• Raised S$2.3b from NetLink IPO
• 1QFY18 within expectations
• Weaker mobile outlook

2QFY18 to record impact of NetLink NBN Trust IPO

On 19 Jul 17, Singtel completed its disposal of units in NetLink Trust (NLT) as well as the listing of NetLink NBN Trust (Trust) on the SGX. Singtel sold its 100% stake in NLT to the Trust for a total consideration of ~S$1.9b, comprising a cash portion of S$1.1b. As a result, Singtel will record a net gain on disposal of ~S$2b in 2QFY18. Coupled with a loan repayment from the Trust to Singtel of ~S$1.1b, we estimate Singtel will receive ~S$2.3b in cash with the disposal of NLT. Note that Singtel continues to have an interest of close to 25% stake in the Trust.

1QFY18 Core NPAT Met 23% of Our Estimate

Singtel’s 1QFY18 operating revenue grew 8.3% YoY to S$4232m, boosted by first time contribution from Turn, Inc. (Turn), which was acquired in Apr 17, as well as growth in equipment sales, data and internet and ICT services. 1QFY18 EBITDA grew 2.7% YoY to S$1269m on higher revenue and cost management efforts but partially offset by investments in content, ICT capabilities and network expansion, and formed 25.9% of our FY18 estimate. However, underlying profit contributions from associates declined 2.5% YoY to S$515m, largely due to weak Airtel results on sustained aggressive pricing by the new market entrant in India. Consequently, 1QFY18 underlying net profit (excluding exceptional items) fell 3.5% YoY to S$910m.

Reiterate BUY

As we incorporate the impact of the disposal of NLT and revise our ARPU assumptions downward in view of heightened competitive landscape in both Singapore and Australia mobile markets, our FV falls from S$4.25 to S$4.19. Given the recent weakness over its share price, we reiterate BUY on Singtel as we continue to like its diversified portfolio and increasing exposure into the growing ICT space.

We remain positive over Singtel’s growing exposure to high growth areas including cyber security (Trustwave), digital marketing (Amobee and Turn), and data analytics (DataSpark). Note that without clarity, we have yet to incorporate any assumption for potential special dividend that may or may not arise out of the NLT disposal.

Source: OCBC Research - 11 Sept 2017