• Postpaid ARPU declines in SG and Down Under
• Better dynamics in key markets
• FV of S$4.08

Slight Miss for the Quarter

Singtel’s 1QFY19 results came in slightly under expectations. Operating revenue dipped 0.5% YoY to S$4.1b, but was up 2% YoY in constant currency terms. The group’s Singapore Consumer business saw revenue grow 1.7% YoY, but this was mainly due to better home service revenue (+6% YoY) with the take-up of highertier broadband plans and value added services, as well as S$15m of revenue from the 2018 FIFA World Cup.

Over in Australia, the group saw strong customer growth and higher equipment sales, though postpaid ARPU dropped 3% YoY to A$42. Group Enterprise revenue fell 3% YoY on the back of continued declines in the carriage business as well as the completion of a major infrastructure project in 1QFY18.

The group’s EBITDA fell 2.7% YoY (stable in constant currency terms) to S$1.2b, which formed 23.9% of our full-year forecast. Underlying profit fell 19.3% YoY to S$733.5m, on the back of softer results from Airtel and Telkomsel, reduced economic interest in NetLink NBN Trust, an increase in withholding taxes and adverse currency movements.

Some Respite in Key Associate Markets

Management struck a cautiously optimistic tone on the prospects for Telkomsel and Airtel. In Indonesia, the group has noted some price stabilization post Lebaran, with Telkomsel being able to clock 4-11% price increases in certain market segments, and will be focusing on cost management moving forward.

In India, management noted the previous ARPU erosion brought about by intense pricing competition, as well as the down-drafting of customers from higher value offerings to lower value ones. While management expects the market to remain soft for the next 6 months, the worst should be behind Airtel, and would now train its focus on customer net adds.

In its home market, Singtel expects that TPG’s initial target segment would be the SIM-only customers, which currently constitutes a small proportion of Singtel’s total customer base. Notwithstanding that, Singtel’s geographically diversified exposure would also render its collective earnings more resilient in the face of TPG’s entry, as compared to some of its other peers.

With a change of covering analyst, we revise our fair value slightly from S$4.10 to S$4.08.

Source: OCBC Research - 10 Aug 2018