Associates Main Shortfall; Maintain HOLD

• SingTel (SGX:Z74)'s 1QFY20 core profit at SGD575m, down 18% q-o-q/22% y-o-y, was only 19% of MKE/consensus FY20E forecasts primarily because of weak associate income. Revenue pressure was felt across Singapore and Australia consumer and enterprise.
• We reduce FY20-22E core profit forecasts by 6% and our SOTP Target Price by 1% to SGD3.44.
• Maintain HOLD where the direction of competition in its main markets should determine upside or downside, in our view.

Tough Quarter

• SingTel's 1QFY20 consolidated revenue at SGD4.11b, down 5% q-o-q/0.5% y-o-y, was 24%/25% of MKE/consensus forecasts. Operational EBITDA at SGD1.18b, +2% q-o-q but -2% y-o-y, was 25%, with cost reduction of SGD132m helping to ward off pressure.
• Associate income at SGD359m, down 14% q-o-q/14% y-o-y, was only 19% of our FY20E forecast. India’s losses were up q-o-q and y-o-y while there was also q-o-q weakness – though y-o-y improvements - in Indonesia and the Philippines.

Too Soon to Expect Relief?

• Although Singapore wireless service revenue was flat q-o-q, management remains cautious, given a proliferation of wireless brands. Meanwhile, renegotiation with and re-contracting by enterprise customers are expected to last until 3QFY20.

Signs of Hope?

• Market repair is taking place in Australia where wireless pricing is going through an industry-wide reflation. Other markets may also return to more rational behaviour, though timing remains uncertain. With wholly-owned Optus potentially clawing back its revenue in 2HFY20 and prospective stability in group enterprise in 4QFY20, we maintain our consolidated-revenue forecasts.
• Our primary revisions are at the associate level. We also include our house’s latest forecasts and TPs for associates, AIS and Globe.

Source: Maybank Kim Eng Research - 8 Aug 2019