+ Robust revenue growth in cybersecurity and digital. Singtel’s growth engines are intact. Cybersecurity revenue improved 6% YoY. The digital business Amobee grew revenue by 16% YoY. Amobee EBITDA was uplifted by technology licensing fee from iTV.
+ Positive momentum in Australia. Market recovering is underway in Australia. Incumbent Telstra and Optus raised mobile prices this quarter. We expect this to translate into ARPU improvements in later quarters. Optus posted healthy growth in post-paid subscribers adding 50,000 new customers.
– Headwinds in the enterprise segment likely to continue. EBITDA margin declined 7% YoY. Pricing pressure from contract renewals has just started and is expected to persist until 3Q19. Furthermore, businesses are taking more extended periods in making decisions due to uncertainties in the economy. Small and Medium Enterprises contributed most to the weakness in Singapore. Over in Australia, enterprise is impacted by a slowdown in the banking and government sector. Core carriage was down 9% YoY due to lower voice and roaming usage. We have toned down on our expectations in the enterprise segment.
– Network expansion worsened losses in Airtel. Higher network costs, depreciation and finance charges from Bharti Airtel (Airtel) expansion of its 4G network impacted earnings this quarter. However, competition is improving in India. Airtel saw ARPU expanded 5% QoQ to RS 129, the third consecutive quarter of expansion.
Guidance for EBITDA (grow by high-single-digit) and free cash flow (~S$2.4b) was updated to reflect changes in SFRS (I) 16. Airtel remains the largest overhang in earnings. We believe losses will narrow as competition is showing early signs of improvement. Airtel’s network expansion will aid growth in the future. We expect the enterprise segment to remain weak due to the various headwinds. We are more optimistic in Australia and expect the consumer segment to be strong.
Maintain ACCUMULATE with a lower TP of S$3.45 (prev. S$3.66).
We revised FY20e net profit downwards by 11% in light of the results. Our target price is based on FY20e 7X EV/EBITDA of Singtel’s Singapore and Australia businesses and the valuation of its listed associates. We like Singtel for its stable dividend yield and earnings diversity.