SingTel - OCBC Investment 2020-11-13: Improving Operating Trends

SINGTEL (SGX:Z74)

SingTel - Improving Operating Trends

SingTel (SGX:Z74)’s 1HFY21 underlying NPAT was soft at S$837m (-36% y-o-y), constituting ~38% of consensus full-year forecast (no quarterly split provided). However, there appears to be improving operating trends with 2QFY21 revenue of S$3.9b (-7% y-o-y) notching a q-o-q improvement of 10%; EBITDA has also improved by 12% q-o-q to S$1.0b.
For Australia Consumer, EBITDA for 1HFY21 fell 31% y-o-y largely on lower equipment margin and fixed margin erosion with NBN resale. We note that Group Digital Life has turned EBITDA positive following HOOQ’s closure.
PBT from regional associates (ex-exceptional items) rose 11% y-o-y (constant currency) with improved Airtel performance offsetting Covid-related weakness and competition in other markets.

SingTel is recommending an interim dividend of 5.1 cents, representing a ~100% payout ratio on 1HFY21 underlying net profit.
SingTel has not provided operational guidance for FY21, but we note that total dividends for FY21 are not expected to exceed the group’s underlying net profit, with the dividend policy to be reviewed at the end of the FY.
Still, SingTel's management noted that for FY21, dividends from regional associates are expected to be at S$1.3b with capex at S$2.2b (~A$1.5b for Optus and S$700m for the rest of the group).

In Australia, mobile subs fell q-o-q due largely to the drop in prepaid subs. Management noted that this was in part a result of subdued demand from inbound immigrants and tourists, given the lockdown restrictions. Postpaid subs also fell q-o-q, but this is likely to be correlated with more challenging economic conditions and cost rationalisation across households.
In Singapore consumer, management noted the more encouraging 2Q operating trends following the movement restrictions in 1Q.
Going into 3Q, management noted positive trends from consumption patterns in light of new phone launches, as well as upgrades to 5G phones/plans. However, roaming revenue is expected to remain subdued on the back of travel restrictions.
For the enterprise business in Singapore, management noted the sequential recovery in 2Q as increased activity led to more projects being deployed. Areas of growth moving forward include cloud solutions, data centers carrying cloud services, cyber security and also NCS.

On the topic of asset monetization, SingTel's management noted that the review of the potential sale of Optus’s towers is work-in-progress, while the group will continue to review their non-core assets.
In terms of 5G, SingTel's management noted that a pure connectivity positioning is unlikely to be the right strategy, given that any initial price premium can be eroded away over time (as per the 4G experience). Instead, 5G should be viewed as a platform to provide consumers and enterprises with applications that can be built on top of the network to take advantage of the high capacity and low latency.
Among other adjustments, we incorporate more conservative assumptions following the 1HFY21 print and shave our FY21 and FY22 PATMI estimates by 14.6% and 10.0%, respectively.
See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
We assume a 12.25 cents (flat) dividend for SingTel in FY21, which translates into a yield of ~5.5%, as at time of writing. All considered, our fair value estimate drops from S$3.08 to S$2.85.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-13

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