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

SINGTEL (SGX:Z74)

Singtel - Stemming The Airtel ARPU Decline

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.

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%.

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