• Maintain NEUTRAL with unchanged SOP-based Target Price of SGD3.40, 3% upside.
• SINGTEL (SGX:Z74)'s 1QFY20 (Mar) results were weak on slower mobile and enterprise revenue. Cost controls were the consolation.
• We maintain our forecasts on expectations of further improvement in India and overall positive execution on costs.
• > 5% prospective dividend yields (committed DPS of SGD0.175) should, however, provide share price support.
• SingTel remains our preferred Singapore telco with its earnings diversity and balance sheet strength as key investment merits. Look to accumulate on further dips.

A Weak Start

• SingTel's core 1QFY20 earnings fell 18% q-o-q (-22% y-o-y) to SGD575m on weaker mobile revenue and associate contributions (-14% q-o-q/y-o-y), partially offset by cost savings and efficiencies.
• The results were also skewed by the adoption of SFRS 16 (effective Apr 2019). Based on our estimates of pre-SFRS 16 core earnings, the results still fell short, at 20% of RHB/consensus’ estimates.
• Management has fine-tuned FY20 guidance with group EBITDA expected to grow by high single-digit from ‘stable’.

Singapore/Optus mobile service revenue (MSR) down 6-7% YoY

• Singapore consumer MSR fell for the second quarter in a row (-0.4% q-o-q/- 6.4%) due to intense competition from mobile virtual network operators (MVNO) and new digital brands.
• Postpaid ARPU slipped 2% to SGD40 (-13% y-o-y) on data price competition, lower roaming/IDD revenues and handset amortisation. Singapore consumer EBITDA was nonetheless up 9% q-o-q (- 4% y-o-y) on cost controls.
• Optus MSR declined 6.2% q-o-q (-7% y-o-y) as postpaid ARPU slumped 10% q-o-q from higher adoption of SIM-only plans and price-led competition. Optus postpaid net-adds more than halved q-o-q.

Enterprise Margin Should Remain Frail

• Group enterprise revenue fell 12% q-o-q on seasonality and the (still) cautious business environment (trade war concerns) but EBITDA rose 10% q-o-q on cost restraint.
• The margin impact from lower carriage revenues, price competition for public sector jobs, and a higher mix of information, communications and technology (ICT) revenue is expected to persist for the next few quarters.

Telkomsel – the Bright Spot Within Associates, Airtel Revenue Stabilising

• Telkomsel’s contribution grew 18.1% y-o-y, helped by Lebaran promotions and data repricing in the market. In India, while competition remained intense, Airtel posted the second consecutive quarter of MSR and APRU growth from steady headline prices in the market.

Digital Losses Narrows

• EBITDA losses narrowed further to SGD12m in 1QFY20 from SGD18m and SGD16m in 4QFY19 and 3QFY19, driven by higher revenue/EBITDA from Amobee, albeit partially offset by continued investments in HOOQ.

Source: RHB Invest Research - 8 Aug 2019