SingTel - OCBC Investment 2020-05-29: Looking Past The Dividend Cut

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

SingTel - Looking Past The Dividend Cut

  • 30% DPS cut for FY20 due to current climate and 5G rollout.
  • Better showing at its associates; looking for Australia and SG market repair.
  • Fair Value of S$3.24 (previously S$3.61).

Slight miss for the year

  • SingTel (SGX:Z74)'s 4Q20 operating revenue fell 10% y-o-y with lower mobile service and equipment sales revenue across Singapore and Australia. Group Enterprise operating revenue fell 4.5% y-o-y with mobile revenues offsetting the 3.8% y-o-y growth in ICT revenue.
  • Positives were noted in SingTel’s associates, with Telkomsel registering stable operating revenue amid intense competition in the regions outside Java. Airtel Group recorded improved operational performance with double-digit increases in operating revenue and EBITDA in both India and Africa.
  • For the full-year, SingTel's underlying NPAT fell 13% y-o-y to S$2.5b, or 2.1% below consensus.

Dividend cut the main story

  • SingTel’s 30% cut to full-year dividends took us by surprise. SingTel will be proposing a final dividend of 5.45 S-cents, bringing full-year dividend to 12.25 S- cents, which translates into a 4.9% yield, as of 28 May close.
  • Management highlighted that it wishes to conserve financial headroom, given uncertainties in the current environment, as well as the capacity needed to invest in 5G.
  • On the topic of dividends, management highlighted that their preference is for a dividend policy that delivers sustainable dividends that grows with underlying earnings. In the past, we understand that barring unforeseen circumstances, SingTel expected to maintain its ordinary dividends at 17.5 S-cents for FY19 and FY20, and thereafter revert to the payout ratio of between 60% - 75% of its underlying profit. However, there has been no FY21 guidance given at this juncture. See SingTel Dividend History.

Looking forward to market repair

  • In Australia, while there might be relatively less scope for cost-out on the mobile side (vs. prior years), management noted that market repair has begun, and believes that it is in a strong position to take market share in a profitable manner, due to their stronger coverage than Vodafone as well as their pricing proposition vs. Telstra.
  • Management highlighted that the ongoing transition of customers from HFC to NBN will result in lower margins for its fixed business; Optus still has another 135k customers to migrate to NBN, which should happen over the next 12 months.
  • Management remained upbeat about the competitive situation in Singapore, as it believes the two nationwide licenses should result in more rational pricing. In the short-medium term, competition is still very much alive in 4G, but the commercial services launched by TPG Singapore is a good sign, given that it was giving out free services for more than a year.
  • In terms of 5G capex for Singapore, management noted that this would be based on a progressive rollout of coverage.
  • Management also mentioned that they remain open to the monetization of assets, such as the ongoing exercise with Optus’ towers, though some time might be needed for some of the other digital businesses.
  • We cut our FY21F EPS assumption by ~4.1%, increase capex assumptions and roll forward our valuations, bringing our fair value down from S$3.61 to S$3.24.
  • 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/ 2020-05-29
SGX Stock Analyst Report BUY MAINTAIN BUY 3.24 DOWN 3.610