• SingTel's Core net profit could be S$540m-560m in 2QFY3/20F (-22 to -25% y-o-y). This is largely in line with our FY20F forecast but below Bloomberg consensus’.
• Singapore, Optus and Bharti earnings contributions may fall y-o-y; better contribution from other associates expected.
• Maintain ADD. Our SOP-based target price remains at S$3.60.

SingTel's 2QFY3/20F Core Net Profit Likely Fell Y-o-y and Q-o-q on Bharti Losses

• SINGTEL (SGX:Z74)’s 2QFY3/20F results will be released on 15 Nov. See SingTel Announcements.
• We expect S$540m-560m core net profit, implying 22-25% y-o-y decline (-3 to -6% q-o-q), led by lower Bharti, Singapore and Optus earnings, partly offset by improved contributions from other associates. This would be broadly in line, with 1HFY20 at 45-46% of our FY20F forecast, but miss Bloomberg consensus’ estimates (38-39%).
• We see steady 1H20F DPS of 6.8 Scts (1H19: 6.8 Scts), as SingTel has committed to 17.5 Scts DPS for FY20. See SingTel Dividend History.

Singapore: Earnings May be Weighed by Enterprise

• We expect SingTel's Singapore 2QFY20F core net profit to slide 10-15% y-o-y (-7 to -11% q-o-q). Consumer EBITDA may be stable y-o-y (-4 to -6% q-o-q) as better margin (from cost control) offsets lower service revenue (-6 to -8% y-o-y) led by the continued decline in mobile.
• Enterprise EBITDA could fall 5-7% y-o-y (-4 to -6% q-o-q) on lower revenue (price erosion on contract renewals) and margins.

Optus: Growth to be Hampered by Weaker Consumer and Enterprise

• We project Optus to post 28-30% y-o-y lower (-8 to -10% q-o-q) core net profit. Consumer EBITDA may rise 8-10% y-o-y (-2 to -4% q-o-q), driven by higher fixed revenue. Enterprise EBITDA may drop 33-35% y-o-y (flat q-o-q), as its ICT business continues to be challenged by lower voice usage, price erosions and weaker demand from the government and financial sectors.
• Optus’s contribution to group net profit would also be shaved by the 5.8% y-o-y depreciation of the Australian dollar vs. Singapore dollar.

Associate Earnings Likely Fell Y-o-y Due to Bharti; May be Up Q-o-q

• Associate contributions in S$ terms could fall 23-27% y-o-y, mainly owing to share of wider Bharti losses at S$140m-160m (2QFY19: -S$6m), based on Bloomberg consensus forecast. This would be partly cushioned by higher earnings at AIS, Globe, Intouch and Telkomsel, and the positive effects from a weaker S$ vs. IDR (-3.9%), THB (-7.4%), PHP (-3.9%).
• Q-o-q, associate earnings may climb 1-5%, due to share of higher profits from AIS, Telkomsel, Globe and Intouch, partly offset by share of bigger losses at Bharti.

Maintain Add With An Unchanged SOP-based Target Price of S$3.60

• We maintain our ADD rating and SOP-based target price of S$3.60 for SingTel. See SingTel Share Price; SingTel Target Price.
• It trades at a FY3/21F EV/OpFCF of 15.7x, which is at a 9% premium over the ASEAN telco average, supported by decent yields of 5.2% p.a.
• Potential re-rating catalyst: earnings recovery from 2HFY20F.
• Downside risk: more intense competition in Australia, India and Singapore.

Source: CGS-CIMB Research - 8 Nov 2019