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Announcement:

Moody's: Singtel's H1 FY2017-18 results can be accommodated in its A1 rating

10 Nov 2017

Singapore, November 10, 2017 -- Moody's Investors Service says Singapore Telecommunications Limited's (Singtel, A1 stable) results for H1 FY2017-18 ended September 2017 support its A1 senior unsecured rating and stable outlook.

Group operating revenues for H1 FY2017-18 grew 7.6% year-on-year, bolstered by favourable currency exchange movements. In constant currency terms, operating revenue would have increased 5.3% YoY.

The revenue increase in H1 was led by Group Digital Life -- which reported revenue growth of 107% YoY -- a 4.8% increase in Consumer revenues, and a 3.3% increase in Enterprise revenue.

"We expect group revenues to grow by 3-4% in FY2017-18. However, foreign currency fluctuations will continue to potentially impact Singtel's earnings growth, since it derives over 65% of its earnings (on a reported basis) from outside Singapore," says Nidhi Dhruv, a Moody's Vice President and Senior Analyst.

In order to diversify its revenue sources, Singtel continued to focus on its digital and cyber security businesses. Although still contributing only around 10% of the group's operating revenues, these businesses led revenue growth for H1 FY2017-18, and Amobee, its digital marketing subsidiary, reported positive EBITDA. The other digital businesses and Trustwave (cyber security subsidiary) continue to remain EBITDA negative.

However, Singtel's adjusted EBITDA (based on cash dividends from associates added back to EBITDA) for the last twelve months (LTM) ended September 2017 remained relatively stable at SGD6.95 billion, as compared to the year ended March 2017.

"Consolidated EBITDA remains supported by dividend contributions from Singtel's associates of SGD1.6 billion during the last 12 months ended September 2017. Lower traffic and selling and administrative expenses also enabled the Group to maintain stable EBITDA from its core businesses in Singapore and Australia," adds Dhruv, also Moody's Lead Analyst for Singtel.

Singtel's 36.5%-owned associate in India, Bharti Airtel Ltd. (Baa3 negative), continues to face intensified competition following the launch of services by Reliance Jio; and competition is also expected to intensify in Thailand as other operators compete aggressively to gain 4G market share.

The company could also face headwinds in its operations in its key markets, Singapore and Australia. In 2018, TPG Telecom Limited is expected to launch services in both countries, which would spur industry-wide price competition.

Singtel's commitment towards high shareholder payouts -- coupled with its high capex and spectrum payments -- has resulted in negative free cash flow (based on Moody's definition) since 2015, and the situation will continue to pressure its cash flow metrics.

Singtel announced an interim dividend of SGD1.10 billion, representing a payout ratio of 60% of underlying net profit for the half-year ended September 2017. In addition, in line with Moody's expectations, the company announced a special dividend of SGD500 million out of the proceeds from the divestment of NetLink Trust (SGD2.3 billion).

The company plans to use the balance of NetLink Trust proceeds for payment of spectrum acquisitions and growth investments.

Singtel has currently deployed the divestment proceeds to repay its revolvers, bringing adjusted debt down to SGD13.9 billion from SGD15.6 billion as of June 2017. Its adjusted net debt/EBITDA (based on cash dividends being added back to core EBITDA) was 1.9x for LTM September 2017.

Moody's expects net leverage to remain at around 2.0x over the next 1-2 years, which is in line with Singtel's A1 ratings.

Singtel maintains a good liquidity profile, supported by its very strong access to the bank and debt capital markets, as evidenced by ongoing debt raisings over the past few years. It also maintains solid interest coverage metrics.

Singtel's A1 rating continues to combine: a) its BCA of a3, reflecting the company's underlying strength, derived from its well-established and geographically diversified business platform; and b) the credit support that Moody believes Temasek Holdings (Private) Limited (Aaa, stable), which owns 52% of Singtel, is likely to provide in a distress situation, which results in a 2-notch uplift.

The outlook remains stable, reflecting our expectation that Singtel will maintain the competitive strength of its operations in Singapore and Australia, its gradually deleveraging profile, and its healthy liquidity.

The principal methodology used in this rating was Telecommunications Service Providers published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Singapore Telecommunications Limited (Singtel) is the leading integrated communications services provider in Singapore. It is the second largest integrated telecommunications operator in Australia through its wholly owned subsidiary, Singtel Optus. Singtel also has a number of investments in cellular operators throughout the region, which give it a regional footprint across 22 countries, covering 670 million mobile subscribers. Singtel is 52%-owned by Temasek, which is wholly owned by the Singapore government.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Nidhi Dhruv, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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