Singtel - OCBC Investment 2019-02-15: Stemming The Airtel ARPU Decline

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

Singtel - Stemming The Airtel ARPU Decline

  • Lower EBITDA guidance by group.
  • Some ARPU relief at Airtel.
  • Lower Fair Value of S$3.79.

3QFY19 under expectations

  • SINGTEL (SGX:Z74)’s 3QFY19 operating revenue grew 0.9% y-o-y to S$4.6b (+3.7% in constant currency terms) with contribution from equipment sales and higher digital business revenue with a full quarter’s contribution from Videology, Inc.
  • Operating EBITDA fell 10.6% y-o-y to S$1.2b, on the back of margin erosion in carriage services, lower NBN migration revenues as well as one-offs in 3QFY18.
  • Regional associates’ PBT fell 34.7% y-o-y to S$342m due mainly to Airtel, which continued to be adversely impacted by the ongoing pricing pressure in India.
  • Underlying net profit fell 28.4% y-o-y to S$679.8m, which formed 21.7% of our full-year estimate. We deem this set of results to be broadly under our expectations.
  • SingTel has made a number of revisions to its FY19 outlook, with EBITDA (excluding NBN migration revenue in Australia) being revised downwards from stable to low single digit decline.

More ICT contribution in FY20

  • In Singapore, postpaid ARPU fell 11% y-o-y to S$43 on the back of SIM-only and mobile share plans, while that in Australia dropped 7% y-o-y to A$41 due to the increased mix of SIM-only plans and data price competition.
  • The group saw its ICT revenue grow 9% y-o-y to S$1.6b, and we believe greater flow-through from Smart Nation contracts should be more evident in FY20, following the pause on new government ICT systems previously.
  • Group Enterprise EBITDA margin dropped from 29.6% in 3QFY18 to 26.7% in 3QFY19 as the proportion of ICT revenue (vs. carriage) rose from 45% to 48%.

Airtel mobile ARPU q-o-q growth

  • 3QFY19 saw lower contribution from Airtel, Telkomsel and AIS among the group’s regional associates. While price competition continued to be evident, with Airtel’s mobile ARPU declining ~15% y-o-y to Rs. 104 in 3QFY19, we were encouraged by the 4% q-o-q growth that was registered after 9 consecutive quarters of decline, following the introduction of minimum recharge plans.
  • We continue to be cautiously optimistic that this could be an early indication of market stabilisation moving forward.
  • Still, given the 9MFY19 results, we revise our full-year share of results of associates and JV forecast downwards by 5.9%, and also update the share prices of SingTel’s listed associates (or Fair Value for those under coverage). Thus, our Fair Value decreases from S$3.95 to S$3.79.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2019-02-15
SGX Stock Analyst Report BUY MAINTAIN BUY 3.79 DOWN 3.950