Simons Trading Research

Author: simonsg   |   Latest post: Fri, 14 Jun 2019, 11:36 AM


SingTel - Focus on Defending Core Business & Staying Lean

Author: simonsg   |  Publish date: Fri, 14 Jun 2019, 11:36 AM

  • SingTel (SGX:Z74) aims to defend its market leadership position in consumer telco services, growth in digital businesses and keep a lid on cost. FY20 guidance includes mid single-digit revenue growth and EBITDA stable at S$4.5b.
  • Competition overhang from TPG appears muted but sliding voice usage and data competition remain as key challenges in both Singapore and Australia.
  • Maintain BUY on share price weakness with a target price of S$3.58.
  • Valuations have reverted to the mean for the stock, dividend yield is 5%.

What’s New

FY20 outlook: Cautiously optimistic.

  • In a recent SingTel Investor Day, management re-iterated its commitment to:
    1. defend its market leadership position in consumer telco services in both Australia and Singapore,
    2. drive digital businesses, and
    3. keep a tight lid on cost structure - digitisation of traditional operating model to be able to pass on the cost savings to consumers.
  • All in all, SingTel guides for mid single-digit revenue growth in FY20 and EBITDA of ~S$4.5b.

Group consumer: Focus on customer experience.

  • Amid lower voice usage and data competition in Singapore, SingTel aims to focus on good customer experience and superior content offerings. A lean cost structure via continuous digitisation (transforming with new operating model) effort is expected to yield stable EBITDA margin for the traditional telco businesses.
  • Management believes the launch of GOMO – an all-digital, no-contract SIM-only product, will allow SingTel to capture the millenial segment and anecdotal evidence suggests that cannibalisation on existing subscriber base is minimal. Threat of TPG appears muted at this stage.

Customer first in Australia.

  • We expect Optus to ride on its encouraging postpaid trend (+454,000 net adds) and record EBITDA ($2.5b) in FY19. For FY20, Optus will focus on:
    1. driving brand recognition, and
    2. differentiate with exclusive content like National Geographic and Optus Sports application.
  • 5G fixed wireless access provides long-term opportunity as Optus plans to roll out 1,200 sites by Mar 20.

Group enterprise: Re-pricing of government contracts up to 3QFY20.

  • In managed services (which accounts for 37% of group enterprise S$3b revenue), management expects revenue compression due to re-pricing of large government contracts progressively from FY19-20. Managed service revenue is expcted to stablise by 3QFY20.
  • Guidance for group enterprise business: ICT to grow low single digit with cyber security growing at low teens. Business environment remains cautious amid trade tensions between China and the US.

Group digital life: The growth engine.

  • 25% of revenue comes from new businesses (including cyber security) for SingTel, and participating in the digital economy is a non-negotiable strategy. Amobee and DataSpark are EBITDA positive but HOOQ will continue to drag earnings in FY20.
  • Management aims to grow Amobee by high single digit in terms of revenue and EBITDA by a substantial amount. In addition, there are plans to monetise Amobee in the next three years via an IPO or private investors.

Implications of a Huawei ban.

  • Most of SingTel’s operating companies (opcos) appear ready to switch to out of Huawei in the event the trade war escalates further between China and the US. Most SingTel opcos already have in place multi-vendor stategy and should be able to renegotiate for better cost strcuture in the event of an outright Huawei ban.
  • Huawei is commonlly acknowledged to provide better quality, higher specficiation and importantly, is at least 6 months ahead of its peers in terms of technological offerings.

Stock Impact

Maintain cash flow at 17.5 S cents for FY20.

  • Barring unforeseen circumstances, management intends to maintain ordinary dividends at 17.5 S cents for FY20, and thereafter revert back to paying 60-75% of underlying net profit. This translates to a net dividend yield of 5.3% for FY20.


  • No change to earnings estimates.

Valuation / Recommendation

  • BUY on share price weakness with a target price of S$3.58, based on DCF (required rate of return: 6.25%, growth: 1%).

