SingTel – CIMB
Dialling up capex and dividends
We believe that SingTel’s capex will remain elevated after FY3/14 as it is raising its spending on LTE and 3G. It is also allocating S$2bn for investments in digital business in the coming three years. Despite the spending, it nudged up its payout policy from 55-70% to 60-75%.
We upgrade our call on SingTel from Underperform to Neutral with a higher SOP-based target price after removing our discount for Optus on easing competition, among others. We view its higher payout policy positively. We also tweak up our forecasts after imputing the FY13 numbers and FY14 guidance. M1 remains our top Singapore telco pick.
What Happened
The main takeaways from SingTel’s FY13 results and conference call are:
FY14 capex will rise 25% to S$2.5bn due to its investment in LTE and 3G in Singapore and Australia.
EBITDA growth in Singapore and Australia will be muted. Moreover, the surge in capex leads to higher D&A and will be a drag on EBIT.
SingTel is setting aside S$2bn over the next three years to support growth of the digital business though the actual sum is subject to the availability and size of investments. This is a large sum, in our view, and dwarfs the $0.5bn invested so far.
Despite the higher capex, SingTel nudged up its dividend payout policy from 55-70% to 60-75%.
What We Think
Earnings from Singapore and Australia will be weighed down by rising opex and D&A resulting from aggressive capex. This will be offset by robust associate contribution. Capex will remain elevated beyond FY14 as we believe Optus is still in the early stages of its LTE rollout. Also, Optus needs to fork out A$649m for spectrum in FY15.
We view with caution Singtel’s large budget for investments in digital as we think these investments carry higher risks. We would prefer if SingTel returned excess cash to shareholders instead of investing them in adjacent industries.
That said, we view its higher payout policy positively as it reflects a more proactive capital management.
What You Should Do
Switch to M1, our top Singapore telco pick. M1 is benefiting from the rapid take-up of tiered data plans for which it charges an additional S$3/mth.
SingTel – CIMB
Dialling up capex and dividends
We believe that SingTel’s capex will remain elevated after FY3/14 as it is raising its spending on LTE and 3G. It is also allocating S$2bn for investments in digital business in the coming three years. Despite the spending, it nudged up its payout policy from 55-70% to 60-75%.
We upgrade our call on SingTel from Underperform to Neutral with a higher SOP-based target price after removing our discount for Optus on easing competition, among others. We view its higher payout policy positively. We also tweak up our forecasts after imputing the FY13 numbers and FY14 guidance. M1 remains our top Singapore telco pick.
What Happened
The main takeaways from SingTel’s FY13 results and conference call are:
FY14 capex will rise 25% to S$2.5bn due to its investment in LTE and 3G in Singapore and Australia.
EBITDA growth in Singapore and Australia will be muted. Moreover, the surge in capex leads to higher D&A and will be a drag on EBIT.
SingTel is setting aside S$2bn over the next three years to support growth of the digital business though the actual sum is subject to the availability and size of investments. This is a large sum, in our view, and dwarfs the $0.5bn invested so far.
Despite the higher capex, SingTel nudged up its dividend payout policy from 55-70% to 60-75%.
What We Think
Earnings from Singapore and Australia will be weighed down by rising opex and D&A resulting from aggressive capex. This will be offset by robust associate contribution. Capex will remain elevated beyond FY14 as we believe Optus is still in the early stages of its LTE rollout. Also, Optus needs to fork out A$649m for spectrum in FY15.
We view with caution Singtel’s large budget for investments in digital as we think these investments carry higher risks. We would prefer if SingTel returned excess cash to shareholders instead of investing them in adjacent industries.
That said, we view its higher payout policy positively as it reflects a more proactive capital management.
What You Should Do
Switch to M1, our top Singapore telco pick. M1 is benefiting from the rapid take-up of tiered data plans for which it charges an additional S$3/mth.
SingTel – CIMB
Strong finish to FY13, but weak FCF in FY14
FY13 core was 4% above our forecast and 3% above consensus on surprises at Telkomsel, AIS and Globe. Optus slightly disappointed but Singapore was in line. SingTel guides for a 30% drop in FCF in FY14 (ex-associate dividends) on flat revenue and a 25% surge in capex.
It will be allocating S$2bn to investments in the digital business over the next three years. It declared a final DPS of 10cts for a total of 16.8 cts (74% payout) vs. 15.8 cts in FY12 (69%). We tweak our FY14-15 EPS and keep our SOP target price for now. SingTel remains an Underperform with de-rating catalysts expected from disappointing FC. M1 remains our top Singapore telco pick.
