• SingTel reported strong gains of 10.8% in underlying net profit at S$979m, boosted by gains in its regional mobile associates, and turnaround in Optus.
• 2Q15 revenue gained 3.5%y-y at S$4.3b, benefiting from growth in both Consumer and Enterprise segments across both Singapore and Australia.
• EBITDA up 2.7%y-y to S$1.3b, boosted by growth in Enterprise segment and S$31m write-back related to fibre rollout costs. Group Digital EBITDA, however, continues to decline due to higher costs from ongoing investments.
• Upgrade to "Accumulate” with revised TP of S$4.12

What is the news?

Overall revenue gained across Group Consumer and Enterprise segments, benefiting from turnaround in Optus revenue and stable Australian dollar. Singapore Consumer reported gains in EBITDA due to higher mobile data revenue and IPTV (mio TV) income. Enterprise revenue and EBITDA were boosted b y strong growth in ICT revenue across both Singapore and Australia. Reported net profit was up 19.3%y-y at S$1.4b, lifted by strong gains from regional mobile associates, Airtel and Globe and exceptional gain of S$65m due to dilution of equity stake in SingPost. Adjusting for exceptional gains, underlying net profit posted 10.8%y-y gain at S$979m for the quarter while YTD underlying net profit was up 4.4%y-y.

How do we view this?

With FX movements seemingly stabilising and Optus mobile revenue gradually improving, we expect a quick turnaround performance in Optus. SingTel maintained guidance for stable revenue and EBITDA to increase by low single digit for FY15F. Capex is expected to be about S$2.3b as the group continues to invest in mobile networks and customer care and management systems. We expect continued strong performance from its regional mobile associates, particularly Airtel, driven by increased customer base and higher mobile data revenue. Mobile and mio TV would continue to drive performance in the Singapore business. Negative EBITDA from Group Digital Life was guided to increase to about S$200-250m as SingTel continue to pursue new digital initiatives, which include digital advertising, mobile payment and data analytics.

Investment Action

Results were above expectations and Optus turnaround came sooner. We revised our estimates upwards to reflect the strong 2Q15 results and raised our TP to S$4.12. We upgrade our rating to Accumulate in view of better outlook and strong growth from its regional mobile associates ahead.

Source: Phillip Securities Research - 14 Nov 2014