Source: UOB Kay Hian Research - 14 Jun 2019

Labels: SingTel
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SingTel - EPS Has Bottomed; Growth in FY21-22F

Author: simonsg   |  Publish date: Thu, 13 Jun 2019, 11:39 PM

  • SINGTEL (SGX:Z74) hosted its annual Investor Day on 11 Jun.
  • Better associate earnings and narrower Group Digital Life losses will help offset earnings pressure from Singapore consumers, Group Enterprise & weaker A$ in FY20F, in our view.
  • Maintain ADD with a 3% higher target price of S$3.50. FY20-22F yield of 5.3% remains relatively attractive.

Group Digital Life Losses to Narrow; Amobee Monetisation May be on the Cards

  • SingTel sees Group Digital Life (GDL) losses narrowing in FY20F on
    1. higher EBITDA at Amobee, driven by high single-digit growth in net revenue ( > US$250m) and
    2. narrower HOOQ losses.
  • An Amobee IPO/stake sale to strategic investors is being considered. The latter may validate Amobee’s valuation at US$1.4bn (based on average 5.6x net revenue multiple from private market transactions), or 3.5% of SingTel’s market cap.

Telkomsel: Competition Is Improving in Indonesia

  • Telkomsel (30% of SingTel’s FY19 core net profit) says overall competition has improved. It raised tariffs due to Lebaran, with other players following suit. While Telkomsel sees tariffs coming back down post-Lebaran, it says it may carry out further price revisions a few weeks later.
  • Enforcement of prepaid registration has been robust and the regulator may further limit the number of SIMs to 5 per sub vs. 3 per network currently, which it thinks could further stabilise market competition.

Group Enterprise: Big Hiccup in FY19, Milder Bumps in FY20F

  • Group Enterprise (GE) (40% of SingTel’s FY19 EBIT, ex-associates) saw very lumpy public sector contract renewals in FY3/19. Price erosion led to a sharp 12%/14% drop in managed services (ICT) revenue/EBIT.
  • While overall GE revenue is likely to stay under pressure (FY19: -2.3%) due to the structural decline in the cross-carriage business, it will be buffered by healthier ICT revenue growth in FY20F (FY19: +0.9%), in our view.

Competition Stabilising in India; AIS Is Unsure on Lifting Payout Ratio

  • Bharti says tariffs may have stabilised in India but may not rise until Vodafone-Idea has reached market share equilibrium. Globe thinks the entry of a third player is not a certainty, as there are still challenges in funding, network rollout and finding good local management.
  • AIS is unsure if it should lift its 70% payout ratio, even if the 900/1800MHz payment term is extended, citing potential future spectrum payments and 5G capex.

Maintain ADD With 3% Higher Target Price of S$3.50

  • We see SingTel’s core EPS inching up by 1.8% y-o-y in FY20F (FY19: -21.4%), then growing 9.3%/5.5% y-o-y in FY21/22F.
  • Maintain ADD with a 3% higher SOP-based target price of S$3.50, after factoring in more optimistic consensus forecasts/valuations for Bharti and removing a previous 20% valuation discount as the Indian market is stabilising.
  • Potential re-rating catalyst: earnings recovery from 2HFY20F.
  • Downside risk: more intense competition in Australia, India and Singapore.

We Value Its Associates at S$2.36 Per Singtel Share

Associates% of RNAVStake (%)Value (S$m)Value/share (S$)Valuation Methodology

Advanced Info (ADVANC TB)16.8%23.36,870Based on CIMB TP
Intouch (INTUCH TB)4.6%21.00.12Based on consensus TP
Globe Telecom (GLO PM)7.7%3,1590.19Based on consensus TP
25.9%35.210,5750.65Based on consensus TP
SINGAPORE POST (SGX:S08)1.7%25.76760.04Based on CIMB TP
NETLINK TRUST (SGX:CJLU)2.2%25.09060.06Based on consensus TP
Total NAV  38,6112.36 

Key highlights from Investor Day 2019

Group Digital Life

  • SingTel hopes to reduce HOOQ Amobee's profits to deliver improved financial performance in FY20F.
  • For Amobee, net revenue is in the next 1-2 years. The programmatic digital advertising spend in the US is projected to grow at a 2018-21 CAGR of 18%, according to eMarketer.
  • SingTel says it is committed to realising the value of its digital assets, with an IPO or sale to strategic investors being options under consideration. For the latter, SingTel pointed out that private market transactions have taken place at net revenue multiple of 3.3x-7.9x. Based on an average multiple of 5.6x, Amobee’s valuation may be validated at US$1.4bn, or 3.5% of SingTel's current market capitalisation.
  • On HOOQ, management says that it will continue to make opportunities for consolidation in the market and will focus on the operational matrices that will put it in a good position to participate when the opportunity arises.


