SingTel - CGS-CIMB Research 2020-12-10: A Rebound On Multiple Facets In FY22

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

SingTel - A Rebound On Multiple Facets In FY22

  • We expect SingTel's FY22F/23F core earnings to recover 65.4%/19.3% y-o-y, led by a rebound in associate, Singapore and Optus net profits.
  • We estimate FY22F/23F dividend of 12.2/14.5 cents (75% payout), backed by robust FCF/share of 12.4/14.1 cents and net debt/EBITDA of below 2.0x.
  • Reiterate ADD on SingTel with an unchanged SOP-based target price of S$3.10.

SingTel Group's core EPS to recover in FY22F, led by associates…

  • While SingTel (SGX:Z74)’s FY21 (Apr 2020 to Mar 2021) core earnings may fall 34.9% y-o-y (mainly due to COVID-19), we see it rebounding 65.4%/19.3% y-o-y in FY22F/23F, led by a recovery in associates (+91.1%/+18.1%), Singapore and Optus profits.
  • Its share of Bharti’s FY22F/23F net profit could improve to S$446m/S$725m (FY21F: -S$484m) while Telkomsel’s net profit may rise 4.2%/6.9% y-o-y as competition stabilises and data usage continues to grow.
  • We expect AIS’s (ADVANC TB) FY22F/23F net profit to grow 4.1%/7.2% y-o-y and Globe’s to inch up 3% p.a.
  • If Bharti’s losses remain, SingTel’s FY22F/23F core earnings may grow at a more moderate 7.3%/13.5% y-o-y, in our view.

… and improved Singapore & Optus earnings

  • We expect Singapore’s core net profit to recover 13.7%/17.9% y-o-y in FY22F/23F (FY21F: -27.6%) on the back of a projected recovery in mobile (international roaming, prepaid usage, device sales), digital life and enterprise revenues from the impact of COVID-19, partly offset by structural carriage declines and enterprise EBITDA margin erosion (lower contract value on renewals).
  • For Optus, we forecast FY22F/23F core net profit to bounce 11.2%/66.4% y-o-y off a very low base in FY21F (-90.6% y-o-y). This will be driven by higher mobile (+4.6%/+0.4%) and enterprise revenues as we assume full recovery from COVID-19 in FY23F, coupled with cost-saving initiatives, which should more than buffer the drop in National Broadband Network (NBN) migration fee.

SingTel's FY22-23F dividend to be backed by robust FCF/share & balance sheet

  • In its 1HFY21 results release, SingTel said it will review its dividend policy at end-FY21. We currently assume FY22F/23F dividend of 12.2/14.5 cents (75% payout), backed by FCF/share of 12.4/14.1 cents and a net debt/EBITDA that falls from 2.1x at end-FY21F to a manageable 1.7x/1.5x at end-FY22F/23F. This may be further supported by potential special dividends from Telkomsel’s tower sales (we estimate proceeds to be S$266m) and Optus’s tower sales, which could raise at least A$2bn (as reported by Australian Financial Review in Mar 2020).
  • We also think SingTel may declare a small special dividend after the tower sale (4 cents if 30% of these proceeds are paid out).

Reiterate ADD; SOP-based target price kept at S$3.10

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2020-12-10
SGX Stock Analyst Report ADD MAINTAIN ADD 3.100 SAME 3.100