SingTel - OCBC Investment 2020-08-18: COVID-19 Weighs On Key Markets

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

SingTel - COVID-19 Weighs On Key Markets

  • SingTel's 1QFY21 EBITDA forming 20.1% of our full-year forecast.
  • Soft performance in Singapore and Australia, but better showing by Airtel.
  • Fair Value of S$3.08 (previously S$3.24).

Soft 1QFY21

  • SingTel (SGX:Z74)’s 1QFY21 (Apr 2020 to Jun 2020) business update came in below expectations. Operating revenue fell 13.9% y-o-y to S$3.5b, on the back of the effects of COVID-19 in Singapore and Australia. EBITDA, including Jobs Support Scheme credits of S$69m from the Singapore government, fell 24.2% y-o-y to S$897m, comprising 20.1% of our full-year forecast. Full-year guidance has not been provided.

Impact of reduced mobility on Singapore and Australia

  • On the consumer front, reduced travel and lower footfall in retail stores put a dent on roaming and prepaid mobile revenue and equipment sales. In Singapore, we note that the ‘circuit breaker’ measures in Apr-May have led to operating revenue for Singapore Consumer falling 21.6% y-o-y to S$406m. Likewise, operating revenue in Australia Consumer fell 13.3% to S$1.6b, with sluggish mobile revenues due to lower roaming, higher SIM-only customer mix and continuing data price competition, among other factors.
  • Group Enterprise saw operating revenue fall 4.5% y-o-y to S$1.4b, with certain ICT projects being deferred or delayed, resulting in increased project costs and slower billings. However, data centre revenue increased with new wins. Carriage services continued to witness declines.

Airtel continues to be the (relatively) bright spot

  • SingTel has booked a net exceptional loss of S$364m, which incorporates Airtel’s additional provisions for license fee and spectrum usage and related interests arising from the Supreme Court’s decision on the Adjusted Gross Revenue issue, though mitigated from the gain registered from the dilution of SingTel’s effective stake in Airtel.
  • Still, what is encouraging is that Airtel has recorded a lower net operating loss due to higher mobile ARPU in India with the price up last December, and this has mitigated declines from other regional associates including Telkomsel, AIS and Globe which were impacted by the effects of COVID-19. We note from Airtel’s earnings that its ARPU has increased 2% q-o-q to Rs 157; management did not provide a timeline for further tariff hikes but has reiterated that it believes ARPU needs to move up to Rs 200 and eventually to Rs 300 for a sustainable business model.
  • See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
  • Despite this soft set of results, we remain constructive on SingTel as its valuations are not demanding (13.6x consensus 2FY PE; 1.2 SD below the 5-year mean), while FY21F yield of 5.3% should help cushion further downside.
  • We cut our EPS assumptions for FY21 and FY22 by 6.5% and 4.8% respectively, and we bring our fair value estimate down from S$3.24 to S$3.08.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-08-18
SGX Stock Analyst Report BUY MAINTAIN BUY 3.08 DOWN 3.240