• SingTel's 3QFY20 core net profit (-13.2% y-o-y) was within our expectations. 9MFY20 was in line with our forecast but missed Bloomberg consensus.
• Associate earnings were better-than-expected q-o-q with lower Airtel losses & slight growth at Telkomsel, which offset soft earnings at Singapore & Optus.
• Maintain ADD with an unchanged SOP-based target price of S$3.70.

3QFY3/20 Results Largely in Line With Our But Below Consensus

• SingTel (SGX:Z74) reported 3QFY3/20 core net profit of S$551m. Ex-investment income from Airtel Africa, core net profit was S$590m, down 13.2% y-o-y (-2.5% q-o-q) due to lower Singapore (-24.8% y-o-y) and Optus (-22.6% y-o-y) profits, with associate earnings up 1.3% (-5.8% q-o-q). This was within our estimate of S$590m-610m.
• Overall, 9MFY20 was largely in line at 70% of our FY20F forecast but missed Bloomberg consensus (64%). Ex-NBN migration revenues, SingTel now guides for FY20 revenue/EBITDA to decline by mid-single digit/low teens (previously: stable for both).

Singapore: Still in the Doldrums

• Consumer EBIT fell 3.2% y-o-y (+4.8% q-o-q) on lower revenue and higher depreciation. Service revenue was 3.7% lower y-o-y (-1.0% q-o-q), led by mobile (-6.9% y-o-y, -0.4% q-o-q).
• Postpaid average revenue per user (ARPU) fell 9.3% y-o-y (steady q-o-q) on lower voice usage (local/IDD/roaming), data price pressure, and amortisation of higher handset subsidies.
• Enterprise EBITDA fell 4.7% y-o-y (-3.7% 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 4.4% narrower y-o-y (-34.8% q-o-q) at S$30m.

Optus: Consumer Still Down But Some Recovery at Enterprise Q-o-q

• Despite a big jump in NBN migration revenue, consumer EBIT fell 1.0% y-o-y (-3.7% q-o-q) due to higher depreciation.
• Mobile service revenue eased 3.1% y-o-y and rose only a mild 0.3% q-o-q. Postpaid subs grew a decent 57k q-o-q (+1.0%) while prepaid users jumped 157k q-o-q (+4.7%) after 5 quarters of decline due to the addition of an MVNO. Blended ARPU eased 5.7% y-o-y but was stable q-o-q.
• Enterprise EBITDA fell 55.1% y-o-y but rose 57.1% q-o-q on higher mobile/ICT revenues, and cost management initiatives.

Associate Earnings Were Better Than Expected

• Y-o-y, higher earnings at AIS (+7.8%) and Globe (+36.8%) more than offset lower earnings at Telkomsel (-4.3%) and wider Airtel losses (-8.5%). Associate earnings fell less-than-expected q-o-q as Airtel’s losses narrowed 13.3% and Telkomsel’s earnings rose 0.9%. AIS (-16.3%)/Globe (-17.1%)/InTouch (-25.0%) earnings were in line.

Reiterate Add; SOP-based Target Price Kept at S$3.70

• Reiterate ADD with an unchanged SOP-based Target Price of S$3.70. Singtel trades at a FY3/21F EV/OpFCF of 16.1x, which is at a 23% premium over the ASEAN telco average, supported by decent 5.2% yields p.a.
• Potential re-rating catalyst: y-o-y earnings recovery from 1QFY21F.
• Downside risk: keener competition in its markets.

Source: CGS-CIMB Research - 13 Feb 2020