SingTel - CGS-CIMB Research 2020-02-07: Muted 3QFY20F But Good Signs From Bharti

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

SingTel - Muted 3QFY20F But Good Signs From Bharti

  • SingTel's core net profit could be S$590m-610m in 3QFY3/20F (-11 to -13% y-o-y). This is largely in line with our FY20F forecast but below Bloomberg consensus’.
  • 2019-nCoV outbreak may hit FY20F/21F core EPS by only -0.9%/-0.8%.
  • Maintain ADD. Our SOP-based target price would rise by 3% if we factor in the Street’s 20% higher target price for Bharti since Dec 2019.

3QFY3/20F core net profit likely fell y-o-y, flat q-o-q

  • SingTel (SGX:Z74)’s 3QFY3/20F results will be released on 13 Feb. We expect S$590m-610m core net profit (ex-investment income from Airtel Africa), or 11-13% y-o-y decline, led by Bharti, Telkomsel, Singapore and Optus.
  • Q-o-q, we see flat earnings, held back by softer profits for all key associates. Still, 9MFY20F core net profit should be broadly in-line at 70-72% of our FY20F forecast, but miss Bloomberg consensus’ estimates at 64-66%.

Singapore & Optus earnings still soft y-o-y but could improve q-o-q

  • We expect Singapore 3QFY20 core net profit to fall 13-15% y-o-y due to weaker mobile revenue, Enterprise EBITDA margin erosion and higher depreciation, but up 9-11% q-o-q due to seasonally-higher operating revenue (device sales, Amobee).
  • We estimate 17- 19% y-o-y lower Optus core net profit from higher depreciation and interest cost, plus 5.5% weaker A$ vs. S$.
  • We see 10-12% q-o-q growth on higher revenue (positive seasonality, Aug 2019 tariff hikes), though the timing of NBN migration revenues can be uncertain.

Wider Bharti core losses but underlying performance is improving

  • Associate contributions in S$ terms may fall 6-8% y-o-y/12-14% q-o-q in 3QFY20F.
  • Bharti’s reported core loss widened 24.4% q-o-q (narrowed 14.6% y-o-y) on higher taxes. However, its revenue/pretax losses improved by 3.9%/27.4% q-o-q, with the full effects from the Dec 2019 tariff hikes to be seen only next quarter.
  • Telkomsel may disappoint as we expect its net profit to ease 1-3% q-o-q (-6 to 8% y-o-y) from a pick-up in competition in 3Q19 (which has since cooled).
  • Globe’s reported net profit fell seasonally by 18.4% q-o-q (+15.3% y-o-y).

Manageable earnings impact from 2019-nCoV outbreak

  • International roaming forms c.18-20% of SingTel Singapore’s mobile revenue. If the 2019 coronavirus (2019-nCoV) outbreak lasts for six months and international roaming traffic drops by 50%, we estimate SingTel’s FY20F/21F core EPS could be hit by a manageable -0.9%/-0.8%, mitigated by its diversified operations. See sensitivity analysis in attached report Figure3.

Maintain ADD

FOONG Choong Chen CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-07
SGX Stock Analyst Report ADD MAINTAIN ADD 3.700 SAME 3.700