SingTel - UOB Kay Hian 2019-05-16: 4QFY19 Within Expectations, Offers 5.6% Dividend Yield In FY20

SINGTEL (SGX:Z74)

SingTel - 4QFY19: Within Expectations, Offers 5.6% Dividend Yield In FY20

SINGTEL (SGX:Z74)'s 4QFY19 underlying net profit of S$697m (-15% y-o-y) reflects intense competition across all operating units, investment into digital services and Bharti losses. FY19 net profit of S$2,825m is in line with house and street estimates.
FY19 net dividend yield of 5.6% is expected to be sustainable into FY20.
Focus for FY20 includes driving successful data monetisation and cost savings/avoidance of S$490m (from optimal staff structure and opex efficiency).
Maintain BUY. Target price: S$3.58.

SINGTEL (SGX:Z74) reported core net profit of S$697m for 4QFY19 (-15.1% y-o-y; +2.5% q-o-q) as the enterprise business margins were adversely affected by pricing pressure and shift in product mix. This brought FY19 core net profit to S$2,825m (-21% y-o-y), in line with both house and street estimates.
In essence, SingTel's FY19’s results were affected by diminishing voice revenue and lower associate profits (intense competition affecting Airtel and Telkomsel).

SingTel has proposed a final net DPS of 10.7 S cents, bringing FY19 total DPS to 17.5 S cents (net dividend yield of 5.6%).
SingTel expects to also pay 17.5 S cents for FY20.

For Singapore (market share: 49%), mobile service revenue fell 2% y-o-y and 4.6% q-o-q as a result of lower voice and higher mix of SIM-only plans. This was partly offset by higher data revenue. SingTel recorded a 32,000 post-paid subscriber net add in the quarter. Blended ARPUs fell 6% y-o-y to S$32/month. EBITDA rose 5% y-o-y to S$169m with a 1.3ppt EBITDA margin improvement, thanks to strong cost management. Management improved staff productivity and reduced traffic cost.
For Australia, mobile service revenue was stable as Optus added 121,000 post-paid mobile subscribers in 4QFY19 (underpinned by population coverage of ~97%). Total mobile revenue rose 10% y-o-y driven by a 25% y-o-y increase in equipment sales (higher take-up of premium handsets). Post-paid mobile ARPU dropped 4.5% y-o-y to A$42 with higher mix of SIM-only plans and data price competition. EBITDA rose 8% y-o-y with higher equipment sales and NBN migration revenues. Excluding NBN migration revenue, underlying EBITDA would have declined 2% y-o-y.

Revenue declined 2.7% y-o-y on the back of lower traditional carriage services (data & internet: -6.7% y-o-y; fixed voice: - 17.4% y-o-y). This was due to price competition and legacy fixed voice revenue contribution, but was partly cushioned by higher ICT revenue (+3.6% y-o-y). EBITDA and EBITDA margin fell 16% y-o-y and 3.6ppt due to a change in sales mix, with ICT accounting for 51% of revenue (4Q18: 48%).

Revenue from digital marketing increased 33% y-o-y in 4QFY19 with the inclusion of Videology and first time recognition of technology licensing fees from ITV plc (iTV). Negative EBITDA increased to S$18m on lower government grants and absence of one-off content cost credits from contract re-negotiations in 4QFY18.

Contributions from regional mobile associates declined 20% y-o-y to S$389m in pretax profit on the back of S$143m Bharti pretax losses. Sequentially, associate earnings rose 13.7% on the back of strong performance from GLOBE. Management is cautiously optimistic on Bharti’s near-term outlook.

Maintain BUY and target price of S$3.58, based on DCF (required rate of return: 6.25%, growth: 1%).

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2019-05-16

SGX Stock Analyst Report BUY MAINTAIN BUY 3.580 SAME 3.580