SingTel 2QFY20 - UOB Kay Hian 2019-11-15: Within Expectations, Headline Loss Due To Airtel Impairment

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

SingTel 2QFY20 - Within Expectations, Headline Loss Due To Airtel Impairment

  • SingTel reported a 2QFY20 headline loss of S$668m due to a S$1.4b one-off provision from Airtel. Excluding this, 2QFY20 core net profit grew 3% y-o-y to S$737m. Key earnings drivers were higher regional associates’ contribution and a positive net finance income.
  • We deemed the results to be within expectations.
  • Management intends to maintain ordinary dividends at 17.5 S cents for FY20. This translates to a net dividend of 5.3%. See SingTel Dividend History.
  • Maintain HOLD and S$3.32 target price. Entry price: S$3.00.

SingTel's 2QFY20 Results

2QFY20 core net profit in line.

  • SINGTEL (SGX:Z74) reported a 2QFY20 headline loss of S$668m due to a one-off provision of S$1.41b arising from Airtel’s adjusted gross revenue (AGR) payable to the Indian government. Excluding this, 2QFY20 core net profit grew to S$737m (+3% y-o-y; +28% q-o-q), supported by higher regional associates contribution and a S$18m net finance income (vs S$94m finance cost in 2QFY19) due to accrual income from pre-IPO investment in Airtel Africa. See SingTel Announcements; SingTel Latest News.
  • 1HFY20 core net profit of S$1.3b (-9% y-o-y) accounts for 51% of our full-year forecast, in line with expectations.
  • SingTel declared an interim net DPS of 6.8 S cent. Management intends to maintain ordinary dividends at 17.5 S cents for FY20. This translates to a 5.3% net dividend yield. See SingTel Dividend History.

One-off provision of S$1.4b due to Airtel India’s provision.

  • To recap, the Indian Supreme Court last month ruled that Vodafone Idea, Bharti Airtel and several other operators, including some that are no longer operational, will have to pay to the government within 90 days a combined US$13b in adjusted gross revenue as spectrum usage charges and license fees.

Singtel’s share price to trade sideways in the near term, we opine.

  • Airtel maintained its view that a grant relief by the Indian government is crucial to address the ongoing concern of telco operations in India. At this juncture, we expect SingTel's Share Price to trade sideways as exposure to the highly competitive India market will overshadow SingTel’s good set of 2QFY20 results.


Group Consumer: Higher equipment sales, partly offset by a weaker AUD.

  • Singapore (market share: 49.8%) mobile revenue rose 8% y-o-y thanks to higher equipment sales in the quarter (+24% y-o-y). This was partly offset by 5% y-o-y decline in service revenue due to declining voice revenue and pressure in fixed-line segment.
  • Post-paid subscribers increased 30k with GOMO’s SIM-only offering. Post-paid ARPUs fell to S$39/month (1QFY20: S$40/month, 2QFY19: S$43/month) due to entry-level packages.
  • Prepaid subscribers grew 8k. Prepaid ARPU fell to S$17/month (1QFY20: S$17/month, 2QFY19: S$18/month).
  • Optus’ revenue rose 5% y-o-y on the back of higher NBN migration revenues (2QFY20: A$187m vs 2QFY19: A$23m). Higher take-up of premium handset drove post-paid net adds of 29k. Post-paid ARPU fell 7% y-o-y to A$38/month amid intense data price competition and higher mix of SIM-only customers. In all, Optus’ earnings was affected by a 6% y-o-y depreciation of the Australian dollar (AUD).

Group Enterprise: Declining margin amid cautious business environment.

  • Enterprise revenue contracted 5% y-o-y mainly due to the challenging business environment in Australia as the financial industry focuses on compliance spending.
  • Optus recorded lower ICT revenue (-25% y-o-y) due to lower ICT products demand as consumers are shifting to cloud service. This was partially mitigated by higher ICT revenue from Singapore (+6% y-o-y) due to more system integrations projects being taken up in the country.

Group Digital Life: Shrinking advertisement spending.

  • Revenue from digital marketing declined 8% y-o-y due to cautious advertisement spend by major customers and declining managed media and social businesses. Positively, higher revenue from HOOQ (+54% y-o-y) helped cushion the weakness in digital segment.

Regional associate PBT surged 34% yoy

  • Regional associate PBT surged 34% y-o-y underpinned by:
    1. narrowed Airtel core losses as proceeds from Airtel Africa helped reduce finance cost, and
    2. stellar performance in AIS and Globe, with PBT up 31% y-o-y and 18% y-o-y respectively.

Good cost control

  • Good cost control lifted group EBITDA to S$1.16b (+3% y-o-y) and EBITDA margin improved to 28%. Cost savings for 1HFY20 amounted to S$263m due to the group’s efforts to keep a tight lid on cost structure via the digitisation initiatives


  • No change to our earnings forecast.


  • Maintain HOLD and DCF-based target price of S$3.32 (COE: 5.9%; terminal growth: 1%), or 14.1x EV/EBITDA.
  • At our target price, the stock will trade at its 5-year EV/EBITDA mean of 14.2x. This reflects heightened mobile competition and higher 5G capex intensity. See SingTel Share Price; SingTel Target Price.
  • Having said that, we expect cost efficiency and potential 5G leap to set the group on a stronger footing to capture revenue growth in the medium term (beyond 2021).
  • Entry price is S$3.00.

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2019-11-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.320 SAME 3.320