SingTel - RHB Invest 2019-11-15: 1HFY20 Enterprise Weakness Rings On

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

SingTel - 1HFY20 Enterprise Weakness Rings On

  • Stay NEUTRAL with a new SOP-based SGD3.50 Target Price from SGD3.40, 6.4% upside plus 5.3% yield. See SingTel Share Price; SingTel Target Price; SingTel Dividend History
  • SINGTEL (SGX:Z74)'s 1HFY20 (Mar) core earnings fell short of estimates. Enterprise weakness persisted, with associate contributions exhibiting continued improvement.
  • We temper FY20F-22F core earnings by 3-8% post this morning’s quarterly earnings call, and reflect our updated valuation for Telkomsel and latest Target Price for AIS (ADVANC TB, BUY, Target Price: THB250).
  • SingTel stays our choice Singapore telco pick given the dividend certainty in a low-growth environment, supported by a diversified earnings base.

Trailing estimates.

  • SingTel's 2QFY20 core earnings post Singapore Financial Reporting Standard 16 (SFRS16) grew 27% q-o-q (+3.1% y-o-y), mainly from higher associate contributions, national broadband network (NBN) migration revenue and lower taxes. This brought 1HFY20 adjusted core earnings to SGD1.3bn (-9.4% y-o-y), at 44-45% of our/street estimates. See SingTel Announcements.
  • The headline loss for the quarter reflects a regulatory provision (non-cash) booked at Airtel (Singtel share of SGD1.4bn) pursuant to an Indian Supreme Court ruling on 24 Oct. Key drags were enterprise revenue and weak AUD, partially offset by cost savings (1HFY20: SGD263m).
  • Full-year revenue and EBITDA are now guided to be ‘stable’ vs. ‘mid-single digit’/‘high single digit’ growth respectively.

Cost savings and digitalisation driving 3% EBITDA growth YTD.

  • Singapore consumer mobile revenue eased 2% q-o-q (-5.1% y-o-y) as usage revenues declined further. Consumer EBITDA, however, rose 4.3% y-o-y on good cost management. While prepaid ARPU was stable, postpaid ARPU slipped for the third quarter in a row, amplified by larger handset contract amortisation on premium handsets and dilution from SIM-only plans.
  • Australia/Optus mobile service revenue inched up by 1% on steady ARPU and the re-pricing efforts in August. This should drive revenue improvements into 2HFY20. Australia consumer EBITDA ticked up 5% q-o-q (+19.2% y-o-y), mainly from NBN migration revenue.
  • The 5G narrative remains guarded, with management saying it is too early to tell if this would return pricing power to the market. Optus has rolled out 500 5G sites to date, and is on track to commission 1,200 sites by end-March 2020, with a fixed wireless service commercialised during the quarter.

Enterprise segment still the major dim spot.

  • Enterprise EBITDA fell 12% y-o-y in 2QFY20 as carriage revenues shrunk further alongside lower prices upon renewal for public sector jobs.
  • More notably, Australia enterprise revenue and EBITDA fell a sharp 25.2% and 76% y-o-y, which compressed margins to a measly 4.7% (2QFY19: 15.5%). The Australian enterprise business should remain weak with financial institutions holding back on orders.

Bharti, Globe and AIS driving better associate showing.

  • Airtel’s mobile service revenue grew for a third consecutive quarter on higher ARPU with its share of pre-tax losses declining to SGD112m (1QFY20: SGD162m).
  • Both AIS and Globe (NR) posted improved contributions y-o-y/q-o-q with double-digit y-o-y growth in EBITDA.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-11-15
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