• SingTel's 2QFY20 core EPS (-15.4% y-o-y) beat our estimates as Bharti losses were not as wide. 1HFY20 was in line with our but below consensus estimates.
• Q-o-q, there were some greenshoots. Share of associate earnings rose 14.8% and Optus mobile revenue showed some improvement on tariff hikes in Aug.
• Maintain ADD with an unchanged SOP-based target price of S$3.60.

2QFY20 Results Largely in Line With Ours, But Missed Consensus

• SINGTEL (SGX:Z74) reported 2QFY20 core net profit of S$737m. Ex-investment income from Airtel Africa, it was S$605m, down 15.4% y-o-y (+5.3% q-o-q) due to lower associate (-16.9% y-o-y), Singapore (-16.6% y-o-y) and Optus (-15.8% y-o-y) profits. See SingTel Announcements; SingTel Latest News.
• This was better than our preview of S$540m-560m, as Bharti’s losses were lower-than-expected.
• Overall, 1HFY20 was largely in line at 46% of our FY20F forecast but missed Bloomberg consensus estimates (39%).
• As expected, 1HFY20 DPS was steady at 6.8 Scts. See SingTel Dividend History.
• SingTel now guides for stable FY20 revenue/EBITDA (previously: mid-/high-single digit growth).

Singapore: Consumer Mobile & Enterprise Stayed Under Pressure

• Consumer EBIT rose 4.1% y-o-y (+2.5% q-o-q), mainly due to higher other income. Service revenue was 5.6% lower y-o-y (-0.4% q-o-q), led by mobile (-5.1% y-o-y) and pay TV (-25.8% y-o-y). Mobile postpaid average revenue per user (ARPU) fell 9.3% y-o-y (-3.2% q-o-q) on lower voice usage (local/IDD/roaming), data price pressure, and amortisation of higher handset subsidies.
• Enterprise EBITDA fell 1.8% y-o-y (-1.3% q-o-q) due to price erosion for the carriage business and on renewal of major public sector ICT contracts.
• Digital Life’s (DL) LBIT was 7.3% narrower y-o-y (+43.8% q-o-q) at S$46m.

Optus: Up Due to Higher NBN Migration Revenue

• Consumer EBIT jumped 18.9% y-o-y (+24.4% q-o-q) due to higher NBN migration revenue (+145% y-o-y, +39% q-o-q). Mobile service revenue was down 3.6% y-o-y but was up a slight 1.3% q-o-q as market players raised tariffs in Aug. Postpaid subs grew a mild 29k q-o-q (+0.5%) while prepaid users continued to fall, albeit a slower 25k q-o-q (-0.7%). Blended ARPU eased 6.5% y-o-y but was stable q-o-q.
• Enterprise EBITDA fell 75.4% y-o-y (-63.2% q-o-q) due to challenging market dynamics, legacy product decline and pricing pressure.

Associate Earnings Down Y-o-y Due to Bharti; Rebounded Q-o-q

• Y-o-y, share of Airtel’s losses was wider at S$107m (2QFY19: -S$6m), partly buffered by higher earnings at AIS (+30.5%), and Globe (+15.9%). q-o-q, share of associate earnings was higher by 14.8% as Airtel’s losses narrowed (-9.9%), while earnings from Telkomsel (+4.0%), AIS (+10.3%), Globe (+6.7%), and InTouch (+13.2%) were higher.

Retain ADD Rating and SOP-based Target Price of S$3.60

• Maintain ADD with an unchanged SOP-based Target Price of S$3.60. See SingTel Share Price; SingTel Target Price.
• SingTel trades at a FY3/21F EV/OpFCF of 15.5x, which is at 8% premium over the ASEAN telco average, supported by decent yields of 5.3% p.a.
• Potential re-rating catalyst: earnings recovery from 2HFY20F.
• Downside risk: more intense competition in Australia, India and Singapore.

Source: CGS-CIMB Research - 15 Nov 2019