SingTel - UOB Kay Hian 2020-05-29: 4QFY20 In Line, Weak 1QFY21 Outlook To Be Offset By Long-Term Opportunities

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

SingTel - 4QFY20 In Line, Weak 1QFY21 Outlook To Be Offset By Long-Term Opportunities

  • SingTel's 4QFY20 core net profit fell 15% y-o-y to S$594m (+8% q-o-q) amid lower roaming revenue, lower handset sales, a weaker AUD and higher depreciation charges. These were offset by narrowed Airtel losses as associate earnings surged 24% y-o-y.
  • SingTel's FY20 core net profit of S$2,457m (-13% y-o-y) is in line with our expectation but we cut our FY21-22 net profit forecasts by 14%/9% to account for the weak 1QFY21 outlook.
  • Maintain BUY but cut DCF-based target price to S$2.80, in tandem with the earnings forecast downgrade.

SingTel's FY20 results in line…

  • SingTel (SGX:Z74) reported a 4QFY20 core net profit of S$594m (-15% y-o-y, +8% q-o-q). This reflects:
    1. a 10% decline in top-line amid lower mobile service revenue and equipment sales,
    2. 6% depreciation of the Australian dollar, and
    3. higher depreciation charges.
  • The sequential gain was due to higher regional associate PBT, given the narrowed Airtel losses. All in all, FY20 core net profit (excluding S$1.8b share of Airtel regulatory cost provision) came in at S$2,457m (-13% y-o-y), within expectations.

…but final DPS disappointed as Singtel conserves cash.

  • SingTel declared a final net DPS to 12.25 S cents. This translates to a 81% net elow our forecast of 17.5 S cents.

EBITDA margin was flat in FY20.

  • Cost savings for FY20 amounted to S$444m, thanks to SingTel’s efforts to lower content cost through renegotiations and a lean cost structure via the digitisation initiatives. These were partly offset by lower handset sales in the quarter and enterprise margin compression.

5G & Capex.

  • Some non-essential capex will be deferred, while no 5G capex is expected in 2020. Capex intensity is not expected to spike up as telcos have been given enough time to roll-out 5G (50% population coverage by 2022 and nationwide by 2025) developments.
  • SingTel is already in discussions with major vendors for 5G equipment procurements; a further commentary will be announced once the Infocomm Media Development Authority (IMDA) outlines the 5G licence details in end-Jun 20.

Expect full impact from Covid-19 in 1QFY21.

  • SingTel withdrew its FY21 guidance in view of Covid-19 induced uncertainties. We expect consumer weakness to be reflected in 1QFY21 alongside pockets of cutbacks to enterprise business revenue.

Cut FY21-22 earnings forecasts

  • Cut SingTel's FY21-22 earnings forecasts by 14% and 9% respectively to account for the challenging outlook in 1QFY21- induced by the Covid-19 outbreak. Our new forecasts reflect:
    1. weaker prepaid revenue,
    2. lower equipment sales, and
    3. cutbacks in enterprise and advertising revenue streams.
  • However, partial support is expected to come from an improving Airtel performance as management alluded to potential market repair in India.
  • Cut SingTel's FY21 DPS to 12.25 S cents, based on 80% net profit payout. Management will focus on preserving cash amid global uncertainties and prepare to invest in 5G from FY22 onwards. As a result, we cut FY21-22 net DPS to 12.25 S cents and 13.95 S cents respectively (~80% payout). See SingTel Dividend History.

Maintain BUY

  • Maintain BUY on SingTel with a marginally lower DCF-based target price of $2.80 (discount rate: 7.10%, growth rate: 1%). At our target price, the stock will trade at 14.5x FY21F EV/EBITDA, 1SD above its 5-year mean EV/EBITDA of 13.5x.
  • Key re-rating catalysts for SingTel includes:
    1. monetisation of 5G footprint,
    2. higher net DPS for FY21,
    3. faster-than-expected recovery in Optus’ consumer and enterprise business, and
    4. market repair in Singapore.
  • See SingTel Share PriceSingTel Target PriceSingTel Analyst ReportsSingTel Dividend HistorySingTel AnnouncementsSingTel Latest News
  • Management has confirmed the tower sales deal in Australia is ongoing and deems the asset monetisation value-accretive to shareholders.

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2020-05-29
SGX Stock Analyst Report BUY MAINTAIN BUY 2.80 DOWN 3.000