  • Telkomsel believes that overall market competition is a few weeks later (depending on the spending reaction by subs to the tariff hikes during Lebaran).
  • On the enforcement of prepaid registration by regulators, Telkomsel says this has been carried out in a robust way. It says the regulator may further limit the number of SIMs to 5 per sub vs. 3 per network currently, which it thinks would further stabilise the market.

Bharti Airtel

  • Bharti Airtel believes that revenue has bottomed out over the past 9-10 months and that there is upside potential to ARPU of Rs200 a few years ago. However, in the near-term, it believes prices will likely be maintained until Vodafone-Idea reaches market share equilibrium and is able to manage merger/integration challenges.
  • Bharti believes that Jio will be aimed at acquiring quality customers.

Group Enterprise

  • SingTel says there were lumpy renewals of government ICT contracts in FY19. As a result, it saw substantial price erosion (though it was able to retain all of its contracts), which led to a sharp 12% drop in the Americas and EMEA region, where it derives only 35% of its revenue.
  • SingTel is also looking to unlock the value of its cybersecurity business, with a stake sale to strategic investors or an IPO as possible options.

Globe Telecom

  • The government has recently approved the transfer of ownership of Mindanao Islamic Telephone Co (Mislatel) to the consortium led by Udenna Corporation and China Telecom. Despite this, Globe believes a third player entering the market is still not a certainty. It highlighted challenges in network rollout (aggressive KPIs to meet, obtaining local permits), funding (on the local party side) and finding good local management.
  • It also pointed out the delay in Mislatel's service launch, which has been delayed from 2H19 initially to 1Q21.

Advanced Info Services

  • Advanced Info Services (AIS) is still considering whether it should buy the 700MHz spectrum. If it does, the benefit is that it will get a 10-year extension on its 900/1800MHz payment term (currently, the final 60% of upfront fee is to be paid in 2020). Nevertheless, even if this were to happen, AIS is still unsure if it should raise its 70% dividend payout ratio immediately, citing potential 2600MHz spectrum payments (it will know if there is an auction by end-2019) and 5G investments thereafter.
  • On fixed broadband, AIS hopes to maintain 1Q19’s strong net adds momentum, supported by room for industry penetration to rise further. It says ARPU may see further dilution due to price discounting, which it believes is still under control.

Singtel Singapore

  • Given limited consumer use TPG (which could commercially launch services in 2H19), given all the offers put out by incumbents and MVNOs in the past 12 months.


  • Optus believes that it can continue to grow profitable market share. Its focus will be on expanding network coverage in Australia and increasing capacity/speeds in major towns/cities, as well as differentiating its services such as leveraging its sports content rights.
  • Optus is launching 5 simplifying products, automating end-to-end processes and using artificial intelligence to make better decisions. Optus says this not only presents opportunities to significantly cut down on cost but also helps to improve customer net promoter scores (i.e. satisfaction).

Source: CGS-CIMB Research - 13 Jun 2019

Labels: SingTel
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HRnetGroup Limited - Diversification Amid Economic Uncertainty

Author: simonsg   |  Publish date: Thu, 13 Jun 2019, 11:33 AM

  • HRnetGroup's 1Q19 core earnings decline was a result of cautious hiring and exit of startups in Singapore, partially offset by stronger performance from North Asia.
  • We expect new overseas offices and greater penetration into public sector/ healthcare jobs to drive potential 3Q19F earnings recovery.
  • Maintain ADD on lower EPS and Target Price; supported by 7.4x ex-cash CY20F P/E.

