• Soft 4QFY19
• 5G consumer use cases limited
• FV of S$3.59

Results under expectations

Singtel’s 4QFY19 operating revenue rose 1.9% YoY to S$4.3b, though a larger 5.5% YoY growth was seen in constant currency terms on the back of increases in equipment sales, digital services and NBN migration revenues (with the resumption of NBN migrations following the lifting of the temporary suspension on NBN’s HFC network).

These were partially offset by lower mobile service and voice. On the Group Enterprise front, operating revenue fell 2.7% YoY due largely to lower revenue at Optus Business, while ICT revenue rose 3.6% YoY led by Cyber security, Smart cities and Cloud. Assuming stable regional currencies, the associates’ posttax underlying profit contributions would have declined by 19% YoY mainly from Airtel.

The group’s underlying net profit for 4QFY19 and FY19 came in at S$697.0m and S$2.8b, which constitutes 22.8% and 92.4% of our full-year forecast, respectively. We deem this set of results to be under our expectations. The group has proposed a final DPS of 10.7 S-cents, which brings the full-year DPS to 17.5 S-cents, or a 5.6% yield based on 15 May 19’s closing price.

Focused on 5G for enterprises

Postpaid mobile ARPU for Optus increased QoQ from A$41 to $42, bucking the trend seen across past quarters. However, management noted that 3QFY19 had the effect of more promotional activity with Apple’s new product launch coupled with the Christmas season. In Singapore, postpaid mobile ARPU continued to weaken, dropping from S$43 in 3QFY19 to S$41 in 4QFY19.

While no numbers were shared, management notes that the takeup for its digital GOMO product has been encouraging following its recent launch in Mar’19. On the topic of 5G in Singapore, we note that management remains focused on developing use cases particularly in the enterprise space, especially with the attendant opportunities from network slicing as well as areas of growth such as those in IOT. However, use cases in the consumer space are likely to be limited for now.

Lower FV of S$3.59

In terms of its outlook, management expects revenue to grow by mid-single digit, while EBITDA is projected to remain stable. We roll forward our valuations, and trim our EBITDA/earnings forecasts; our fair value consequently drops from S$3.79 to S$3.59. Maintain BUY.

Source: OCBC Research - 16 May 2019