Singtel

Singtel rang in 1QFY16 net profit of $941.6m (+12.8% y/y), boosted by divestment gains of $47m from venture investments and Airtel Africa’s tower assets. Excluding these gains, underlying net profit would have inched up 1.6% to $895m, constituting 23% of FY16 estimates.

For the quarter, revenue notched a 1.5% gain to $4.2b, underpinned by 2.3% growth in its consumer segment to $2.6b but pared by 3.4% contraction in its enterprise segment to $1.5b.

Singtel’s consumer business contributed 61.8% and 64.8% to operating revenue and EBITDA respectively. In Singapore, sales growth of 5.9% was driven by robust mobile data and equipment sales. Consequently, EBITDA climbed 10.9%, aided by lower traffic and staff costs.

Australia consumer revenue jumped 12.8% with growth in mobile customers (+37k) and higher ARPU (+4%). EBITDA rose 8% on stronger mobile service growth as well as higher take-ups of repayment plans.

Singtel’s enterprise business contributed 35.7% and 38.9% to its operating revenue and EBITDA respectively. After adjusting for the fibre rollout business which was transferred to NetLink Trust in Oct’14, revenue held steady at $1.5b (-0.7%) on solid core carriage growth in Singapore (+1.3%), and stronger ICT and mobile growth in Australia (+5.7%).

Digital Life’s revenue more than doubled to $115m, with contributions from Adconion and Kontera, which were acquired in Jul’14. EBITDA losses narrowed to 16.2% to $31m due to revenue growth as well as a cost cuts.

Overall EBITDA eased 1% to $1.2b due to the decline in the Australian dollar (-10.6%). Excluding the FX impact, EBITDA would have recorded a 5% increase.

Regional mobile associates continued to record strong customer growth (+8% to 552m) as well as robust mobile data take-up. As a result, contributions from associates grew 5.2% to $624.8m, led by Telkomsel (+12%), AIS (+21%), Globe (+9%), partly offset by a 12% decline in Airtel contributions attributable to higher fair value losses.

Free cash flow slumped 17.7% to $974m mainly due to higher mobile customer acquisition and retention costs, and increased tax payments in Australia as well as an absence of $110m of receipts from OpenNet for fibre rollout completion booked in 1QFY15.

Moving forward, management guided for a muted FY16 with core business revenue (consumer and enterprise) achieving mid single digit level growth and EBITDA growing at low single digits.

Capex is expected to remain at $3b ($1.1b Singapore, $1.9b Australia), up from $2.3b in FY15.

Singtel is a street favourite with 12 Buy and 14 Hold ratings and average TP of $4.41. This could largely be due to its attractive mix of growth from its regional exposure, emerging technologies, and stable cash flow from its core operations in Singapore and Australia.

However, sentiment around SingTel has been dampened in lieu of the recent currency volatility as well as the potential entry of a fourth telco.