Employment Survey Suggests Stable Outlook in Singapore

  • In a recent Manpower Group survey of over 59k employers globally, Singapore recorded 3Q19 net employment outlook of +12% (relatively stable y-o-y and q-o-q), ranking 14th out of the 44 countries. Among the seven sectors in Singapore, public admin & education has the strongest hiring intentions at 22% (5%-pt q-o-q and 6%-pt y-o-y improvement), followed by services (+18%) and transportation & utilities (+10%).

Overseas Presence as the New Growth Engine

  • Cautious hiring in Singapore led to 1Q19 gross profit declining S$2.4m (-11.6% y-o-y), though partially mitigated by higher professional recruitment in North Asia (+S$1.3m).
  • While HRNETGROUP LIMITED (SGX:CHZ) continues to face softer demand from some multinational clients in China, it is actively pursuing new domestic customers, which could contribute more meaningfully from 3Q19F.
  • We are also positive on its new overseas offices which have started to gain traction e.g. REForce, Career Personnel in Hong Kong, RecruitFirst in Shanghai and HK.

Expect Stronger Pick-up From 3Q19F

  • HRnetGroup posted 1Q19 topline decline in both professional recruitment (-1.5% y-o-y) and flexible staffing (-4.1% y-o-y). We expect flexible staffing to remain under pressure in 2Q19F due to the exit of some start-ups in Singapore; recovery in professional recruitment could be more visible from 3Q19F as HRnetGroup secures more public sector jobs in Singapore.
  • 1Q19 headline PATMI of S$19.3m (+18.5% y-o-y) was boosted by S$5.6m Fair Value gain on financial assets, which could see a reversal in 2Q19F. There will also be zero government subsidies in 2Q19F (1Q19: S$4.5m, 2Q18: S$0.5m).

Increasing Defensive Angle to Hiring Business

  • In May 2019, HRnetGroup bought a 7.85% stake of Bamboos Healthcare Holdings (2293 HK, Not rated), a fast-growing healthcare staffing solutions provider for clients like hospitals and social service organisations, with a portfolio of 20k healthcare professionals in HK.
  • While healthcare life science sector accounted for 10% of HRnetGroup’s revenue in FY17-18, Bamboos is not an existing customer and we see potential for further collaboration.

Maintain ADD, Supported by Strong Net Cash and 3-4% Yield

  • We cut our Target Price of S$1.01, still pegged to 18x CY20F P/E.
  • Downside risks to our call are global economic slowdown and poor overseas execution.
  • Earnings-accretive M&As could re-rate the stock.

Source: CGS-CIMB Research - 13 Jun 2019

Labels: HRnetGroup
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Oxley Holdings - Major Property Sector Bargain; Initiate BUY

Author: simonsg   |  Publish date: Thu, 13 Jun 2019, 11:17 AM

  • Initiate coverage on OXLEY HOLDINGS LIMITED (SGX:5UX), a home-grown property developer, with BUY and a Target Price of SGD0.41, pegged to a 45% discount to our RNAV of SGD0.74.
  • Concerns over its gearing level are overdone, as it should be lowered by key asset sales – especially from Chevron House and its hotels along Stevens Road. Sturdy profits from its overseas and local projects will also start to flow in, and shareholders could be rewarded by special dividends.

Source: RHB Invest Research - 13 Jun 2019

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Sheng Siong Group - Ain’t No Sunshine

Author: simonsg   |  Publish date: Thu, 13 Jun 2019, 9:08 AM

Retail & Supermarket Sales Continue to Disappoint

  • Singapore’s Apr 2019 retail sales were down 1.8% y-o-y. Excluding motor vehicles, they were down 1.9% y-o-y.
  • After gaining 0.9% in March, supermarket sales resumed their fall, by 1.1%. Food & beverage sales provided the bright spot, up 3.0% y-o-y. This was powered by all categories. See SingStat report in PDF.
  • We believe consumer sentiment will continue to weaken amid a slowing economy while supermarket sales will continue to be affected by increasing demand for ready meals in the interest of time.
  • Reiterate SELL on Sheng Siong Group (SGX:OV8) with an intact DCF-based Target Price of SGD0.95 (7.8% WACC, 1% LTG).
  • Risks to our view include higher-than-expected new stores & SSS contributions and any improved consumer sentiment.

