SingTel - Phillip Securities 2019-12-16: Recovery In India Accelerated By Price Hikes

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

SingTel - Recovery In India Accelerated By Price Hikes

  • Airtel raised tariffs by 42% in India this may lift Singtel’s NPAT by ~4% assuming a 35% improvement in Airtel’s ARPU.
  • Regional associates returning to growth and enjoyed first y-o-y PBT growth in 3yrs.
  • Expect headwinds in core businesses to be contained.
  • Maintain ACCUMULATE with a higher Target Price of S$3.53 (previously S$3.31). We adjusted our FY20e earnings higher by 4% to take into account the price hikes in India.


  • SINGTEL (SGX:Z74) is the largest mobile network operator in Singapore and is a leading telecommunications company in the region. Singtel provides a diverse range of services including fixed, mobile, internet, television, info-communications technology and digital solutions. The group structure consists of Consumer, Group Enterprise and Group Digital Life.
  • Optus, a subsidiary of SingTel, is the 2nd largest telecommunications company in Australia. SingTel is also invested in leading companies in the region such as Bharti Airtel (India, South Asia & Africa), Telkomsel (Indonesia), Globe Telecom (Philippines) and Advanced Info Service (Thailand).
  • See SingTel Share Price; SingTel Target Price SingTel Analyst Reports SingTel Dividend History SingTel Announcements SingTel Latest News.

2020 Investment Merits/Outlook

Recovery in India accelerated by price hikes.

  • On 3 December, Bharti Airtel (Airtel) raised tariffs by 42%. This is a first tariff hike since 2016. The decision to hike tariffs was in part due to the Telecom Regulatory Authority of India (TRAI) increasing probability of initiating a consultation to bring rational pricing back to the Indian mobile sector given how prices have been eroding the viability of the sector.
  • Airtel’s competitor Reliance Jio (Jio) has been modestly increasing tariffs while Vodafone Idea (VI) recently made announcements to increase tariffs. We believe Airtel’s decision to raise tariffs is also due to a hefty US$5bn fine it received due to a difference in opinion of Adjusted Gross Revenue (AGR) with regulators. As such, we forecast SingTel’s FY20e NPAT to benefit by ~4% with an assumption of a 35% improvement in ARPU.

Regional associates returning to growth.

  • SingTel’s regional associates contribute ~47% of its earnings, given the size of the contribution it is critical to Singtel’s share price. We are encouraged by the first y-o-y growth (+35%) in 3 years. The growth was largely due to better performance in Telkomsel, Globe, and AIS.
  • We believe that the competition in Telkomsel is improving as it returned to sequential-quarter growth. Both Globe and AIS grew on robust data consumption and a better pricing environment.

Expect headwinds in core businesses to be contained.

  • On Singapore mobile, we do not foresee TPG Telecom grabbing a significant market share from incumbents in 2020 due to its inferior 4G network. We also do not expect prices to collapse as it has already contracted significantly.
  • In Australia, we are encouraged that the industry is adjusting mobile prices upwards.
  • On the enterprise segment, we expect a modest recovery in 2H21e as we move past the contract renewal cycle which has been creating pricing pressures in FY20. We expect weakness in core carriage services to be offset by growth in data analytics, artificial intelligence and IOT.
  • We reckon that Optus’ business in the financial sector in Australia could improve as the sector stabilises.


  • Maintain ACCUMULATE with a higher target price of S$3.53 (previously S$3.31). We revised our FY20e earnings upwards by 4%. Our target price is based on FY20e 7X EV/EBITDA of SingTel’s Singapore and Australia businesses and the valuation of its listed associates.
  • We like SingTel because of an improving outlook of Airtel and other regional associates.

Alvin Chia Phillip Securities Research | https://www.stocksbnb.com/ 2019-12-16