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

SINGTEL (SGX:Z74) | SGinvestors.io 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's 3QFY21 results within expectations.

  • 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.

Consumer division - 9MFY21 revenue and EBITDA fell 10% y-o-y and 24% y-o-y respectively.

  • 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.

Enterprise Division -

  • 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.

Digital Life Division -

  • 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.

Regional Associates

  • 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.

9MFY21 EBITDA margin fell 3ppt to 24.9% amid lower revenue and NBN migration.

  • 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.

SingTel - Earnings assumptions

  • 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.

SingTel - Valuation & Recommendation

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