COMPANY UPDATE Singapore Telecommunications (ST SP) Expanding Fixed Broadband In Australia And Thailand Optus is gaining market share in Australia and TPG Telecom s commercial launch could be blunted by the lack of traditional voice services. For its regional mobile associates, Telkomsel seeks to restore pricing stability after the festive Ramadan season while AIS targets to garner market share of 20% in fixed broadband by 2020. Singtel provides certainty by promising ordinary dividends of 17.5S cents for the next two financial years. Maintain BUY. Target price: S$4.22. WHAT S NEW We attended SingTel Investor Day 2018 held on 14 June. Consumer Singapore: Differentiating by enhancing customer service. Competition has intensified as industry players attempt to shore up their customer base ahead of TPG s commercial launch. Singtel seeks to differentiate itself beyond competing just on pricing. It has 913,000 active users using My Singtel App to monitor usage of talk time, SMS and data, check re-contract date, get new smartphones and subscribe to add-on services. It also utilise AI-powered chatbot, Shirley, for self-help and to handle customer enquiries. Singtel also provides 24-month leasing plan for selected Apple and Samsung smartphones for its SIM-only customers. Customers have the option to upgrade their leased smartphones after 12 months of leasing by paying S$200. Consumer Australia: Further expansion in fixed broadband using 5G. TPG Telecom will provide data-only packages and will not be offering traditional voice when it launches its mobile service later this year. According to TPG, traditional voice will be added at a later stage. TPG s customers will initially have to make voice calls using apps, such as Whatsapp, Line and Viper. This is likely to have been caused by TPG s failure to secure mobile roaming agreement with incumbent operators. Optus plans to roll out 5G fixed wireless to deliver fixed broadband with speed of 100Mbps in early-19. It will continue to exercise stringent control over operating expenses by cutting 600 staff. Group Enterprise: Deploying 5G for enterprise applications. Singtel is exploring the deployment of 5G for autonomous vehicles and advanced remanufacturing. 5G provides low latency, which is ideal for industrial applications such as robotics and factory automation. Management clarified that the deployment of 5G could involve localised network, eg at seaports and airports, and does not necessarily require building a nationwide 5G network. Group Digital Life: Unlocking value through potential IPO for Amobee. Management plans to increase scale and profitability at global marketing technology company, Amobee. Amobee is scouting for strategic investors. Management targets to complete the IPO for Amobee within the next three years. Comparable companies in digital advertising are Trade Desk (ticker: TDD US), which trades at 2018F PE of 45.5x, MediaMath and AppNexus. KEY FINANCIALS Year to 31 Mar (S$m) 2017 2018 2019F 2020F 2021F Net turnover 16,711 17,532 17,348 17,566 17,909 EBITDA 4,782 4,830 4,784 4,794 4,914 Operating profit 2,543 2,490 2,424 2,434 2,554 Net profit (rep./act.) 3,851 5,451 3,463 3,785 4,074 Net profit (adj.) 3,914 3,543 3,463 3,785 4,074 EPS (S cent) 24.5 22.2 21.7 23.7 25.5 PE (x) 13.0 14.4 14.7 13.4 12.5 P/B (x) 1.8 1.7 1.7 1.6 1.6 EV/EBITDA (x) 13.0 12.8 13.0 12.9 12.6 Dividend yield (%) 5.5 6.4 5.5 5.5 5.9 Net margin (%) 23.0 31.1 20.0 21.5 22.7 Net debt/(cash) to equity (%) 37.8 33.4 33.6 35.0 36.8 Interest cover (x) 14.2 12.9 12.4 11.7 11.3 ROE (%) 14.5 18.8 11.5 12.3 12.8 Consensus net profit - - 3,696 3,969 4,181 UOBKH/Consensus (x) - - 0.94 0.95 0.97 Source: SingTel, Bloomberg, UOB Kay Hian BUY (Maintained) Share Price Target Price S$3.19 