Australia and Singapore
Operationally, Optus’s 4Q was slightly below expectations with still-weak net adds and cost savings behind its EBITDA growth. Revenue fell 5% yoy, while EBITDA grew 3%. SingTel Singapore met our expectations, backed by market-share gains in mobile, fixed broadband and pay TV.
Associates saved the year
Telkomsel’s, AIS’s and Globe’s earnings surprised positively thanks to growth in subscribers and mobile data. AIS’s contributions were further bolstered by a 2% appreciation of the THB vs. S$ and lower corporate taxes starting Jan 13. Bharti was the main drag among its associates on higher depreciation/amortisation in Africa and an 11% depreciation of the Rs/S$.
Muted outlook
SingTel’s guidance paints to another muted year for Australia and Singapore (Figure 1). It expects FY14: 1) revenue to be flat after declining 3% yoy, with single-digit growth in Singapore offset by lower revenue for Optus from lower mobile interconnection rates; and 2) EBITDA to rise by low single digits on the back of efficiency gains. More importantly, FY14 free cash flow is expected to fall 30% yoy on the back of a 25% surge in capex as Australia and Singapore invest in LTE and 3G.
SingTel – CIMB
Strong finish to FY13, but weak FCF in FY14
FY13 core was 4% above our forecast and 3% above consensus on surprises at Telkomsel, AIS and Globe. Optus slightly disappointed but Singapore was in line. SingTel guides for a 30% drop in FCF in FY14 (ex-associate dividends) on flat revenue and a 25% surge in capex.
It will be allocating S$2bn to investments in the digital business over the next three years. It declared a final DPS of 10cts for a total of 16.8 cts (74% payout) vs. 15.8 cts in FY12 (69%). We tweak our FY14-15 EPS and keep our SOP target price for now. SingTel remains an Underperform with de-rating catalysts expected from disappointing FC. M1 remains our top Singapore telco pick.
Australia and Singapore
Operationally, Optus’s 4Q was slightly below expectations with still-weak net adds and cost savings behind its EBITDA growth. Revenue fell 5% yoy, while EBITDA grew 3%. SingTel Singapore met our expectations, backed by market-share gains in mobile, fixed broadband and pay TV.
Associates saved the year
Telkomsel’s, AIS’s and Globe’s earnings surprised positively thanks to growth in subscribers and mobile data. AIS’s contributions were further bolstered by a 2% appreciation of the THB vs. S$ and lower corporate taxes starting Jan 13. Bharti was the main drag among its associates on higher depreciation/amortisation in Africa and an 11% depreciation of the Rs/S$.
Muted outlook
SingTel’s guidance paints to another muted year for Australia and Singapore (Figure 1). It expects FY14: 1) revenue to be flat after declining 3% yoy, with single-digit growth in Singapore offset by lower revenue for Optus from lower mobile interconnection rates; and 2) EBITDA to rise by low single digits on the back of efficiency gains. More importantly, FY14 free cash flow is expected to fall 30% yoy on the back of a 25% surge in capex as Australia and Singapore invest in LTE and 3G.
SATS – CIMB
Cruise control
SATS wrapped up FY13 on a pleasant note, not only reporting stronger-than-expected profits but also dishing out higher-than-expected dividends.
FY13 core net profit surpassed Street and our expectations by 8% on the back of margin strength. We fine-tune our FY14-15 EPS by less than 1% and raise our target price (still at 16.8x CY14 P/E, 1SD above its 8-year mean) marginally. Maintain Outperform with re-rating catalysts to come from growth in Changi Airport’s passenger traffic.
Leveraging Changi Airport’s growth
We expect strong intra-Asia travel to buoy SATS’s revenue. Stronger passenger volume had lifted its FY13 revenue by 8% yoy, with revenue growth across the board: gateway services (+8%) and food solutions (+8%). High staff costs were mitigated by slower rises in raw-material costs, supporting a 0.6%-pt expansion in EBIT margins to 10.6%. Excluding a S$16.8m impairment charge relating to its divestment of Daniels, core net profit grew 20%.
Gateway services hit by labour costs
Costlier labour took a toll on gateway services EBIT (-54%). Wage inflation was attributed to headcount increases and foreign-worker levies. Fortunately, growth from food solutions overwhelmed the weakness. EBIT margins from food solutions gained 2.8% pts, thanks to slower rises in raw-material costs and productivity gains.
Dividend sweetener
A 6ct final dividend and 4ct special dividend was declared, taking FY13 DPS to 15cts, above our 11.8ct forecast. Dividend prospects remain favourable with SATS enjoying positive free cash flows and a net-cash position.