• 9MFY18 EBITDA within expectations
• Long-term outlook remains positive
• Still the preferred pick within sector

Optus Delivered Solid Results

Singtel’s 9MFY18 operating revenue grew 6.5% YoY to S$13.21b largely driven by Australia Consumer (+4.3%), due to strong growth in mobile subscribers and increased equipment sales, as well as Digital Life (+112.4%) lifted by contribution from the recently acquired Turn, Inc under the Amobee Group. Consequently, 9MFY18 EBITDA rose 4.5% to S$3.85b, which is largely in-line with our expectations as it met 75% of our FY18 forecast.

However, 9MFY18 share of associates’ pre-tax profits fell 10.6% YoY to S$1.94b, mainly impacted by: 1) associate in India (-54.3%) due to the disruptive competition as well as the steep cut in domestic IUC rate in India, and 2) lower contribution from NetLink NBN Trust (-39.1%).

While contribution from its associate in Indonesia, Telkomsel, grew 3.1% YoY for 9MFY18, we note that its 3QFY18 contribution fell 8.6% due to higher depreciation charges from network investments and a 6% depreciation of IDR against SGD. Consequently, 9MFY18 underlying NPAT declined 5.2% YoY to S$2.74b, and met 71% of our FY18 forecast, but would have been only 0.3% lower if Airtel was excluded.

Long-term Positive Outlook Intact

We reiterate our positive view on Singtel’s longer-term outlook given its focus to grow its cyber security, ICT solutions capabilities, digital advertising and other digital-related businesses. As such, we continue to expect the proportion of ICT-related revenue in its enterprise segment to continue to increase ahead.

Separately, Amobee (including Turn), which is its digital advertising arm classified under digital life segment, delivered positive EBITDA for the second consecutive quarter, and we expect further improvement leveraging on enlarged scale and synergies with Turn Inc.

Revised FV Downwards From S$4.19 to S$4.15

Singapore Consumer business landscape remains challenged but we are encouraged by Australia Consumer results. However, on fairly muted contributions from associates ahead, we adjust our forecasts slightly downwards and reduce our FV from S$4.19 to S$4.15. Based on the closing price of S$3.40 on 8 Feb 18, we find Singtel’s valuations attractive, supported by FY19F dividend yield of 5.1%

Source: OCBC Research - 9 Feb 2018