“Maintain ‘buy’, SOP-based target price adjusted to $3.70 from $3.90,” says RHB’s Singapore research team in a Thursday report. As at 10.56am, shares in Singtel are trading at $3.15, valuing the stock at about 12 times FY20 forecast EV/EBIDA, or at a discount to its historical mean of 13.5 times, backed by prospective dividend yields of over 5%.
To recap, Singtel’s 1Q19 results came in below expectations. Core earnings fell 19% y-o-y to $733 million, which made up 20% of RHB and 19% of consensus estimates. The key drags were 43% y-o-y decline in associate contributions; 3-10% weaker core regional currencies; further dilution in enterprise margin; weaker digital revenue from delayed marketing spend by certain Amobee customers.
Group revenue eased 3% q-o-q due to the high base of ICT spending in the preceding quarter and the stronger SGD. Singapore mobile revenue improved 3% q-o-q from seasonally higher roaming revenue and improved data usage. It was down 4% y-o-y from extended usage weakness and over-the-top (OTT) substitution.
Singtel added 16,000 postpaid subs in 1QFY19, mainly from SIM-only plans and shared plans, which was in single digit percentage of overall base. This was behind M1’s 34,000 but ahead of StarHub’s 11,000 for the quarter. Prepaid ARPU held steady at $18.
Management said the response to its handset leasing plans for SIM-only customers have been encouraging, and it has witnessed a shift from prepaid to postpaid following the rollout of a subscription-free postpaid plan by a mobile virtual network operator (MVNO).
Optus dialled in stronger numbers. Mobile service revenue grew 0.4% q-o-q and 2% y-o-y in AUD terms on stronger postpaid additions, partially offset by lower APRU from stronger take-up of SIM-only plans and data price competition. Management said competition from TPG Telecom (TPG) and the MVNOs are confined to SIM-only plans and the more price-sensitive segment of the market.
Group enterprise revenue and EBITDA fell 3.2% q-o-q and 7% q-o-q on lumpy project billings and continued decline in margins from the change in revenue mix, and investments in strengthening digital capabilities. Cyber-security revenue from Trustwave was hit by lower sales in the US with the commoditisation of the traditional payment card industry and price competition. Group enterprise EBITDA margin fell to 29.5% in 1Q19 from 30.7% in the previous corresponding quarter.
Associate contributions impacted by weaker contributions from Telkomsel and losses at Bharti, partially offset by stronger AIS, Intouch and Globe. Aggressive prepaid registration-led price competition impacted Telkomsel while Reliance Jio’s pursuit for market share and lower mobile termination rates saw Airtel’s ARPU fall by a sharp 25% y-o-y. Contributions from NetLink Trust also fell 72% y-o-y following the earlier stake sale. Management believes the worst of the competition in Indonesia is behind them but competitive pressure will persist in India.
