1Q22 PATMI missed; Maintain HOLD
1Q22 PATMI was 23% of MIBG/ 24% of consensus forecasts. Overall, 1Q22
net profit was underwhelming with increased mobile competition and the
lumpy nature of its cybersecurity business, which we think will be backend
loaded. Our FY22-FY24E forecasts are unchanged following the MyRepublic
acquisition and a recovery in roaming revenues as international borders
reopen. As such, we maintain a HOLD rating with a DCF-based (WACC:
6.96%, LTG: 0%) TP of SGD1.32.
Operational costs a drag on bottomline
Higher YoY service revenue was driven by a 3.8% rise in Mobile revenue,
9.6% growth in Broadband revenue, 3.9% higher Entertainment revenue
and 18.9% growth in Enterprise revenue. But Service EBITDA has been
lagging (-12.8% YoY, -18% QoQ) due to increased staff cost and frontloaded
capex for IT transformation which we think will be recurring given the high
inflationary environment. As a result, net profit fell to SGD29.7m (-2.6%
YoY, -27.7% QoQ) along with negative FCF reported for the quarter.
Improving operational parameters
Mobile revenue rose (3.8% YoY, -0.7% QoQ) on higher Postpaid ARPU and
subscriber growth offset by a drop in Prepaid ARPU (-20% YoY, QoQ) with
the subscriber base still below pre-pandemic levels. The prepaid market
remains challenging while postpaid benefitted from higher take-up of 5G
mobile plans. Enterprise segment revenue grew 18.9%, mainly due to
consolidation of JOS SG & MY. Cyber Security recognised lower QoQ
revenue due to the absence of significant projects recognised in 4Q21. The
sector continues to focus on growth opportunities from new product
launches with healthy market traction achieved.
New initiatives to drive future growth
We see potential in leveraging the newly integrated MyRepublic’s regional
market presence to explore new growth engines and offer differentiated
solutions to its enterprise clients. Management is upbeat about more
infinity play products and a Super App platform launching at the end of 2022. Rerating catalysts for the stock include, how quickly tourism returns
to Singapore leading to a rise in prepaid SIM card sales, market
consolidation, 5G adoption rates and enterprise growth