -5% q-o-q) was broadly in line our estimate of S$705m and below consensus expectation of around S$750m.

• The variance compared to our estimates (see report SingTel - DBS Research 2019-02-11: Accumulate For 5.7% Yield – Bharti Comes Free) was due to
  1. Telkomsel posting only 5% sequential growth in earnings to S$227m (vs our S$235m estimate) and
  2. corporate tax of S$21m (vs our S$8m estimate) due to the timing of dividends from the associates.
• Consensus has been overly bullish on EBITDA from Singapore and Australia, which dropped to S$1190m (-10.9% y-o-y, +5% q-o-q).

Lowered consolidated EBITDA guidance to low-single digit decline (vs stable earlier), which is already reflected in our forecasts.

• SingTel expect stable mobile revenue from Australia (vs low-single digit growth) due to economic slowdown, low-single digit growth in ICT revenue from Singapore (vs mid-single digit earlier) and slightly negative EBITDA for Amobee (vs positive earlier).
• We expect consensus to cut FY19F/20F earnings by 8%/10% on the back these factors plus lower National Broadband Network (NBN) migration fees in Australia and adverse AUD/SGD forex rate.

Accumulate Singtel on any weakness – Bharti comes free.

• SingTel is trading at a 32% holding company discount (vs 12% historically) mainly due to Bharti related issues which ironically suggests that Bharti’s market value is zero. On the contrary, based on Bharti’s share price, SingTel’s stake in Bharti is worth S$9.3bn (~18% of Singtel’s cap).
• Bharti is poised to enter EBITDA growth territory in FY20F, after stabilising its EBITDA in 3Q19, and earnings could turn positive in FY21F.

Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2019-02-14

SGX Stock Analyst Report BUY MAINTAIN BUY 3.500 SAME 3.500