SingTel - OCBC Investment 2021-02-11: Clocking Sequential Improvement

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

SingTel - Clocking Sequential Improvement

  • Directionally positive with resilient Group Enterprise revenue.
  • Still awaiting potential asset monetization.
  • Maintain Fair Value estimate of S$2.85 for SingTel (SGX:Z74).

Encouraging signs in Australia and India

  • SingTel (SGX:Z74)’s 9MFY21 results per its business update appear to be broadly in-line with expectations. See SingTel's announcements.
  • Looking specifically at 3QFY21 (Oct 2020 to Dec 2020), operating revenue fell 3% y-o-y to S$4.2b but increased 9% q-o-q, driven mainly by higher equipment sales revenue on festive promotions and strong demand for popular premium handsets, though this was partially offset by lower NBN migration revenue due to the near completion of the NBN rollout in Australia.
  • We note that excluding NBN migration revenue, operating revenue, EBITDA and EBIT increased 10%, 3% and 10% respectively q-o-q, largely due to Australia Consumer and Amobee.
  • On Australia Consumer, we note that mobile service revenue was stable y-o-y as lower roaming and prepaid mobile revenue were mitigated by higher penetration of Optus Choice plans which offered improved margins.
  • Singapore Consumer operating revenue fell 11% y-o-y (though up 8% q-o-q), with border restrictions impacting usage of roaming and prepaid services.
  • Group Enterprise revenue remained resilient despite disruptions and a challenging macro environment. Post-tax associate contributions rose 8% (or 11% in constant currency) – this came on the back of Airtel’s improved operating performance which was lifted by higher mobile ARPU and strong 4G additions in India. However, this was partly offset by lower operating profit contributions from Telkomsel and Globe which were impacted by COVID-19 headwinds and stiff competition.

No explicit FY21 dividend guidance from SingTel

  • To recap, SingTel's 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 previously noted that for FY21, dividends from regional associates are expected to be at S$1.3b with capex at S$2.2b (~AUD1.5b for Optus and S$700m for the rest of the group).

Maintain fair value estimate of S$2.85 for SingTel.

  • All considered, we believe SingTel continues to remain a viable option to play the reopening of regional economies, with the return of the travel market likely to give a boost to its mobile operations, especially in Singapore.
  • Potential asset monetization would be another catalyst; management noted previously 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 the more medium-term, we would also look forward to potential mobile ARPU accretion from the migration to 5G.
  • See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
  • We make adjustments to our assumptions, but retain our fair value estimate of S$2.85 for now.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-02-11
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