• 9M earnings met 73% of FY forecast
• Likely least affected by 4th telco
• Still positive on Enterprise business

3QFY16 results as expected

Singtel’s 3QFY16 results were within our expectations. Revenue grew 1.1% YoY to S$4474m, or about 2% above our forecast. Reported net profit slipped 1.7% to S$954m, while underlying profit eased 1.5% to S$955m, but was still about 2% above our estimate. 9MFY16 revenue was flat at S$12867m, meeting 73% of our FY16 forecast, while reported net profit grew 2.9% to S$2925m; underlying was flat at S$2824m, but also met 73% of our fullyear estimate.

Keeps FY16 guidance unchanged

With just one quarter remaining, Singtel has kept its previous FY16 guidance unchanged. Consolidated group revenue is to grow by mid single digit level and EBITDA to increase by low single digit level; this largely driven by its core business (Group Consumer and Group Enterprise). 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. On specifics, both the Singapore and Australia mobile service revenues will grow at low single digit level; Group ICT revenue will grow at mid single digit level; Amobee to record revenue of S$350-400m and Group Digital Life to see a negative EBITDA of S$150-180m.

Medium-term outlook still positive

As before, we believe that Singtel is probably the least affected by the potential entrance of a fourth telco in Singapore, given its dominant position in the post-paid market (48% share) and also pre-paid segment (53% share). No doubt that there are near-term challenges due to a more muted business environment; but we believe that the move by Singtel into mobile cyber security and big data analytics could make the telco more resilient to business downturns, given that these new segments are increasingly being seen as “mission critical” for most businesses, be it good times or bad times.

Maintain BUY with S$3.96 fair value

However, in line with the recent slide in the share price of its listed associates, our SOTPbased fair value dips from S$4.17 to S$3.96. But as we continue to like Singtel’s defensive business and its relatively attractive yield of nearly 5%, we maintain our BUY rating on the stock.

Source: OCBC Research - 15 Feb 2016