SingTel - UOB Kay Hian 2020-11-13: Earnings Weakness Largely Priced In; Nascent Recovery Seen In 2QFY21

SINGTEL (SGX:Z74) | SGinvestors.io SINGTEL (SGX:Z74)

SingTel - Earnings Weakness Largely Priced In; Nascent Recovery Seen In 2QFY21

  • SingTel's 1HFY21 core net profit dropped 36% y-o-y to S$837m on a lower top-line, margin compression in Australia fixed-line business and higher finance cost. The reopening of economies allowed for a 10% q-o-q top-line recovery in 2QFY21 and we expect a stronger 2HFY21.
  • We cut SingTel's FY21-23 net profit forecasts by 20%, 7% and 6% respectively to account for weaker-than-expected consumer revenue in 1HFY21.
  • We raise SingTel's dividend estimates to 11.5 S cent (100% payout). Maintain BUY. Target price: S$2.80.
  • SingTel yields 5% on FY21F dividend per share.



SingTel's 1HFY21 results below expectations.

  • SingTel (SGX:Z74) reported 1HFY21 core net profit of S$837m (-36% y-o-y). This reflects:
    1. a 10% y-o-y decline in revenue;
    2. a 27% y-o-y decline in NBN migration revenue and margin compression in its Australia consumer segment; and
    3. higher net interest expense.
  • This was partly offset by stronger regional associate earnings, thanks to better India and Africa operations.
  • All in all, SingTel's 1HFY21 core net profit (excluding S$1.01b share of Airtel regulatory cost provision and tax charges) is below our expectations, at 36% of our full-year forecast.
  • Positively, 2QFY21 saw revenue and EBITDA rebounding 10% q-o-q and 12% q-o-q respectively, given the resumption of customer acquisition activities.
  • 1HFY21 EBITDA margin fell 3ppt y-o-y to 25.6% amid lower revenue and NBN migration. Despite a S$81m wage credit from the Singapore government, group EBITDA margin fell amid lower top-line and margin compression from Australia.
  • Positively, cost savings for 1HFY21 amounted to S$200m, thanks to efforts to lower content cost through renegotiations and a lean cost structure via digitisation initiatives.
  • SingTel declared an interim net DPS of 5.1 cents/share. This is based on 100% net profit payout and above our expectation of 7.5 cents/share (50% payout) for the year.


We cut SingTel's FY21-23 net profit forecasts but raise FY21 dividend forecast

  • We cut SingTel's FY21-23 net profit forecasts by 20%, 7% and 6% respectively to account for weaker-than-expected earnings stream from its Australia consumer segment and lower-than-expected associate contributions (specifically Telkomsel and Globe).
  • We raise SingTel's FY21 dividend forecast to 11.5 cents, based on 100% net profit payout. Taking cue from 1HFY21 dividend payout, we raise FY21 dividend per share to 11.5 cents. This translates to an attractive dividend yield of 5% for FY21.

Reiterate BUY for SingTel






Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2020-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 2.800 SAME 2.800



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