TPG Telecom Limited

Increase in Underlying Profit: TPG Telecom Limited (ASX: TPM) is engaged in providing internet, mobile and fixed line services to its customers including residential user, small and medium enterprises, government, large corporate enterprises and wholesale clients.

The company will distribute a dividend of AUD 0.020 per share with a payment date of May 21, 2019. The ex-date and record date were April 15, 2019 and April 16, 2019 respectively.

TPG’s mobile network in Singapore has achieved a nationwide outdoor coverage performance result of over 99%, easily exceeding the 95% milestone which was required to meet by the end of 2018.


Summary Results 1H FY19 (Source: Company Reports)

The revenue of the company decreased by 1.5% over the prior corresponding period to $1,235.8 million in 1H FY19 as compared to $1,254.6 million in 1H FY18, driven by the loss of home phone voice revenue, due to the NBN rollout. The underlying EBITDA increased from $413.0 million in 1H FY18 to $424.4 million in 1H FY19, an increase of 2.8% over the prior corresponding period. Other EBITDA growth of $39 million achieved relative to 1H FY18 led by growth in the Corporate Division (including an uplift in contribution from the VHA fibre contract) and the continued realisation of operating expense efficiencies across the Group. Net operating cash flow after tax came in at $333 million for 1H FY19.

Moreover, in Australia, the small cell network rollout by the company is continued in major capital cities and densely populated metropolitan areas. If the merger with Vodafone Hutchison Australia proceeds, TPG’s small cell network would be complementary to VHA’s mobile network and will bring greater strength to the combined group through increased coverage and capacity in densely populated areas.

TPG’s mobile network build in Singapore continues to progress well. The network has achieved a nationwide outdoor coverage performance result of over 99%, easily exceeding the 95% milestone which was required to meet by the end of 2018. In response to the positive feedback received from initial trial customers, the trial service limit has been expanded to 200,000 users so that more Singaporeans can experience the excellent service and network quality ahead of the full commercial launch.

Among the group’s broadband subscribers it ended FY18 with 1.93 million broadband subscribers, a 5k (0.3%) decline in the year. However, included within this movement was a significant change in the composition of the broadband customer base with NBN subscribers increasing by 300k to 861k, representing 45% of the total broadband customer base as at the year-end.

EBITDA & Capex Guidance: The management reaffirmed the guidance provided in September 2018 for ‘Business as Usual’ EBITDA for the group for FY19 to be in the range of $800-820 million and capex to be in the range of $180-220 million.

Stock Recommendation: At the current market price of $7.020, the stock is trading at price to earnings multiple of 25.980x with market capitalisation of ~$6.26 billion. The forward EV/EBITDA (NTM- next 12 months) for TPM at 10.65x seems comfortable compare to 16.28x of its peer median. There has been a significant decrease in employment and overhead costs reflecting the results of ongoing operating cost optimisation work. Moreover, with the company’s mobile network achieving a significant nationwide outdoor coverage performance result in Singapore, along with growth in underlying financial key performances against the prior corresponding period, we believe the company will continue to perform going forward. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $7.020. (up 2.332% on 07 May 2019).
 

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