SingTel - Maybank Kim Eng 2019-08-08: Too Soon For Sigh Of Relief?

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

SingTel - Too Soon For Sigh Of Relief?

Associates main shortfall; maintain HOLD

  • SingTel (SGX:Z74)'s 1QFY20 core profit at SGD575m, down 18% q-o-q/22% y-o-y, was only 19% of MKE/consensus FY20E forecasts primarily because of weak associate income. Revenue pressure was felt across Singapore and Australia consumer and enterprise.
  • We reduce FY20-22E core profit forecasts by 6% and our SOTP Target Price by 1% to SGD3.44.
  • Maintain HOLD where the direction of competition in its main markets should determine upside or downside, in our view.

Tough quarter

  • SingTel's 1QFY20 consolidated revenue at SGD4.11b, down 5% q-o-q/0.5% y-o-y, was 24%/25% of MKE/consensus forecasts. Operational EBITDA at SGD1.18b, +2% q-o-q but -2% y-o-y, was 25%, with cost reduction of SGD132m helping to ward off pressure.
  • Associate income at SGD359m, down 14% q-o-q/14% y-o-y, was only 19% of our FY20E forecast. India’s losses were up q-o-q and y-o-y while there was also q-o-q weakness – though y-o-y improvements - in Indonesia and the Philippines.

Too soon to expect relief?

  • Although Singapore wireless service revenue was flat q-o-q, management remains cautious, given a proliferation of wireless brands. Meanwhile, renegotiation with and re-contracting by enterprise customers are expected to last until 3QFY20.

Signs of hope?

  • Market repair is taking place in Australia where wireless pricing is going through an industry-wide reflation. Other markets may also return to more rational behaviour, though timing remains uncertain. With wholly-owned Optus potentially clawing back its revenue in 2HFY20 and prospective stability in group enterprise in 4QFY20, we maintain our consolidated-revenue forecasts.
  • Our primary revisions are at the associate level. We also include our house’s latest forecasts and TPs for associates, AIS and Globe. See details in attached PDF report.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-08-08
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.440 DOWN 3.480