• Expects low single-digit growth
• Free cash flow remains strong
• Offers regional exposure

Keeps most of FY16 guidance unchanged

After its recent 2QFY16 results, Singtel has largely kept its guidance largely unchanged for FY16. It continues to expect group revenue to grow by mid single digit level; EBITDA to increase by low single digit level. It has kept capex at S$2.3b on a cash basis (but S$3b on accrual basis, with S$1.1b for Singapore, S$1.9b for Australia); free cash flow to come in around S$1.5b, with regional associates to contribute around S$1.1b in dividends.

For its core business, revenue is expected to increase by mid single digit level; EBITDA to rise by low single digit level. But due to lower contributions from mobile roaming, Singtel has pared its guidance for Mobile Communications revenue from mid-single digit growth to low single digit level for FY16. Meanwhile there is no change to Australia Mobile Services revenue growth of low single digit. Group ICT is still likely to grow by mid single digit level; Group Digital Life‟s negative EBITDA to remain around S$150-180m.

Downplays threat from 4th telco in Singapore

Over in its Consumer business in Singapore, Singtel has downplayed the threat from the emergence of a fourth telco in Singapore. Although two companies – Consistel and MyRepublic – have expressed interest, it notes that both of them do not have any experience in running a mobile network/business. Management notes that the outcome could also depend on several factors, including IDA‟s auction (likely in 1H16), a level playing field and level of investment (easily S$300m). Market watchers believe that a new entrant would be able to garner less than 5% of market share from the incumbents; but do not rule out a near-term disruption in pricing.

Maintain BUY with S$4.17 fair value

Although Singtel offers the lowest dividend yield of around 4.5% among the three telcos, it offers something the other two does not – exposure to the regional and developing markets, which should offer higher growth potential. While the continued weakening of the AUD against the SGD could have an impact on Singtel, we believe that it should not affect its strong cash-flow generating abilities. Maintain BUY with an unchanged S$4.17 fair value.

Source: OCBC Research - 30 Nov 2015