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SingTel – DBS Research 2018-11-08: Earnings May Have Bottomed Out In 1H19

(Source: research.sginvestors.io)

Underlying earnings below expectations; surprise largely stemmed from a weak Singapore.

Guidance for stable FY19F EBITDA from core business despite 1% y-o-y drop in 1H19, implies pick up in 2H19F.

  • The guidance assumes AUD/SGD of S$1.05 versus S$1.00 now and excludes National Broadband Network (NBN) migration fee in Australia. 
  • Two key drivers in 2H19F would be
    1. rebound in Infocomm Technology (ICT) revenue with ~S$300m of additional ICT revenue versus 1H19 from Smart Nation contracts;
    2. S$300m of cost savings in 2H19F versus S$193m cost savings in 1H19.
  • However, we have trimmed FY19F/20F EBITDA from the core markets by 2% each to factor weaker Singapore contribution, leading to 3% cut in FY19F/20F EPS.

Singapore disappointed due to three key reasons.

  1. S$13m sequential drop in Singapore consumer EBITDA due to drop in mobile service revenue
  2. Amobee recording negative EBITDA of S$10m (vs. breakeven in 1Q19) with the consolidation of losses of the Videology
  3. ~S$5m sequential drop in Singapore enteprise EBITDA due to weak ICT revenue and rise in costs.

BUY with revised Target Price of S$3.59.

  • We lowered our sum-of-the-parts (SOTP) valuation to S$3.59 as we cut FY19F/20F EBITDA in Singapore by 4% each. See the breakdown on SOTP in the PDF report attached. 
  • Reiterate our BUY call on the back of a rebound in associate contributions in FY20F led by Telkomsel, AIS and Globe. attractive valuations, and ~5.6% dividend yield.

More Info: research.sginvestors.io

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