SingTel - UOB Kay Hian 2021-02-11: 3QFY21 In Line, Gradual Earnings Recovery With Opening Of Economic Activities

SINGTEL (SGX:Z74)

SingTel - 3QFY21 In Line, Gradual Earnings Recovery With Opening Of Economic Activities

SingTel reported its second consecutive quarter of improvement in revenue (+9% q-o-q) while EBITDA was stable q-o-q. The y-o-y weakness was due to a lack of tourist-related revenue and structural challenges in the carriage business. This was partly offset by higher equipment sales and narrowed losses at Airtel.
We believe the worst may be over for SingTel as the reopening of economies in the region will boost earnings.
SingTel offers 5% dividend yield for FY21-22. Maintain BUY and target price of S$2.84.

SingTel (SGX:Z74) reported a 3QFY21 group revenue of S$4.2b (-3% y-o-y, +9% q-o-q) and EBITDA of S$1b (-14% y-o-y, flat q-o-q). This reflects the absence of roaming and travel-related revenue and lower Nationwide Broadband Network (NBN) migration revenue in Australia.
The quarter was characterised by higher equipment sales for a festive promotion in conjunction with the encouraging take-up of 5G handsets and stronger associate earnings thanks to Airtel.
EBIT fell 2% q-o-q and 38% y-o-y, reflecting higher depreciation charges on network investments. 9MFY21 revenue and EBITDA account for 78% and 77% of our full-year estimates.
We deem the results to be within expectations.

Singapore
- Mobile revenue fell 25% y-o-y on lower roaming and tourist-related revenue. Post-paid ARPUs fell 26% y-o-y to S$29/month while prepaid ARPU fell 13% y-o-y to S$14/month.
- EBITDA margin declined 4ppt y-o-y due to lower high-margin revenue (ie: roaming).
- 3QFY21 mobile revenue dropped 2% q-o-q given higher prepaid subs churn.
Australia
- Mobile revenue was stable (flat y-o-y)as lower NBN migration revenue (-69% y-o-y) is offset by higher uptake of Optus Choice plan.
- Post-paid ARPUs flat y-o-y at A$38/month while Prepaid ARPU grew 6% to A$19/month.
- EBITDA margin dropped 6ppt on the lower-margin NBN revenue.
- 3QFY21 mobile revenue grew 2% q-o-q on higher postpaid and prepaid ARPUs.

9MFY21 revenue and EBITDA fell 2% y-o-y and 5% y-o-y respectively on declining carriage service and enterprise spending. This was partly cushioned by 8% y-o-y growth in ICT revenue.

9MFY21 revenue fell 19% y-o-y mainly due to lower advertising revenue as a result of the COVID-19 situation).
EBITDA losses however, narrowed to S$30m (vs loss of S$78m in 9MFY20) due the cessation of HOOQ’s operation.

Bharti’s narrowed net losses were due to an increase in ARPU to INR166 (+23% y-o-y) and higher subscriber growth (+9% y-o-y). Airtel Africa continues to report stellar performance with revenue and earnings up 23% and 22% respectively.
AIS’s improved performance was driven by strong 5G smartphone sales with pent-up demand, and 5G price plan packages which yield a higher ARPU.
Globe’s and Telkomsel’s performances were impacted by the COVID-19 lockdown and intense competition.

Despite a S$106m wage credit from the Singapore government, SingTel's group EBITDA margin fell amid lower top-line and margin compression from Australia.

No changes to earnings forecast.
Our assumption of 11.5 cents for FY21 dividend is based on 100% net profit payout (in line with 1HFY21 dividend payout). This translates to an attractive dividend yield of 5% from SingTel for FY21.

See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
Maintain BUY with an unchanged DCF-based target price of $2.84 (discount rate: 7%, growth rate: 1.5%). At our target price, SingTel will trade at 14x FY22F EV/EBITDA (5-year mean EV/EBITDA).
We believe earnings weakness is largely priced in with current valuation as the stock trades at -1SD below its 5-year mean EV/EBITDA.
Key re-rating catalysts for SingTel include:
1. reopening of economies towards end-20/ early-21;
2. monetisation of 5G;
3. faster-than-expected recovery in Optus’ consumer and enterprise business; and
4. market repair in Singapore.

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2021-02-11

SGX Stock Analyst Report BUY MAINTAIN BUY 2.840 SAME 2.840