Bharti Airtel could counter Singtel's enterprise business: analysts

Its India unit is projected to add $500 to its FY2021 profits.

Singtel’s India associate Bharti Airtel is expected to offset the weaknesses of the telco’s other associates, particularly in Singapore and Australia, according to analyst reports.

RHB noted that the price repair in India continues to bode well for Airtel as its average revenue per user (APRU) went up 5.3% QoQ. In a separate note by DBS, the firm’s turnaround aided by sharp tariff-hike in December 2019 is likely to add over $500m to associates’ FY21F profit (+20% of Singtel’s earnings).

The report is projecting the overall associates’ profit contribution to accelerate to 40% growth in FY2021, following a mild 10% recovery in FY2020. Singtel just posted its Q3 earnings, which fell 24% YoY to $627.2m in Q3 from $822.8m in 2018. The profit decline was blamed on weakness in the enterprise business, the impact of the final settlement of a gain on the Airtel Africa pre-IPO investment and lower exceptional gains. 

“Group enterprise EBITDA fell 11% YoY in 3QFY20 as Australia EBITDA slumped 55% YoY on rising competition from NBN resellers and the compression in carriage revenue. Singapore enterprise revenue was stable QoQ, aided by seasonality. We expect the Covid-19 pandemic to further dampen business sentiment with the recovery in enterprise revenue likely to be delayed until after 1H20,” RHB stated.

Furthermore, DBS added that Singtel’s non-core, digital and data-centre businesses are potential candidates for divestment over the next 12-18 months and will lend support to 17.5 cents dividend per share (5.3% yield). Its 18% holding company discount (vs. 15% historic average) is also said to remain attractive.

Its underlying profit of $551m (-19% YoY, -25% QoQ) declined, which is said to be attributed to a weaker-than-expected Australia profit as EBITDA margins dropped sharply from lower handset sales with positive margins as more customers switch to SIM-only plans and lower margins in the new NBN business compared to its legacy broadband business.

Apart from its Australian operations, RHB added that its Indonesia associate Telkomsel are likely to be further impacted by intense competition at the lower-end segment and stronger decline in ex-Java legacy revenues. Its share of contributions fell 5% YoY in Q3. Meanwhile, AIS and Intouch saw sequential declines from rising competition.