Singapore Telecommunications Ltd – Guiding down February 17, 2020 814

PSR Recommendation: NEUTRAL Status: Downgraded
Last Close Price: S$2.55 Target Price: S$3.180
  • Revenue and earnings disappointed. Competitive intensity in mobile for Australia and Indonesia is worse than expected.
  • The turnaround in India is underway and Singapore operations stable.
  • Revenue and EBITDA guidance lowered from stable to declining mid-single digit and low teens respectively. It is the 2nd consecutive quarter of weaker guidance.
  • Downgrade to NEUTRAL with a lower TP of S$3.18 (prev. S$3.31). Despite the promising turnaround in India, we believe with the operational weakness in Australia will keep group earnings depressed in the near-term. We expect dividends to be maintained, supported by higher dividends from associates. Yield is now 5.4%.


The Positive

+ India turnaround is more evident. PBT from operations for India rose S$37mn profit in 3Q20 from S$50mn loss a year ago. EBITDA rose 58% with revenue expanding 7% as prices were raised in December 2019. More meaningful turnaround should be seen in the coming months.

+ Another great quarter from Globe (Philippines). PBT for Globe rose 31% YoY supported by a 10% rise in revenue and 15% improvement in EBITDA as mobile customers expanded 27% YoY.


The Negatives

– Australia hit on multiple fronts. Excluding the NBN contribution, EBIT for Australia consumer collapsed 78% YoY to A$52mn. We were surprised by the performance especially with mobile prices rising in August 2019. SIM-only plans taking a bite off revenue and margins. Another drag for Australia is the enterprise business. EBITDA fell 54% YoY due to competition from new entrants re-selling NBN. Without its own network, Optus turns into a less differentiated and low margin wholesaler of broadband access to enterprise customers. Recall that the NBN contribution are payments to Optus as their customers migrate from their own HFC network to Australian government-owned fibre network (NBN Co).

– Telkomsel facing competition outside Java. Telkomsel PBT fell 5% YoY to S$289mn in 3Q20 (2Q20: S$290mn). The mobile operator enjoys a larger market share outside Java as competitors’ infrastructure and branding are less prevalent. Competitors have since invested more outside Java and Telkomsel premium pricing will begin to narrow against these entrants.



This is the second consecutive quarter of weaker guidance from SingTel. Weakness is stemming from Australia. Competition intensity in mobile has heightened with the aggressive introduction of SIM-only plans. The situation could worsen as TPG-Vodafone merger is finalised. We worry about the emergence of a strong 3rd mobile operator will only ignite another round of price competition.

Improvement in India provides some relief, but the entry of more competitors outside Java will hurt Telkomsel, neutralising any momentum from associate earnings. With regards to the COVID-19 virus impact, roaming revenues will be impacted. Enterprise business will indirectly be affected from exposure to customers in the retail, integrated resort and hospitality industries.

The Singapore operations are relative stable:

  • Enterprise – NCS order book as S$3.3bn as at Dec19. This is 14% higher than S$2.9bn a year ago.
  • Mobile – Service revenue and ARPU was flat QoQ at S$376mn and S$30 respectively. TPG has yet to launch commercially but their free SIM promotion will create some revenue leakage for the industry. In 1Q20, TPG will be measured for their in-building coverage.


Downgrade to NEUTRAL with a lower TP of S$3.18 (prev. S$3.31).

Our FY20e earnings was revised higher as we incorporated the one-off NBN payments this quarter but core earnings for our SOTP has been revised lower.

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About the author

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Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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