SingTel - Maybank Kim Eng 2021-02-10: Sequential Recovery; Maintain BUY On Deep Value

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

SingTel - Sequential Recovery; Maintain BUY On Deep Value

Maintain BUY on SingTel for deep value

  • SingTel (SGX:Z74)'s 9MFY21 EBIT is on track to meet MKE/consensus estimates. Maintain BUY and SOTP-based target price of S$2.88. 
  • We think the worst is over for SingTel as we see earnings recovering sequentially due to:
    1. gradual ARPU recovery post-COVID;
    2. potential 5G ARPU uplift of 1.9% y-o-y from FY23-26E;
    3. BHARTI driving associates’ recovery.
  • SingTel remains our Top Pick in the Singapore telco space. We see deep value in SingTel as the market is ascribing almost zero value to its SG and Australia operations, while offering 5.3% FY22E yield. This is followed by NetLink Trust (SGX:CJLU) (BUY, Target price: S$1.11, see report: NetLink NBN Trust - Maybank Kim Eng 2020-11-30: Immune To COVID Impact).

No changes to our forecasts

  • SingTel's 3QFY21 revenue of S$4.2b fell 3% y-o-y but rose 9% q-o-q due to strong demand for premium handsets (mainly iPhones). In addition, the decline in roaming and prepaid revenues was cushioned by the growth in subscription for the ‘Optus Choice’ customised data plans in Australia, which drove up post-paid ARPU by 2.7% q-o-q.
  • SingTel's 9MFY20 revenue achieved 77%/76% of MKE/consensus.
  • Operational EBITDA fell 14% y-o-y due to a narrower EBITDA margin of 23.7% (3QFY20: 26.6%, 2QFY21: 25.9%) as a result of a lower sales mix of National Broadband Network (NBN) migration. Meanwhile, EBIT reached 72%/76% of MKE/consensus estimates. We make no changes to our forecasts.

BHARTI takes the driving seat

  • Among SingTel's associates, green shoot is emerging for BHARTI as 9MFY21 pre-tax loss narrowed significantly by 90.4% y-o-y to S$35m. Additionally, we noted that BHARTI continues to outperform its peers across most operating metrics in India, recording the highest quarterly revenue due to strong customer additions. See report. Our India telco analyst Neerav believes tariff hikes and 4G adoption from a low base will continue to be catalysts to drive BHARTI’s turnaround.
  • We estimate India’s sector ARPU to grow 2-3% q-o-q within 6 months and BHARTI to account for 18% of SingTel’s FY22E associates earnings. We believe BHARTI’s performance could drive recovery in regional associates’ contribution.

NCS may pose upside surprise

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-02-10
SGX Stock Analyst Report BUY MAINTAIN BUY 2.880 SAME 2.880