• 4Q14 Revenue declined 8% y-y at S$4.13b due to lower revenue from Optus and weaker AUD dollar. For the fullyear, revenue declined 7% y-y at S$16.8b.
• 4Q14 net profit gain 4% y-y at S$898m on improving margins, despite fall in revenue. Fullyear net profit up 4% at S$3.65b, inline with our estimates. Adjusting for exceptional items, FY14 underlying net profit was flat YoY.
• No surprises in dividends as final dividends of 10¢ per share was proposed, bringing the total FY14 DPS to 16.8¢.
• Maintain "Neutral” with revised TP of S$3.75.

SingTel announced its FY14 results on 15 May 2014. Underlying net profits remained stable despite currency headwinds for FY14, lifted by strong performance from Bharti Airtel, owing to increased data adoption and usage in India. S$59m dividend income from the Southern Cross joint venture also contributed to uplift in profit. Revenue decline was offset by gains in Singapore Consumer business. Poor performance from Optus was due to lower mobile revenue and a weaker AUD against SGD. The lower mobile revenue was impacted from a fall in mobile subscriber base and reduction in mobile termination rate – from 6.0¢ to 4.8¢/min in CY2013 and from 4.8¢ to 3.6¢/min in CY2014. Group EBITDA fell 1% y-y due to impact from Optus, offset by improvement in EBITDA margin at 30.6% (FY13: 28.6%). On a positive side, the consumer business in Singapore continues to grow healthily from higher mobile and IPTV income.

How do we view this

Net income was inline with expectations. With SingTel’s cessation as key subcontractor to OpenNet, revenue from the Group Enterprise will be impacted from expected decline in fibre rollout and maintenance revenue. However, the decline would be offset by increased profits to NetLink Trust (which has fully acquired OpenNet). We do not expect a turnaround in Optus revenue soon, on reduction in mobile termination rate in Australia. Group Digital Life is expected to continue to return negative EBITDA due to start-up costs and higher investments. However, we remain positive on the Singapore consumer business, with growth coming from mobile and IPTV. Management guided for Group EBITDA to be stable and will continue to drive growth in its core business and digital space.

Investment Action

We adjust our forecasts to reflect FY14 results. We continue to maintain our “Neutral“ rating in view of currency headwinds and concerned outlook of Optus. Based on SOTP valuation, we derive a TP of $3.75.

Source: Phillip Securities Research - 16 May 2014