Simons Trading Research

Author: simonsg   |   Latest post: Thu, 12 Dec 2019, 12:51 PM


SingTel 1QFY20 - Earnings May Have Hit Rock Bottom

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  • SINGTEL (SGX:Z74)'s Core EPS fell 21.4% y-o-y in 1QFY20 and missed our expectations.
  • FY20F core EPS to fall 13% before recovering 16%/7% y-o-y in FY21/22F.
  • Maintain ADD with a 3% higher SOP-based target price of S$3.60.

SingTel's 1QFY20 Results Missed Expectations

  • SingTel’s 1QFY3/20 EPS missed at 20%/18% of our/consensus FY20F forecasts. Core EPS fell 21.4% y-o-y (-17.5% q-o-q) on a wider share of Bharti losses (ex-Bharti, -2.9% y-o-y), plus lower EBIT from Group Consumer (-15.9% y-o-y) and Enterprise (-15.3% y-o-y). In constant currency terms, core EPS was down 21.5% y-o-y.
  • SingTel now guides for FY20 EBITDA to grow by the high single-digits (previous: stable) due to SFRS 16 adoption, and group free cashflow at S$2.4bn (previous: S$2.1bn).

Group Consumer EBIT Dragged by Lower Mobile Service Revenue

  • Singapore Consumer EBIT fell 8.8% y-o-y (+13.1% q-o-q) due to lower mobile service revenue (-6.3% y-o-y) on lower voice usage (roaming), data price erosion and amortisation of higher handset subsidies.
  • Postpaid subs growth (+5.8% y-o-y, 1.4% q-o-q) was more than offset by lower ARPU (-13.0% y-o-y, -2.4% q-o-q).
  • Optus Consumer EBIT dropped 12.6% y-o-y (-35.6% q-o-q).
  • Despite higher postpaid subs (+7.5% y-o-y, +0.9% q-o-q), mobile service revenue fell 6.7% y-o-y due to a higher mix of SIM-only plans and data price competition.
  • Depreciation and amortisation rose due to investments in mobile network and spectrum.

Group Enterprise Hit by Price Erosion & Wary Business Environment

  • Group Enterprise revenue was down 5.1% y-o-y, driven by a 9.4% y-o-y decline in carriage revenue (including an 11.1% y-o-y drop in enterprise mobile service revenue).
  • ICT revenue only grew by 0.3% y-o-y amidst a cautious business environment (weaker demand in Australia) and pricing pressure.
  • Separately, Group Digital Life losses narrowed by 12.4% y-o-y (-8.1% q-o-q) to S$32m due to 16.5% y-o-y (+10.1% q-o-q) revenue growth.

Bharti Continues to be a Drag on Associate Earnings

  • Associate contributions in S$ terms fell 29.0% y-o-y mainly due to its share of Bharti losses at S$119m (1QFY19: +S$19m), partly buffered by higher earnings at Telkomsel (+16.7% y-o-y). q-o-q, associate earnings fell by 17.7% as its share of Bharti’s losses widened by 20.6%, while contributions from Telkomsel (-7.4%) and Globe (-20.4%) were also lower.

Maintain ADD With a 3% Higher SOP-based Target Price of S$3.60

  • We cut our FY20-22F core EPS by 9-15% to factor in bigger losses for Bharti (based on consensus) and lower Group Enterprise/Consumer EBIT. However, our SOP-based Target Price is raised by 3% to S$3.60 as the impact from our earnings cut (-S$0.20) is more than offset by Bharti’s (based on consensus, +S$0.20) and Telkomsel’s (+S$0.10) higher fair value.
  • SingTel's FY3/21F EV/OpFCF of 15.3x is in line with the ASEAN telco average, backed by FY20-22F yields of 5.4% p.a.
  • Potential re-rating catalyst: earnings recovery from 2HFY20.
  • Downside risk: more intense competition in Australia, India and Singapore.

Source: CGS-CIMB Research - 8 Aug 2019

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