• SingTel's 1QFY21 (Apr 2020 to Jun 2020) core EBITDA missed expectations, but we see some earnings respite in 2QFY21F with mobility restrictions progressively easing.
• We cut FY21F-23F core earnings by 12-14% after factoring in a weaker EBITDA run-rate and the extended earnings recovery.
• At -1.5SD from its historical EV/EBITDA mean, valuation has priced in downside risks, backed by attractive dividend yields.
• Stay BUY, with new SOP-derived Target Price of SGD3.20 from SGD3.40, 33% upside and 5% yield.
• Other risks: Weaker-than-expected earnings and competition.

SingTel's 1QFY21 Earnings Below Expectations

• SingTel (SGX:Z74)'s 1QFY21 (Apr 2020 to Jun 2020) core EBITDA – stripping-out the Job Support Scheme (JSS) credits of SGD69m – fell 16% q-o-q (-30.1% y-o-y) on a 9% revenue decline (-14% y-o-y).
• Note that SingTel has transitioned into half-yearly reporting with limited financial metrics disclosed. For the June quarter, headline results included a SGD550m gain from Bharti Telecom’s disposal of a 2.75% stake in Airtel and a share of SGD911m loss for addiitional regulatory costs in India, pursuant to the 20 Jul Supreme Court ruling.

Group Consumer Revenue and EBITDA Slipped 15% and 29% Y-o-y

• Singapore mobile revenue fell 14% q-o-q (-27% y-o-y), while EBITDA contracted 11% q-o-q (-14% y-o-y). This stemmed from the full quarter impact of the Circuit Breaker and travel restrictions that clobbered roaming revenue (contributions down to mid-single digits of mobile revenue vs > 20% in 1QFY20), usage, and prepaid revenues.
• The decline compares with StarHub (SGX:CC3)’s (NEUTRAL, Target Price: S$1.30, see report: StarHub - RHB Invest 2020-08-10: 2Q20 Weak As Expected; 5G Capex Surprise) -12.3% q-o-q (-25% y-o-y), with the former having a larger roaming base.
• Singapore postpaid and prepaid ARPU slipped 12-14% q-o-q to record lows of SGD29 and SGD12. Optus’ mobile service revenue (AUD terms) fell 5% q-o-q (-4.1% y-o-y) on continued data price aggresssion, while EBITDA slid 19% q-o-q (-32% y-o-y) from fixed margins erosion, higher doutbful debt provisons, and opex related to COVID-19.
• With the gradual lifiting of population restrictions from 2Q20, we expect underlying consumer revenue momentum to show some improvement going forward.

Enterprise Recovery to be Further Pushed Back

• Enterprise recovery to be further pushed back due to cautious spending and macroeconomic challenges. Enterrprise revenue fell 5% q-o-q in 1QFY21, but EBITDA plunged 19% q-o-q (-23% y-o-y) on a higher mix of ICT businesses and project execution delays/deferrment.
• Positively, data centre revenue has picked up with new wins.

Associates Contributions Were Up 11% Y-o-y

• Associates contributions were up 11% y-o-y (-28% q-o-q), helped by reduced losses at Airtel on stronger ARPU, albeit offset by notably weaker showing from Telkomsel (-14% y-o-y) and Advanced Info Service (ADVANC) (-7.5% y-o-y).

Source: RHB Invest Research - 18 Aug 2020