S$4.22 Upside +32.3% COMPANY DESCRIPTION SingTel is a leading communications group with significant presence in Singapore and Australia. SingTel owns stakes in five regional mobile associates, namely Bharti Airtel, Telkomsel, Advanced Info Service, Globe Telecom and Pacific Bangladesh Telecom. STOCK DATA GICS sector Telecommunication Services Bloomberg ticker: ST SP Shares issued (m): 16,329.0 Market cap (S$m): 52,089.6 Market cap (US$m): 38,665.1 3-mth avg daily t'over (US$m): 58.8 Price Performance (%) 52-week S$4.00/S$3.19 high/low 1mth 3mth 6mth 1yr YTD (7.0) (6.7) (14.2) (14.7) (10.6) Major Shareholders % Temasek Hldgs 49.8 FY19 NAV/Share (S$) 1.90 FY19 Net Debt/Share (S$) 0.64 PRICE CHART 4.20 4.00 3.80 3.60 3.40 3.20 3.00 (lcy) 2.80 100 50 Volume (m) SINGAPORE TELECOMMUNICATIONS SINGAPORE TELECOMMUNICATIONS/FSSTI INDEX (%) 0 Jun 17 Aug 17 Oct 17 Dec 17 Feb 18 Apr 18 Jun 18 Source: Bloomberg ANALYST(S) Jonathan Koh, CFA +65 6590 6620 jonathankoh@uobkayhian.com 110 100 90 80 70 81
Telkomsel: Attempts to restore pricing stability. Telkomsel plans to increase pricing after Ramadan by reducing data allowance for starter packs and increasing prices for regular topup packages. XL Axiata has also reduced data quota for Youtube. Management expects the direction of industry pricing to be clearer in early-july. Competition has increased ahead of the deadline for pre-paid SIM cards registration by 30 Apr 18. Management expects lower churn now that the SIM card registration has completed. Bharti Airtel: Consolidating and deleveraging. The market has consolidated significantly with the top-3 players cornering a market share of 98%. Bharti Airtel will explore collaboration with Idea/Vodafone to jointly lay fibre infrastructure. It could further deleverage by divesting its 33.8% stake in Indus Towers. AIS: Blue ocean growth from expansion into fixed broadband. 4G handset penetration has reached 50% in 1Q18, overtaking 3G handsets 43%. Advanced Info Serrvice (AIS) provides coverage for the top-50 cities for fixed broadband. Management aims to achieve 6m home pass, 800,000 fixed broadband subscribers and turn EBITDA positive in 2018. It targets to be a major player by increasing its market share from the current 7% to 20% by 2020. The acquisition of CS Loxinfo at Bt7.80/share from sister company, Thaicom, for expansion into enterprise solutions is expected to complete by end-july. Globe Telecom: Earnings exceeded expectations. The Philippines remain an oligopoly with two mobile operators. There are talks that China Telecom would become the third mobile operator. However, the government s effort to introduce a third mobile operator has encountered various administrative delays. Globe Telecom s share price has suffered due to the potential increased competition. Collaboration within the group. Singtel plans to interconnect mobile wallets across its regional mobile associates through an interoperable platform. Singtel and AIS would be the first to launch such services in 3Q18. STOCK IMPACT Guidance for FY19. Management guided low-single-digit growth for revenue and stable EBITDA for FY19. Mobile service revenue should grow by low-single-digit for Australia and decline by mid-single-digit for Singapore. Dividends from its mobile associates were unchanged at S$1.4b. Cash capex is budgeted to drop by S$0.2b to S$2.2b after three years of intense capex for Australia. Free cash flow is expected to improve by S$0.1b to S$1.9b. Providing clarity and certainty to future dividends. Barring unforeseen circumstances, management intends to maintain ordinary dividends at 17.5 cents for the next two financial years and thereafter revert to paying 60-75% of underlying net profit. We see the promise as a demonstration of