SingTel - DBS Research 2019-11-15: Management Lowers Guidance; Street Earnings To Be Cut

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

SingTel - Management Lowers Guidance; Street Earnings To Be Cut

  • Excluding investment income, underlying net profit of ~S$630m (-12% y-o-y, +9% q-o-q) came below our S$660m estimate due to weak Group Enterprise.
  • Management lowered FY20F core EBITDA guidance from high single digit growth to stable; consensus FY20F/21F earnings likely to be cut 7-8% each.
  • HOLD with Target Price of S$3.12 as the stock trades at 12-month forward PE of 19x vs 4-year average of 17.7x. See SingTel Share Price; SingTel Target Price.

Excluding investment income, 2QFY20 underlying net profit was slightly below our estimate.

  • SINGTEL (SGX:Z74)’s underlying profit of S$737m (+3.1% y-o-y, +28% q-o-q) was in-line with our and consensus estimates. See SingTel Announcements.
  • SingTel’s 1H20 figure make up 49.1% of our FY20F earnings and 46.5% of consensus’. However, there was an investment income of S$132m in 2QFY20 versus S$55m in 1QFY20 and none in 2QFY19. This investment income will continue till December 2019 when Bharti’s liability for pre-IPO investment in Bharti-Africa will end.
  • Excluding investment income of S$132m, underlying net profit would have been S$630m (-12% y-o-y, +9% q-o-q), below our estimate of S$660m. This is mainly due to weakness in Group Enterprise EBIT dropping to S$203m versus S$253m in 1QFY20 and S$289m in 1QFY19.

Singtel lowered its FY20F core EBITDA growth guidance from high single digit to stable (ours is +2% growth).

  • SingTel also lowered capex to S$2.1bn from S$2.2bn after cutting capex for Optus. Our FY20F earnings are achievable (already 8% below consensus) as reported 1HFY20 underlying earnings comprise 49.1% of our full-year projections.
  • However, there is a downside risk to our FY21F earnings (already 7-8% below consensus) as S$200m plus investment income will be absent in FY21F compared to ~S$400m potential reduction in losses from Bharti in FY21F

Mixed underlying trends.

  • If not for EBITDA re-statement from the adoption of new accounting standards, core EBITDA from Singapore and Australia would be facing a structural decline as 1HFY20F EBIT (excluding associates) has dropped 14% y-o-y to S$1060m due to Group Enterprise.

Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2019-11-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.120 SAME 3.120