Simons Trading Research

Author: simonsg   |   Latest post: Fri, 13 Dec 2019, 4:31 PM


SingTel - Management Lowers Guidance; Street Earnings to be Cut

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  • Excluding investment income, underlying net profit of ~S$630m (-12% y-o-y, +9% q-o-q) came below our S$660m estimate due to weak Group Enterprise.
  • Management lowered FY20F core EBITDA guidance from high single digit growth to stable; consensus FY20F/21F earnings likely to be cut 7-8% each.
  • HOLD with Target Price of S$3.12 as the stock trades at 12-month forward PE of 19x vs 4-year average of 17.7x.

Excluding Investment Income, 2QFY20 Underlying Net Profit Was Slightly Below Our Estimate

  • SINGTEL (SGX:Z74)’s underlying profit of S$737m (+3.1% y-o-y, +28% q-o-q) was in-line with our and consensus estimates.
  • SingTel’s 1H20 figure make up 49.1% of our FY20F earnings and 46.5% of consensus’. However, there was an investment income of S$132m in 2QFY20 versus S$55m in 1QFY20 and none in 2QFY19. This investment income will continue till December 2019 when Bharti’s liability for pre-IPO investment in Bharti-Africa will end.
  • Excluding investment income of S$132m, underlying net profit would have been S$630m (-12% y-o-y, +9% q-o-q), below our estimate of S$660m. This is mainly due to weakness in Group Enterprise EBIT dropping to S$203m versus S$253m in 1QFY20 and S$289m in 1QFY19.

Singtel Lowered Its FY20F Core EBITDA Growth Guidance From High Single Digit to Stable (ours Is +2% Growth)

  • SingTel also lowered capex to S$2.1bn from S$2.2bn after cutting capex for Optus. Our FY20F earnings are achievable (already 8% below consensus) as reported 1HFY20 underlying earnings comprise 49.1% of our full-year projections.
  • However, there is a downside risk to our FY21F earnings (already 7-8% below consensus) as S$200m plus investment income will be absent in FY21F compared to ~S$400m potential reduction in losses from Bharti in FY21F

Mixed Underlying Trends

  • If not for EBITDA re-statement from the adoption of new accounting standards, core EBITDA from Singapore and Australia would be facing a structural decline as 1HFY20F EBIT (excluding associates) has dropped 14% y-o-y to S$1060m due to Group Enterprise.

Source: DBS Research - 15 Nov 2019

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Labels: SingTel

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SingTel 3.37 -0.02 (0.59%) 3,770 

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