SingTel - CGS-CIMB Research 2020-08-11: 1QFY21F Earnings Likely Fell Mid-Teens Y-o-y

SINGTEL (SGX:Z74)

SingTel - 1QFY21F Earnings Likely Fell Mid-Teens Y-o-y

Bharti’s exceptional charges to hit 1QFY3/21F reported net profit Based on its 30 Jul announcement, SingTel’s equity share of Bharti’s exceptional charges was S$911m (post-tax) for 1QFY3/21, comprising
1. additional provisions for licence fee and spectrum usage charges (-S$631m, pre-tax) pursuant to the Indian Supreme Court’s decision on the Adjusted Gross Revenue matter and
2. tax-related charges (-S$394m).

At the same time, SingTel will book a S$550m gain on dilution from Bharti Telecom's 2.75% Bharti stake sale in May. These will affect SingTel’s 1QFY3/21 reported net profit (likely to be announced on 13 Aug), but will have no impact on its core net profit and cash flows.

Based on its associates’ reported results and our projections for Optus and Singapore, SingTel (SGX:Z74)’s 1QFY21F core net profit may have fallen 15-17% y-o-y to S$480m-490m. COVID-19 likely hit the consumer and enterprise businesses in Singapore (including Digital Life) and Optus, while NBN (Australia) migration revenue may have been lower.
On the other hand, 1QFY20 was boosted by a S$55m gain from pre-IPO investment in Airtel Africa. 1QFY21F core net profit may form 19-20% of both our and Bloomberg consensus’ FY21F estimates, dragged down by weak Telkomsel, Singapore (bigger COVID-19 impact) and Bharti (slower narrowing of losses) contributions.

Q-o-q, SingTel’s core net profit may have declined 17-19%. Besides COVID-19 and lumpy withholding taxes on associate dividends (the bulk is usually booked in 1Q), we estimate contribution from Telkomsel falling a substantial 21-23% q-o-q on lower revenue and higher costs. As the largest earnings contributor to SingTel (36% of FY20 core net profit), this is a major disappointment for 1QFY21F, in our view.
Meanwhile, the negative contribution from Bharti may not have improved much q-o-q, based on its reported results.

No changes to our earnings forecast, pending the release of SingTel’s results. A weak 1QFY21F may mean that y-o-y earnings recovery could be delayed several quarters.
See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
Nevertheless, we believe SingTel may chart improved earnings q-o-q in the later part of FY21F, which could act as a potential re-rating catalyst. Its FY21F EV/OpFCF of 15.0x is roughly in line with the ASEAN telco average and its 12-year mean.
Downside risk: price war in its operating markets.

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-11

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