SingTel - OCBC Investment 2020-02-14: Better Show From Regional Associates

SINGTEL (SGX:Z74)

SingTel - Better Show From Regional Associates

SingTel (SGX:Z74)’s 3QFY20 operating revenue fell 5.4% y-o-y to S$4.4b (or -2.5% in constant currency terms), on the back of lower equipment sales, weak business sentiment and spending, continued price erosion in carriage services and stiffer market competition.
Australia Consumer segment’s 10% y-o-y growth in EBITDA came on the back of higher NBN migration revenues, excluding which growth would have declined by 22% y-o-y. NBN migration revenues should still continue to be booked; of the 500k initial HFC subs, Optus still has 168k subs that have yet to migrate. Management noted that profitability declines when customers move off HFC to NBN, though there should be some cost savings as the legacy system gets gradually decommissioned.
Underlying profit fell 18.9% y-o-y to S$551.2m, representing 19.6% of our full-year forecast.

FY20 guidance has also been updated, with EBITDA now expected to decrease by low single digit (vs. stable previously), FCF (excluding spectrum payments and dividends from associates) to be ~S$2.3b (vs. S$2.4b previously), while dividends from regional associates to be ~S$1.3b (vs. S$1.2b previously).
Management has shared that revisions come on the back of lower mobile equipment revenue in Australia, due to more consumers going directly to consumer electronic chains to purchase hardware, as well as the higher mix of SIM only plans, which affects mobile service revenue.

Regional Associates’ PBT rose 15.0% y-o-y (or 9% in constant currency terms) to S$393m, with lower pre-tax losses from Airtel as well as stronger performance from Globe, though Telkomsel saw lower contribution this quarter due to more competition ex-Java.
In India, we continue to remain positive on Airtel, especially if Vodafone-Idea’s competitive position becomes compromised over payment of dues to the DoT. While the strategy around SingTel’s digital bank collaboration with Grab was not shared, we note that SingTel’s 40% stake was due to, among other factors, the group’s position in capital allocation across both core and digital businesses (which have different cash flow profiles), as well as shareholder feedback and dividend payments.
We raise our Fair Value slightly from S$3.53 to S$3.61, and maintain our assumption of a flat 17.5 S cents DPS for FY21, which if materialised should help give share price support.
See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-02-14

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