• NEUTRAL, SOP-based Target Price of SGD3.40 from SGD3.35, 3% downside.
• FY20 (Mar) EV/EBITDA has retraced to its 5-year mean following the recent SingTel's share price re-rating, spurred by investors seeking refuge from external macro-economic risks. At 5% prospective dividend yields (committed DPS of SGD0.175 for FY19/20), valuations are fair. See SingTel's dividend history.
• SingTel (SGX:Z74) remains our preferred Singapore telco, with earnings diversity and balance sheet strength as key investment merits. We would recommend that investors accumulate on dips.

Improving Mobile Dynamics in Few Core Markets a Positive..

• SingTel’s Singapore mobile business continues to face competitive pressure from the fourth mobile entrant (TPG Telecom) and mobile virtual network operators (MVNO). TPG’s strong “incursion”, however, has been diluted by a flurry of competitive responses in the market (including new digital brands from SingTel and StarHub (SGX:CC3) (NEUTRAL, Target Price: SGD1.72, see report: StarHub - Expanding Cyber Security Losses) over the past 12 months.
• Ex-Singapore, competition appears to be headed in the right direction, with the elimination of fixed speed unlimited plans in Thailand and on-going data price repair in Indonesia. Airtel’s revenue in India has stabilised, but it will take time for ARPUs to rebound meaningfully, with RJIO adopting a less disruptive posture.

…but Enterprise Business Remains Patchy

• SingTel derived 38% of its enterprise segment in contraction in enterprise slippage in legacy revenues and lumpy sector jobs.
• ICT revenue now makes enterprise revenue ago, with enterprise EBITDA margin compressed to 27% in FY19 (FY18: 29%) and 23.2% in 4QFY19. We expect the downside impact to persist in the medium term, with potentially some of FY20.

Monetisation of Adjacent Investments Will Unlock Value in the Longer Term

• The arm (Amobee) via a potential IPO or outright (highlighted at SingTel’s recent Investor Day, see SingTel's announcement dated 12-Jun) is a longer-term re-rating catalyst for the stock. Amobee’s EBITDA is guided to improve in FY20 (FY19: SGD1m), with high single advertising.
• HOOQ’s (its over-the-top (OTT) platform) losses, which have our view, with regional OTTs consolidating.

Forecast and Risks

• We update our Target Price based on the latest Street/market valuations of associates.
• Key upside stronger-than-expected competition in the key mobile markets of Singapore, Australia, Indonesia, Thailand and India.
• The extended gestation protracted decline in enterprise business margins portend additional downside risks.

Source: RHB Invest Research - 23 Jul 2019