SingTel - DBS Research 2020-11-13: Relief From 100% Payout Ratio In 1HFY21


SingTel - Relief From 100% Payout Ratio In 1HFY21

  • SingTel's 1HFY21 underlying profit of S$837m (-36% y-o-y), was in line and comprised 46% of our FY21F projections.
  • SingTel's 1HFY21 dividend of 5.1 cents (100% of its underlying earnings) was in line; we project FY21F/22F dividend of 10.9/11.9 cents (prev 12.25 cents), implying ~5% yield.

SingTel's 1HFY21 results boardly in line.

  • SingTel (SGX:Z74)'s 1HFY21 underlying profit of S$837m (-36% y-o-y) comprised 46% of our FY21F estimates. 1HFY21 underlying profit of S$837m (-36% y-o-y) was 46% of our full-year expectation of S$1,826m.
  • Associates contributed S$622m (+6.3% y-o-y) of post-tax profits to SingTel’s underlying profit. Bharti’s losses narrowed to S$89m in 1HFY21 due to a sharp rise in revenue compared a loss of S$226m in 1HFY20. Contributions from Telkomsel, which constitute over 50% of associate profits, declined by S$59m (-14% y-o-y) to S$362m in 1HFY21 due to rising competition outside Java and the impact of COVID. See SingTel's announcements.

Core business is not doing well.

  • Optus fared worse, heading into losses of S$22m in 1HFY21 compared to a profit of S$239m in 1HFY20. This reflected structural weakness in its Australia fixed line business amid migration to National Broadband Network (NBN), coupled with lower equipment sales and COVID weakness.
  • Meanwhile, SingTel's 1HFY21 underlying profit from Singapore (including withholding taxes) declined by 51% to S$237m despite S$23m income from Job Support Scheme (JSS). This was due to declines in roaming and prepaid revenues, and lower equipment revenue.

1HFY21 core EBITDA from Singapore and Australia declined by 19% to S$1903m.

  • Optus was the bigger culprit as its EBITDA dropped by 30% to A$977m. Half of Optus’s EBITDA drop can be explained by lower fixed-line margins and a A$73m drop in NBN migration fee. Meanwhile, the rest of the drop can be tied to handset losses and COVID’s impact on roaming and prepaid revenue.

We project SingTel's FY21F core EBITDA from Singapore and Australia to decline by 23% in FY21F to S$3.5bn but to stabilise in FY22F.

  • We project a decline of ~S$700m in Optus’s EBITDA (out of a S$1bn decline in core EBITDA) due to
    1. ~A$300m drop in NBN migration fee in FY21F,
    2. losses on equipment sales of another ~A$250-300m,
    3. ~A$100m rise in traffic costs in FY21F as more customers switch to NBN.
  • However, in FY22F, we expect Optus’s EBITDA to recover despite another A$300m drop in NBN revenue due to
    1. absence of equipment losses in FY22F and
    2. recovery in roaming revenue, coupled with fast 5G rollout.

SingTel's guidance on dividends from regional associate contributions and capex for FY21F.

  • SingTel’s management has indicated that in FY21F, contribution from regional associates will be ~S$1.3bn, the same as last year. The Group’s capital expenditure including for 5G networks, will be ~S$2.2bn, comprising A$1.5bn for Optus and S$700m for the rest of the Group. Excluding spectrum auctions, normalised capex was S$2,037m in FY20. The increase is primarily due to 5G capex in Australia.

We project SingTel's FY21F dividends of 10.9 cents

  • On 11 November 2020, SingTel approved an interim ordinary dividend of 5.1 cents for 1HFY21 (vs. 1HFY20 DPS of 6.8 cents), totalling S$833m which represents ~100% of the Group’s underlying net profit for 1HFY21.
  • Based on an 10.9 cents dividend projection, SingTel is trading at ~5% yield close to its +1SD yield of 5.1% (vs. average yield of 4.5%). With its scrip dividend scheme in place, SingTel should be able to maintain 100%/90% payout ratios in FY21F/22F and dividends are likely to grow with ~20% potential recovery in earnings in FY22F.

Maintain BUY with an unchanged target price

Sachin MITTAL DBS Group Research | 2020-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 2.690 SAME 2.690