The worst is over for Singtel associates

Prices are stabilising for Telkomsel, whilst customer adds will be the focus on Airtel.

For the first quarter, Singtel’s profits fell by 6.55% to $831.5m no thanks to the weak performance of its associates, Telkomsel and Airtel. Associates’ post-tax profit contributions fell 26% whilst enlarged revenue dipped by 4.8% due to the two companies.

OCBC Investment Research analyst Joseph Ng noted that the company struck a cautiously optimistic tone on the prospects for Telkomsel and Airtel. “In Indonesia, the group has noted some price stabilisation post-Lebaran, with Telkomsel being able to clock 4-11% price increases in certain market segments and will be focusing on cost management moving forward,” he said.

In India, the previous erosion in the average revenue per user (ARPU) was brought about by intense pricing competition, as well as the down-drafting of customers from higher value offerings to lower value ones. “Whilst management expects the market to remain soft for the next six months, the worst should be behind Airtel, and would now train its focus on customer net adds,” Ng added.

DBS Equity Research analyst Sachin Mittal echoed Ng’s statement that the worst is over for Singtel’s associates. He said profit bottomed out in Q1 and now he expects a rebound starting Q2.

“We expect Telkomsel to see a strong rebound in earnings from 2Q2019 onwards as it raised pricing on data services by ~5-10% in July 2018 and is recovering from the SIM card registration exercise which marked its end in April 2018,” Mittal said.

Moreover, the withholding tax on dividends from associates increased by ~29% YoY but should be lower in the subsequent quarters. In Australia, the migration of Optus subscribers to the National Broadband Network (NBN) should boost migration fee by A$40m compared to A$24m in Q1.

In its home market, Singtel expects that TPG’s initial target segment would be the SIM-only customers, which currently constitutes a small proportion of Singtel’s total customer base, Ng added. “Notwithstanding that, Singtel’s geographically diversified exposure would also render its collective earnings more resilient in the face of TPG’s entry, as compared to some of its other peers,” he said.

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