Singtel’s 1QFY20 results came in under our expectations. Operating revenue fell 0.5% YoY to S$4.1b (+2.3% YoY in constant currency terms), with higher equipment sales, NBN migration and digital services revenue though partially offset by lower carriage revenue. The group noted that this quarter has seen a mix of a cautious business environment, intense competition and erosion of voice revenue.

EBITDA dropped 1.9% YoY to S$1.2b, with EBITDA margin dropping 0.4ppt to 28.8%, on the back of an increased mix of lower-margin equipment and ICT sales. The group’s regional associates were largely affected by Airtel, excluding which, PBT would have increased 10% YoY to S$454m. The group’s underlying net profit came in at S$575.1m, or 19.3% of our full-year forecast.

We note that the group has revised its guidance for EBITDA (likely on the back of SFRS (I) 16 changes) to grow by high single digit (previously stable), and for FCF, excluding spectrum payments and dividends from associates, to be ~S$2.4b (previously ~S$2.1b).

Maintain BUY but place our FV of S$3.59 under review.

Source: OCBC Research - 8 Aug 2019