SingTel - CGS-CIMB Research 2020-11-09: 1HFY21 Forecast ~ Weakness From Multiple Fronts


SingTel - 1HFY21 Forecast ~ Weakness From Multiple Fronts

  • SingTel's 1HFY21F core net profit may have fallen 41-42% y-o-y and 33-34% h-o-h to S$760m-770m, which is in line with our but below consensus forecasts.
  • We see weaker earnings from SingTel's Singapore operation, Optus and across all associates, except for Bharti (smaller negative contribution).
  • Reiterate ADD on SingTel with an unchanged SOP-based target price.

SingTel's 1HFY21F core net profit likely down y-o-y & h-o-h

  • SingTel (SGX:Z74) will release its 1HFY21 (Apr 2020 to Sep 2020) results on 12 Nov before market open. See SingTel's announcements.
  • Based on SingTel's associates’ reported results and our estimates for Singapore and Optus, we believe SingTel’s 1HFY21F core net profit may have plunged 41-42% y-o-y to S$760m-770m, mainly due to Optus, Singapore and Telkomsel, partly buffered by improved Bharti losses.
  • H-o-h, we think earnings slid 33-34% on weaker Optus, Telkomsel, Singapore and Globe performance.
  • Ex-investment income from Airtel Africa in FY20, we think 1HFY21F core net profit fell 31-32% y-o-y and 35-36% h-o-h. SingTel's 1HFY21F core net profit may be largely in line with our FY21F forecast (47-48%) but miss Bloomberg consensus (34-35%).
  • SingTel's 1HFY21 reported net profit may also include -S$364m of Bharti-related exceptional items booked in 1Q.

Singapore & Optus earnings hit by COVID-19 & mobile competition

  • We estimate SingTel's Singapore’s 1HFY21F core net profit fell 20-23% y-o-y (down 12-14% h-o-h), driven by
    1. the COVID-19 hit on roaming, prepaid usage, device sales and Digital Life,
    2. stiff mobile competition,
    3. ongoing declines in carriage services, and
    4. enterprise EBITDA margin erosion (lower contract value on renewals), partly buffered by Job Support Scheme credits.
  • Meanwhile, we see Optus sliding into 1HFY21F core net loss of S$22m-24m (1H/2HFY20 core net profit: S$238m/167m), led by lower NBN migration fees, mobile revenue (lower roaming, higher mix of SIM-only plans, competition) and enterprise EBITDA y-o-y, coupled with COVID-19 related expenses (onshore care agents, debt provisions from financial hardship relief).

Bharti’s improved performance helped to buffer associate earnings

  • We believe SingTel's 1HFY21F associate contribution (in S$ terms) was likely flattish to slightly declining y-o-y, based on reported results. Smaller share of Bharti losses at S$120m-130m (due to mobile subs and ARPU growth; 1HFY20: -S$226m) is offset by lower contributions from Telkomsel (down 12-15% y-o-y on data price cuts and legacy-to-data transition), AIS (COVID-19 and competition) and Globe.
  • H-o-h, SingTel's 1HFY21F associate profits likely fell 16-17%, on the back of weaker earnings at Telkomsel and Globe, partly mitigated by smaller share of Bharti losses (2HFY20: -S$134m).

Reiterate ADD on SingTel

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | 2020-11-09
SGX Stock Analyst Report ADD MAINTAIN ADD 3.100 SAME 3.100