Singtel's headwinds will persist unless ICT segment recovers: analyst

Its core mobile business remains lethargic amidst Telkomsel’s positive contributions, an analyst said.

Singtel’s earnings headwinds will persist across its mobile footprint unless group and ICT revenue which are its key growth drivers can make a recovery, according to RHB Research.

The report highlighted that through the resumption of smart nation projects following the government’s review of cyber security risks and measures, as well as additional opex savings, Singtel may see its earnings inch up.

“Group revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) fell 4% and 6% YTD from weaker ICT revenue due to a higher base for project completions in H1 FY18,” RHB Research said.

The telco saw its profits plummet 77% to $667m in Q2 from $2.85b in 2017, whilst its revenue remained flat at $4.27b, according to its financial statement. Singtel blamed a $48m exceptional loss mainly consisting of staff restructuring costs for the decrease.

Also read: Singtel's Q2 profits plummeted 77% to $667m

Whilst Singapore postpaid subscriptions growth was strong with a 2% QoQ increase, mobile service revenue (MSR) fell 2.3% QoQ with higher mobile data revenue offset by weaknesses in roaming, a higher mix of SIM-only plans and data add-on packages, the report noted.

“The impact was magnified by higher subsidies on premium handsets, which were netted off from service revenue,” RHB Research added.

According to the report, Telkomsel bucked the otherwise poor regional showing with a 23% QoQ rebound from the recovery in data yields. Meanwhile, India’s Bharti remained the key drag following competition in the country.

Also read: Singtel's share price could get a boost from associate's climbing contributions

“While management observed some ‘green shoots’, the overall environment remains difficult,” RHB Research noted. “Key risks are stronger-than-expected competition at its core mobile business and higher gestation losses for its digital arm.”

As a result, RHB cut its FY19F-21F core earnings forecast by 11-12%.

Nevertheless, Singtel remains positive as it reaffirmed its headline guidance of single digit-revenue growth and stable EBITDA which implies a stronger H2 FY19, RHB Research said.

Singtel’s subsidiary Optus believes competition will be confined to the price-sensitive segment with little change to market dynamics even with the merger between TPG and Vodafone Hutchison, the report highlighted.