• 9MFY17 in-line with our expectations
• Building growth in the right direction
• Preparing for NetLink Trust IPO

Core 9MFY17 EBITDA met 75% of our estimates

Singtel’s 9MFY17 operating revenue fell 3.6% YoY to S$12.4b, impacted by its Australia consumer business (-11.8%), but partly offset by a stronger Singapore enterprise business (+5.1%) and strong growth from its digital life business (+23.3%). EBITDA declined 1.6% YoY to S$3.7b mainly due to intense competition in Australia investments in sports content and ICT capabilities, but is within our expectations as it met 75.2% of our FY17 forecast. Underlying net profit grew 3.6% YoY to S$2.9b on stronger contributions from associates.

Growing cyber security and ICT capabilities the right focus

Singtel has been investing and building up its cyber security and ICT capabilities, as evident from its strong enterprise revenue growth. While the cyber security company (Trustwave) Singtel acquired in 2QFY16 is expected to turn profitable only in a few years, we believe it is has potential to be a significant growth driver of Singtel’s enterprise business over the medium-to-longerterm.

Singapore’s Committee on the Future Economy (CFE) has also identified building strong digital capabilities as one of the seven key economic strategies for Singapore, and sees cyber security and ICT industries to have highgrowth potential. With CFE recommending to develop the digital economy in Singapore (e.g. supportive infrastructure) on a national level, we expect Singtel to benefit from it over the longer term.

Hires three banks for NetLink Trust IPO

Singtel has begun preparation for the IPO of NetLink Trust (NLT) by engaging three banks for this purpose. Note that Singtel has an undertaking to IMDA to divest its stake in NLT to less than 25% before 22 Apr 2018. Management also said the proceeds may be used for capital management and potential investment opportunities, and could return excess capital to shareholders.

Reiterate BUY with unchanged FV of S$4.27

Keeping our forecasts largely unchanged on inline results, we reiterate BUY with the same FV estimate of S$4.27. We continue to like Singtel for its long-term growth prospects.

Source: OCBC Research - 10 Feb 2017