Simons Trading Research

Author: simonsg   |   Latest post: Fri, 16 Aug 2019, 6:42 PM


SingTel - 4QFY19 Within Expectations, Offers 5.6% Dividend Yield in FY20

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  • SINGTEL (SGX:Z74)'s 4QFY19 underlying net profit of S$697m (-15% y-o-y) reflects intense competition across all operating units, investment into digital services and Bharti losses. FY19 net profit of S$2,825m is in line with house and street estimates.
  • FY19 net dividend yield of 5.6% is expected to be sustainable into FY20.
  • Focus for FY20 includes driving successful data monetisation and cost savings/avoidance of S$490m (from optimal staff structure and opex efficiency).
  • Maintain BUY. Target price: S$3.58.

Singtel's 4qfy19 Results

FY19 core net profit in line with expectations.

  • SINGTEL (SGX:Z74) reported core net profit of S$697m for 4QFY19 (-15.1% y-o-y; +2.5% q-o-q) as the enterprise business margins were adversely affected by pricing pressure and shift in product mix. This brought FY19 core net profit to S$2,825m (-21% y-o-y), in line with both house and street estimates.
  • In essence, SingTel's FY19’s results were affected by diminishing voice revenue and lower associate profits (intense competition affecting Airtel and Telkomsel).

5.6% dividend yield for FY20.

  • SingTel has proposed a final net DPS of 10.7 S cents, bringing FY19 total DPS to 17.5 S cents (net dividend yield of 5.6%).
  • SingTel expects to also pay 17.5 S cents for FY20.

Stock Impact

Group Consumer: Postpaid leadership position maintained.

  • For Singapore (market share: 49%), mobile service revenue fell 2% y-o-y and 4.6% q-o-q as a result of lower voice and higher mix of SIM-only plans. This was partly offset by higher data revenue. SingTel recorded a 32,000 post-paid subscriber net add in the quarter. Blended ARPUs fell 6% y-o-y to S$32/month. EBITDA rose 5% y-o-y to S$169m with a 1.3ppt EBITDA margin improvement, thanks to strong cost management. Management improved staff productivity and reduced traffic cost.
  • For Australia, mobile service revenue was stable as Optus added 121,000 post-paid mobile subscribers in 4QFY19 (underpinned by population coverage of ~97%). Total mobile revenue rose 10% y-o-y driven by a 25% y-o-y increase in equipment sales (higher take-up of premium handsets). Post-paid mobile ARPU dropped 4.5% y-o-y to A$42 with higher mix of SIM-only plans and data price competition. EBITDA rose 8% y-o-y with higher equipment sales and NBN migration revenues. Excluding NBN migration revenue, underlying EBITDA would have declined 2% y-o-y.

Group Enterprise: Lower margin due to change in mix.

  • Revenue declined 2.7% y-o-y on the back of lower traditional carriage services (data & internet: -6.7% y-o-y; fixed voice: - 17.4% y-o-y). This was due to price competition and legacy fixed voice revenue contribution, but was partly cushioned by higher ICT revenue (+3.6% y-o-y). EBITDA and EBITDA margin fell 16% y-o-y and 3.6ppt due to a change in sales mix, with ICT accounting for 51% of revenue (4Q18: 48%).

Group Digital Life: 33% yoy revenue growth.

  • Revenue from digital marketing increased 33% y-o-y in 4QFY19 with the inclusion of Videology and first time recognition of technology licensing fees from ITV plc (iTV). Negative EBITDA increased to S$18m on lower government grants and absence of one-off content cost credits from contract re-negotiations in 4QFY18.

Regional Mobile Associates: 20% drop in contribution.

  • Contributions from regional mobile associates declined 20% y-o-y to S$389m in pretax profit on the back of S$143m Bharti pretax losses. Sequentially, associate earnings rose 13.7% on the back of strong performance from GLOBE. Management is cautiously optimistic on Bharti’s near-term outlook.

Earnings Revision / Risk

  • No change to earnings estimates.

Valuation / Recommendation

  • Maintain BUY and target price of S$3.58, based on DCF (required rate of return: 6.25%, growth: 1%).

Source: UOB Kay Hian Research - 16 May 2019

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