SingTel - CGS-CIMB Research 2021-05-21: Sequential Earnings Improvement In 2H21

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

SingTel - Sequential Earnings Improvement In 2H21

  • SingTel's 2HFY21F core net profit may have dipped 18-19% y-o-y but grown 11-12% h-o-h to S$930m-940m, with FY21 possibly 10-11% ahead of our estimate.
  • Lower Optus, Singapore, Globe and Tsel profits to be partly aided by Bharti.
  • We reiterate our ADD call with an SOP-based target price of S$3.10.

SingTel's 2HFY21F core net profit likely fell y-o-y but may have risen h-o-h

  • SingTel (SGX:Z74) will release its 2HFY21 results on 27 May. See SingTel's Announcements.
  • Based on its associates’ reported results and our estimates for Singapore and Optus, we believe SingTel’s 2HFY21F core net profit will come in at S$930m-940m, down 18-19% y-o-y (down 20-21% y-o-y, ex-adjustments for Airtel Africa in 2HFY20). This is mainly due to Telkomsel (Tsel), Optus, Globe and Singapore, partly cushioned by narrower Bharti losses. H-o-h, however, we project core net profit rose 11-12% on improved Bharti and Optus performance.
  • SingTel's FY21F core net profit may be slightly ahead (10-11%) of our forecast, due to smaller-than-expected Bharti losses.
  • As announced by SingTel on 14 May 2021, its 2HFY21 results are expected to include net exceptional losses of S$839m (FY21: S$1.21bn). We are not too concerned as these are mainly non-cash charges. See our report: SingTel - CGS-CIMB Research 2021-05-14: Starting FY22 On A Clean Slate.

Singapore may still be weak; Optus could stage a turnaround h-o-h

  • We estimate SingTel's Singapore 2HFY21F core net profit was down 24-27% y-o-y (down 16-19% h-o-h), led by the:
    1. negative impact of COVID-19 border closures on Life losses (post-HOOQ deconsolidation from Mar 20).
  • Meanwhile, we see Optus’s core net profit plunging 67-68% y-o-y to S$53m-55m, mainly owing to
    1. lower NBN migration fees (as NBN rollout nears completion),
    2. decrease in device sales, and
    3. higher NBN-related traffic cost.
  • However, this is a turnaround from the S$27m loss in 1HFY21, which we think may be led by increased take-up of its higher-margin Optus Choice postpaid plans, seasonally higher device sales and lower staff cost.

Telkomsel could be a drag but Bharti continues to improve

  • We forecast SingTel's 2HFY21F associate contribution (in S$ terms) to ease 4-5% y-o-y, based on profits to rise 5-7%, stemming from narrower Bharti losses (1HFY21: -S$89m).

Reiterate ADD with unchanged SOP-based target price of S$3.10

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-21
SGX Stock Analyst Report ADD MAINTAIN ADD 3.100 SAME 3.100