• SingTel (SGX:Z74)'s 1QFY21 (April 2020 to June 2020) group EBIT (including regional associates’ PAT) fell 33.2% y-o-y and missed our expectations. Key variance: SG, Optus, Telkomsel & Bharti.
• Core EPS to decline 35% y-o-y in FY21F, rebound 65%/19% y-o-y in FY22/23F.
• Reiterate ADD, with a 9% lower SOP-based target price of S$3.10.

SingTel's 1QFY21 Results Missed on SG, Optus, Telkomsel & Bharti

• In its 1QFY21 (April 2020 to June 2020) business performance update, SingTel’s group EBIT (including regional associates’ PAT and Job Support Scheme [JSS] credits) fell 33.2% y-o-y (-29.6% q-o-q), on lower Singapore (SG), Optus, Telkomsel and AIS earnings, partly offset by lower Bharti losses.
• Key variance: SG, Optus, Telkomsel and Bharti earnings. SingTel's 1QFY21 underlying net profit was not reported.

COVID-19 Hurt SG Consumer, Enterprise …

• Group EBIT (ex-associates) tumbled 51.5% y-o-y (-29.5% q-o-q).
• SG Consumer EBIT fell 20.3% y-o-y (-15.5% q-o-q) as the circuit breaker (Apr-May) and border closures led to a sharp fall in roaming, prepaid usage and device sales, cushioned slightly by JSS (S$17m).
• Group Enterprise EBIT dipped 26.5% y-o-y (-6.1% q-o-q) due to continued declines in carriage services and COVID-19, which hit roaming and caused ICT project delays, partly offset by JSS (S$43m).
• Digital Life LBIT widened 28.1% y-o-y (+28.1% q-o-q).

… & Optus Consumer; Associates Lifted by Smaller Bharti Loss

• Optus Consumer EBIT plunged 82.0% y-o-y (-68.1% q-o-q). Mobile service revenue eased 4.1% y-o-y (-4.8% q-o-q) due to lower roaming, higher mix of SIM-only subs and data price competition, while NBN-related traffic cost and bad debt provisions (due to COVID-19) rose.
• Associate profits (ex-SG) grew 5.6% y-o-y, as Bharti’s narrower y-o-y loss (-32.6%) more than offset lower Telkomsel/AIS (-8.9%/-7.6%) earnings. q-o-q, associate profits fell 29.7% as Bharti’s losses widened (+95.1%) and Telkomsel’s earnings fell 23.9%.

FY21-23F Core EPS Cut by 6-38%

• We cut SingTel's FY21-23F core EPS by 6-38%, mainly to reflect:
  1. extended COVID-19 impact on SG’s and Optus’s Consumer, Enterprise and Digital Life businesses until mid-CY21F, and
  2. more bearish earnings forecasts for Bharti (based on consensus) and Telkomsel, the latter due to more intense competition.
• We now expect SingTel’s core EPS to fall 35% y-o-y in FY21F, before staging a rebound in FY22/23F (+65%/19% y-o-y) as the COVID-19 impact subsides and Bharti’s/Telkomsel’s contributions improve.
• Keeping to a 75% payout ratio assumption, SingTel's FY21-23F DPS is lowered to 7-15 Scts.

Reiterate ADD; SOP-based Target Price Cut 9% to S$3.10

• Post-earnings cut and updating for associates’ revised fair values, we trim SingTel's Target Price.
• Q-o-q earnings recovery in 3Q/4QFY21F and asset monetisation are potential re-rating catalysts.
• Its FY21F EV/OpFCF of 16.6x is roughly in line with its 12-year mean, while 3.1-6.0% FY21-23F yields are decent.
• Downside risk: price wars in its operating markets.

Source: CGS-CIMB Research - 17 Aug 2020