March Outperformance a Blip

  • Supermarket and hypermarket sales briefly recovered by +0.9% y-o-y /+1.7% m-o-m in March. April’s sales disappointed again, validating our concern about shrinking basket values. Sales were down 1.1% y-o-y in 1Q19, a continuation of contractions since 2Q18. 4M19 sales were down 1.1%.

Food Therapy Brings Cheer

  • Excluding its 1.8% y-o-y drop in Feb 2019, the Food & Beverage Services Index (FBSI) has been growing since May 2018. April’s growth was powered by fast-food, catering and other eating places.
  • Fast-food sales have entered their 15th month of consecutive y-o-y growth and other eating places, their 7th. We believe this reflects Singaporeans’ increasing demand for value-for-money convenient ready meals.

A Gloomy Spring Season for Retail Sales

  • Although Jan 2019 raised hopes of early Christmas season, retail sales resumed their drop in Feb, with no signs of food retailers, mini-marts & convenience stores and medical goods & toiletries, consumer staple sales were down 2.0% y-o-y in April while discretionaries dropped 2.5%.

… Except for F&B

  • The FBSI rose again in other eating places with their 6.2% growth. Still, other eating places continued their 7th consecutive month of growth, by 3.6%.

Winds of Change Has Begun to Blow

  • The continued outperformances of fast-food home-cooked meals. We believe this trend has boosted the sales of casual dining, to the detriment of demand for supermarket fresh produce. Restaurant sales benefited less from food deliveries as we think consumers still prefer dine-in experiences to justify their price premiums.
  • A report published by driver of out-of-home food purchases, especially at fast food outlets, street stalls/kiosks and via food deliveries.
  • We make no changes to our forecasts for Sheng Siong Group, as current trends have been supporting our investment thesis thus far.
  • As expected, Sheng Siong Group opened three new stores in May this year, in non-mature HDB estates predominantly populated by young families. We understand that its new stores have SKUs that cater to their needs, which may include healthier options, brand uniqueness, convenience etc.
  • While lauding these efforts, we choose to remain conservative on its near-term earnings prospects.

Source: Maybank Kim Eng Research - 13 Jun 2019

Labels: Sheng Siong
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Thai Beverage - Drink & Rejoice; Reiterate BUY

Author: simonsg   |  Publish date: Thu, 13 Jun 2019, 9:07 AM

  • Reiterate BUY with an unchanged SGD0.92 Target Price, 11% upside plus 2% yield.
  • Thai Beverage (SGX:Y92) is one of our Top Picks amongst the Singapore-listed consumer stocks.
  • Thailand’s April statistics suggest that domestic beer consumption has continued to improve, which should bode well for the group. Aside from alcohol demand recovery, we also favour Thai Beverage due to the strength in the THB and also its valuation gap to other Thai-listed peers. We expect Thai Beverage's share price to perform well when results deliver.

Positive Stats for Beer

  • The latest statistics from Thailand’s Office of Industrial Economics revealed that domestic beer consumption was up 21% y-o-y in April, a sharp turnaround from the slow demand growth in March. We note that the inclusion of Sabeco and exports could have distorted Thai Beverage’s y-o-y numbers, but – on a 7-month basis (Oct 2018-Apr 2019) – the kingdom’s beer consumption has grown 9% y-o-y.
  • We believe Thai Beverage will grow in tandem, given that it is the second-largest beer player in the market with a 40% market share.

Upbeat on Thailand Retail Outlook

  • Thailand retail sales remained strong and were up 12% y-o-y in the last two quarters. While farm income was stable, we believe the economic stimulus package – including state welfare cards to 14.5m low-income earners and personal income tax deductions – should help boost domestic spending.

Strength in the THB

  • We estimate 85% of Thai Beverage’s PATMI is derived from Thailand. YTD, the THB/USD has appreciated 4% while regional currencies stayed flattish. Amidst market uncertainties revolving around US-China trade tensions, we favour Thai Beverage over other Singapore-listed consumer companies, given the strength of the THB compared to regional currencies.

Source: RHB Invest Research - 13 Jun 2019

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