SingTel - CGS-CIMB Research 2020-08-17: Covid-19 Impact More Severe Than Expected

SINGTEL (SGX:Z74)

SingTel - Covid-19 Impact More Severe Than Expected

SingTel (SGX:Z74)'s 1QFY21 (April 2020 to June 2020) group EBIT (including regional associates’ PAT) fell 33.2% y-o-y and missed our expectations. Key variance: SG, Optus, Telkomsel & Bharti.
Core EPS to decline 35% y-o-y in FY21F, rebound 65%/19% y-o-y in FY22/23F.
Reiterate ADD, with a 9% lower SOP-based target price of S$3.10.

In its 1QFY21 (April 2020 to June 2020) business performance update, SingTel’s group EBIT (including regional associates’ PAT and Job Support Scheme [JSS] credits) fell 33.2% y-o-y (-29.6% q-o-q), on lower Singapore (SG), Optus, Telkomsel and AIS earnings, partly offset by lower Bharti losses. See SingTel Announcements. This missed our expectation, at 16% of our FY21F forecast.
Key variance: SG, Optus, Telkomsel and Bharti earnings. SingTel's 1QFY21 underlying net profit was not reported.

Group EBIT (ex-associates) tumbled 51.5% y-o-y (-29.5% q-o-q).
SG Consumer EBIT fell 20.3% y-o-y (-15.5% q-o-q) as the circuit breaker (Apr-May) and border closures led to a sharp fall in roaming, prepaid usage and device sales, cushioned slightly by JSS (S$17m).
Group Enterprise EBIT dipped 26.5% y-o-y (-6.1% q-o-q) due to continued declines in carriage services and COVID-19, which hit roaming and caused ICT project delays, partly offset by JSS (S$43m).
Digital Life LBIT widened 28.1% y-o-y (+28.1% q-o-q).

Optus Consumer EBIT plunged 82.0% y-o-y (-68.1% q-o-q). Mobile service revenue eased 4.1% y-o-y (-4.8% q-o-q) due to lower roaming, higher mix of SIM-only subs and data price competition, while NBN-related traffic cost and bad debt provisions (due to COVID-19) rose.
Associate profits (ex-SG) grew 5.6% y-o-y, as Bharti’s narrower y-o-y loss (-32.6%) more than offset lower Telkomsel/AIS (-8.9%/-7.6%) earnings. q-o-q, associate profits fell 29.7% as Bharti’s losses widened (+95.1%) and Telkomsel’s earnings fell 23.9%.

We cut SingTel's FY21-23F core EPS by 6-38%, mainly to reflect:
1. extended COVID-19 impact on SG’s and Optus’s Consumer, Enterprise and Digital Life businesses until mid-CY21F, and
2. more bearish earnings forecasts for Bharti (based on consensus) and Telkomsel, the latter due to more intense competition.
We now expect SingTel’s core EPS to fall 35% y-o-y in FY21F, before staging a rebound in FY22/23F (+65%/19% y-o-y) as the COVID-19 impact subsides and Bharti’s/Telkomsel’s contributions improve.
Keeping to a 75% payout ratio assumption, SingTel's FY21-23F DPS is lowered to 7-15 Scts.

Post-earnings cut and updating for associates’ revised fair values, we trim SingTel's Target Price.
Q-o-q earnings recovery in 3Q/4QFY21F and asset monetisation are potential re-rating catalysts.
See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
Its FY21F EV/OpFCF of 16.6x is roughly in line with its 12-year mean, while 3.1-6.0% FY21-23F yields are decent.
Downside risk: price wars in its operating markets.

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-17

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