SINGAPORE (May 17): Phillip Capital is maintaining Singtel at “accumulate” with higher $3.31 target as the telco carries out digitalisation of its business to optimise costs further.
As part of this strategy, Singtel has invested in self-service channels to help reduce customer acquisition costs.
An example is the launch of Gomo, a pure digital product with no physical stores and call centre support which resulted in 32,000 post-paid subscriber growth q-o-q.
Singtel has also been rationalising content portfolio, optimising headcount, simplifying price plans and shutting down legacy networks & systems.
This led to a cost saving of $541 million in FY19.
“We believe these cost savings will be reinvested to further optimise Singtel’s operations. We expect a cost saving of $490 million in FY20E,” says Phillip analyst Alvin Chia.
Meanwhile, Singtel’s digital business has been gaining traction. Revenue from Group Digital life (GDL) spiked 33% y-o-y and accounts for 5% of total revenue in 4Q19 though EBITDA loss for GDL is at $92 million in FY19.
Growth was mainly led by Amobee and its programmatic platform business and also the incorporation of Videology operations.
See: SingTel ends FY19 with 44% lower earnings of $3.1 bil; proposes 10.7 cents final dividend
DBS Group Research is also maintaining Singtel at “buy” with a target price of $3.55 as it expects a rebound in underlying earnings over FY20F
Analyst Sachin Mittal says associates’ contribution, which has been critical driving Singtel’s share price, is set to return to a sequential growth trajectory in 4Q19F, after seven straight quarters of declines.
The stock also offers an assured DPS of 17.5 cents -- or 5.6% yield -- committed till FY20F while public listing of Airtel Africa in London in June could also allow Singtel to monetise its stake.
As for UOB KayHian, the research house is maintaining Singtel at “buy” with $3.58 target after FY19 core net profit of $2.83 billion came in line with house and street estimates.
Lead analyst Chong Lee Len says Singtel’s 21% fall in FY19 core net profit was led by diminishing voice revenue and lower associate profits from intense competition facing Airtel and Telkomsel.
In Singapore, Singtel recorded a 32,000 post-paid subscriber net add in 4Q. Although blended ARPUs fell 6% y-0-y to $32/month, EBITDA rose 5% y-o-y to $169 million, thanks to strong cost management.
Singtel also maintained its postpaid leadership position in Australia, keeping mobile service revenue stable as Optus added 121,000 post-paid mobile subscribers Australia.
In addition, revenue from digital marketing increased 33% y-o-y with the inclusion of Videology and first time recognition of technology licensing fees.
CGS-CIMB Securities also has an “add” on Singtel with $3.40 target price after 4Q19 core net profit was largely in line with its estimates.
Although core EPS fell 15.1% y-o-y due to lower associate and Singapore profits, this was partly buffered by higher Optus earnings.
In 4Q19, EBITDA/core net profit for Optus rose 6.1%/10.3% y-o-y.
Analyst Foong Choong Chen says Singtel’s FY20F EV/OpFCF of 15.6x is roughly in line with the Asean telco average, backed by FY20-22F yields of 5.6% p.a.
Foong is forecasting FY20F core EPS to be flat before growing 10% y-o-y in FY21/22F.
“We maintain our core EPS for FY20F but raise it by 5.4% for FY21F, mainly to factor in higher Optus earnings (NBN migration payments),” says the analyst.
Finally, RHB Research is maintaining Singtel at “neutral” with $3.35 target price after results missed consensus numbers on weaker-than-expected enterprise margin.
Notable drags on Singtel’s results were 7% y-o-y weaker EBITDA and 37.6% y-o-y weaker associate contributions, compounded by the weaker AUD, which slipped 6% y-o-y against the SGD.
Group FY19 EBITDA margin also narrowed 2 ppt y-o-y to 27% with Singapore EBITDA margin at a new quarterly low of 21%, on persistent erosion in domestic enterprise margin from falling legacy revenues.
Singapore mobile service revenue (MSR) fell 4.9% q-o-q in 4Q as postpaid ARPU fell 5% to $41, driven mainly by higher takeup of SIM-only plans, handset amortisation, and seasonally lower roaming revenue.
Meanwhile, enterprise EBITDA remained under pressure with price competition on public sector jobs and the change in revenue mix, which crimped margin to a low of 23.2% in 4Q19.
As at 4.05pm, shares in Singtel are trading at $3.14.
