SingTel – OSK DMG

Some FX Reprieve

At 69-73%, SingTel’s 9MFY14 results were slightly below our expectations but in line with consensus. The improvement in Optus’ cost structure and a steadier SGD/AUD mitigated a seasonally weaker Singapore business. Our forecast is under review pending the results call with management later today. SingTel stays NEUTRAL on lack of re-rating catalyst and competitive headwinds.

Broadly in line. SingTel’s 3QFY14 core earnings of SGD910m (+3.9% y-oy, 2.8% q-o-q) brought 9MFY14 core earnings to SGD2.69bn (+3.1% y-o-y). A reprieve is seen from the recovery in the AUD and INR vs the SGD q-o-q (feeding into 1QCY14), although the IDR and THB depreciated another 2-10% q-o-q.

Seasonal uptick in mobile revenue. As expected, SingTel’s consumer revenue (-11% y-o-y) was clipped by the double-digit decline in Optus (80% of revenue) from lower mobile termination rates (MTR). It rose 4% q-o-q on the high base of seasonal sales in 4QFY13. Group enterprise revenue was stable on the back of the cautious business environment. The improved cost structure (mostly at Optus) contributed to the y-o-y EBITDA growth but was down q-o-q on seasonality.

Associate contribution up 4% y-o-y. Bharti Airtel (BHARTI IN, NR) posted an improved showing (higher ARPU and data usage), but rising competition and 3G related costs dragged down Advanced Info Service (ADVANC TB, BUY, TP: THB2.48)’s contribution (+1% y-o-y). Telkomsel (+15% y-o-y) benefited from a stable market and higher data usage.

Digital business (GDL) in embryonic stage. Although revenue momentum improved further in 3QFY14 (+14.3% q-o-q/+40% y-o-y), EBITDA losses widened to SGD114m in 9MFY14 from SGD72m in 1HFY14. The bulk of the revenue came from Amobee.

Guidance tweaked. Management has reiterated its broad guidance of: i) Singapore revenue to increase by low single-digits, ii) Optus revenue to decline by mid-single digits, and iii) GDL to incur start-up losses. It has, however tweaked guidance for group consumer revenue to “decline by low double-digits” from a “decline of high single-digits”.

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