management s confidence that group earnings would not be unduly affected by increased competition in Singapore and Australia. EARNINGS REVISION/RISK We maintain our existing earnings forecasts. VALUATION/RECOMMENDATION Maintain BUY. Our target price is S$4.22 based on DCF (required rate of return: 6.25%, growth: 1.8%). SHARE PRICE CATALYST SingTel is the least affected by a fourth mobile operator in Singapore as overseas businesses accounts for about 70% of its bottom line. SingTel is the largest and most liquid defensive stock listed on the Singapore Exchange and deserves to trade at a premium. PBT BY BUSINESS UNIT (4QFY18) Adv Info Services 8.6% InTouch 2.9% Bharti Airtel -0.7% Source: Singtel Telkomsel 26.2% Globe Telecom 7.4% Others 3.0% Singapore 22.6% Optus 28.5% 92
PROFIT & LOSS BALANCE SHEET Year to 31 Mar (S$m) 2018 2019F 2020F 2021F Year to 31 Mar (S$m) 2018 2019F 2020F 2021F Net turnover 17,532.0 17,347.7 17,565.9 17,909.0 Fixed assets 11,801.0 11,953.0 12,105.0 12,257.0 EBITDA 4,830.0 4,783.6 4,794.2 4,914.3 Other LT assets 30,473.0 31,763.0 33,465.4 35,436.0 Deprec. & amort. 2,340.0 2,360.0 2,360.0 2,360.0 Cash/ST investment 525.0 532.8 538.2 576.2 EBIT 2,490.0 2,423.6 2,434.2 2,554.3 Other current assets 5,455.0 4,633.2 4,691.2 4,782.4 Total other non-operating income 288.0 152.0 152.0 152.0 Total assets 48,254.0 48,882.0 50,799.8 53,051.6 Associate contributions 2,461.0 2,593.0 3,053.4 3,359.6 ST debt 1,824.0 1,824.0 1,824.0 1,824.0 Net interest income/(expense) (374.0) (387.0) (411.0) (435.0) Other current liabilities 6,469.0 6,016.9 6,106.5 6,231.1 Pre-tax profit 6,773.0 4,781.6 5,228.6 5,630.9 LT debt 8,607.0 8,900.0 9,700.0 10,700.0 Tax (1,343.0) (1,338.8) (1,464.0) (1,576.6) Other LT liabilities 1,700.0 1,789.5 1,823.1 1,859.6 Minorities 21.0 20.0 20.0 20.0 Shareholders' equity 29,679.0 30,351.6 31,346.1 32,436.8 Net profit 5,451.0 3,462.7 3,784.6 4,074.2 Minority interest (26.0) 0.0 0.0 0.0 Net profit (adj.) 3,543.0 3,462.7 3,784.6 4,074.2 Total liabilities & equity 48,253.0 48,882.0 50,799.8 53,051.6 CASH FLOW KEY METRICS Year to 31 Mar (S$m) 2018 2019F 2020F 2021F Year to 31 Mar (%) 2018 2019F 2020F 2021F Operating 5,955.0 5,905.4 5,244.0 5,298.6 Profitability Pre-tax profit 6,773.0 4,781.6 5,228.6 5,630.9 EBITDA margin 27.5 27.6 27.3 27.4 Tax (608.0) (850.0) (900.0) (950.0) Pre-tax margin 38.6 27.6 29.8 31.4 Deprec. & amort. 2,340.0 2,360.0 2,360.0 2,360.0 Net margin 31.1 20.0 21.5 22.7 Associates (2,461.0) (2,593.0) (3,053.4) (3,359.6) ROA 11.3 7.1 7.6 7.8 Working capital changes (178.0) 340.6 1.8 2.8 ROE 18.8 11.5 12.3 12.8 Other operating cashflows 89.0 1,866.3 1,607.0 1,614.6 Investing (1,951.0) (2,906.0) (2,730.0) (2,730.0) Growth Capex (growth) (3,286.0) (2,576.0) (2,400.0) (2,400.0) Turnover 4.9 (1.1) 1.3 2.0 Investments (541.0) 0.0 0.0 0.0 EBITDA 1.0 (1.0) 0.2 2.5 Proceeds from sale of assets 34.0 0.0 0.0 0.0 Pre-tax profit 26.0 (29.4) 9.3 7.7 Others 1,842.0 (330.0) (330.0) (330.0) Net profit 41.5 (36.5) 9.3 7.7 Financing (4,009.0) (2,991.6) (2,508.6) (2,530.7) Net profit (adj.) (9.5) (2.3) 9.3 7.7 Dividend payments (3,347.0) (2,857.6) (2,857.6) (3,055.7) EPS (9.5) (2.3) 9.3 7.7 Issue of shares 0.0 10.0 10.0 10.0 Proceeds from borrowings 0.0 293.0 800.0 1,000.0 Leverage Loan repayment (312.0) 0.0 0.0 0.0 Debt to total capital 26.0 26.1 26.9 27.9 Others/interest paid (350.0) (437.0) (461.0) (485.0) Debt to equity 35.1 35.3 36.8 38.6 Net cash inflow (outflow) (5.0) 7.8 5.4 38.0 Net debt/(cash) to equity 33.4 33.6 35.0 36.8 Beginning cash & cash equivalent 534.0 525.0 532.8 538.2 Interest cover (x) 12.9 12.4 11.7 11.3 Changes due to forex impact (4.0) 0.0 0.0 0.0 Ending cash & cash equivalent 525.0 532.8 538.2 576.2 103
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