• SINGTEL (SGX:Z74)'s 9MFY20 (Mar) core earnings missed our/consensus estimates as the enterprise business remained soft alongside heightened mobile competition in Indonesia. Post results call, we cut FY20F-22F core earnings by 4-12%.
• We expect the recovery in enterprise revenue to be pushed back due to the Covid-19 outbreak and still challenging business dynamics in Australia.
• Key risks: competition in key markets, continued enterprise weakness and lower prospective dividends.

Chunky NBN Revenues and Opex Savings

• SingTel's 3QFY20 core earnings (post Singapore Financial Reporting Standard (SFRS) 16) fell 25.2% q-o-q (-19% y-o-y) despite steady EBITDA on higher interest expense. This brought underlying 9MFY20 PATAMI to SGD1.86bn (-12.5% y-o-y) at 65%/68% of RHB/consensus estimates.
• Key highlights were the continuing weak enterprise revenue, otherwise buffered by chunky national broadband (NBN) migration revenue, and cost discipline (9MFY20 cost savings: SGD359m).
• Reflecting the intense competition and weak consumer/business sentiment, management has tempered EBITDA guidance for the second quarter in a row (see Figure2 in attached PDF report).

Mobile Competition Still Keen

• Cost savings explained the 3.1% q-o-q uptick in Singapore consumer EBITDA despite flattish mobile revenue.
• SingTel’s postpaid APRU was steady q-o-q, partly the result of the timing of premium handset launches, while prepaid ARPU fell due to pre-post conversion and competition from mobile virtual network operators.
• Excluding NBN revenue, both Optus revenue/EBITDA fell 8.1%/22.4% y-o-y in 3QFY20 with lower equipment sales and higher wholesale access cost. Optus mobile service revenue grew 1% q-o-q from the earlier re-pricing efforts, partially offset by higher SIM-only adoption.

Enterprise Recovery to be Further Pushed Back Due to the Virus Pandemic and Challenging Australia Dynamics

• Group enterprise EBITDA fell 11% y-o-y (-2% q-o-q) in 3QFY20 (9MFY20: -30% y-o-y) as Australia EBITDA slumped 55% y-o-y (AUD terms) on rising competition from NBN re-sellers and the compression in carriage revenue. Singapore enterprise revenue was stable q-o-q, aided by seasonality.
• We expect the Covid-19 pandemic to further dampen business sentiment with the recovery in enterprise revenue likely to be delayed (downside on roaming revenue, supply chain disruptions) until after 1H20.

Stronger Airtel and Globe Offset by Telkomsel

• The price repair in India continues to bode well for Airtel with blended APRU up a further 5.3% q-o-q. In Indonesia, intense competition at the lower-end segment and stronger decline in ex-Java legacy revenues are likely to further impact Telkomsel where share of contributions fell 5% y-o-y.
• Maintain NEUTRAL, Target Price of SGD3.45 with 5% upside and 5.3% yield.

Source: RHB Invest Research - 14 Feb 2020