Continued Outperformance Could be Challenging; Maintain HOLD

• SingTel's 1HFY19 core EPS was below consensus estimates at 43% of FY19E vs 51% for MKE.
• We maintain our Singapore and Australia forecasts but reflect our house’s recent earnings revisions for Bharti and AIS. This lowers our DCF-based SOTP to SGD3.39 and our FY19E-20E core EPS by 4- 5%.
• Maintain HOLD as the stock’s continued outperformance could be challenging.
• Prefer its 25% associate, NetLink NBN Trust (SGX:CJLU), in Singapore’s telco space.

Consolidated Revenue in Line

• SingTel's 1HFY19 consolidated revenue met MKE/consensus estimates, at 48%/49% of FY19E.
• Heightened competition in the quarter was reflected in the increased popularity of SIM-only and data-add-on plans that diluted ARPUs. But thanks to Singapore’s healthy postpaid subs growth, non-escalation of hostilities in Australia and cost-management, we maintain our consolidated business forecasts.

Adjustments Made for Regional Associates

• We incorporate our colleagues’ latest associate forecasts for Bharti, whose results missed expectations. Although unlisted Telkomsel in Indonesia staged a q-o-q rebound from a partial recovery of data-pricing power, third-entrant risks have significantly increased for Globe in the Philippines.
• Overall, our SOTP and earnings are weighted more to Indonesia at 17% than the Philippines’ 6%.

Proverbial 20,000 Foot Tanker But All Seas Are Rough

• Singtel’s geographical diversification and non-wireless earnings base provide some protection against its Singapore wireless and broadband peers. This is reflected in its relative outperformance to the STI over the last one and three months.
• However, with competition in most of its markets outside Singapore in full swing or rising, we think absolute performance remains challenging.

Swing Factors

Upside

• Strong growth in enterprise and Digital Life to economies of scale.
• Ebbing competitive heat in India.
• Subsidies per smartphone drop.

Downside

• Wireless margin compression triggered either by TPG in Singapore and / or Australia or pre-emptive strikes by incumbents. These are not likely in consensus forecasts.
• Long-term capex for 5G rollout not likely priced in.
• Worse-than-expected cannibalisation of wireless voice, SMS and roaming by data.

Source: Maybank Kim Eng Research - 08 Nov 2018