SingTel - CGS-CIMB Research 2021-05-28: Look Beyond FY21’s Earnings Trough

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

SingTel - Look Beyond FY21’s Earnings Trough

  • SingTel's 2HFY21 core net profit fell 22% y-o-y but FY21 beat our forecast by 8%.
  • Lower Optus, Singapore, Globe & Tsel profits were partly aided by Bharti.
  • We reiterate our ADD call on SingTel with a 6% lower SOP-based target price of S$2.90.

SingTel's 2HFY21 core EPS fell 22% y-o-y; FY21 beat our forecast by 8%

  • SingTel (SGX:Z74)’s 2HFY21 (Oct 2020 to Mar 2021) core net profit fell 22% y-o-y (+7% h-o-h) due to Telkomsel (Tsel), Optus, Globe and Singapore, partly offset by smaller Bharti losses.
  • SingTel's FY21 core net profit slightly beat our forecast by 8% (key variance: smaller-than-expected Bharti losses) but missed Bloomberg consensus by 14%.
  • SingTel's 2HFY21 dividend fell to S$0.024 per share (2HFY20: S$0.0545). FY21 dividend of S$0.075 per share (71% payout) was in line with our estimates.
  • For FY22, SingTel guides for:
    1. regional associates’ dividends at ~S$1.3bn,
    2. capex at ~S$2.4bn (FY21: S$2.1bn) and
    3. 60-80% dividend payout ratio, which is within our expectations (75%).

Singapore was still weak; Optus turned around to profits h-o-h

  • Singapore’s 2HFY21 core net profit fell 31% y-o-y (-25% h-o-h). Consumer EBIT was down 36% y-o-y on weaker Life LBIT to S$46m.
  • Meanwhile, Optus’s 2HFY21 core net profit tanked 83% y-o-y to A$31m but saw a turnaround h-o-h (1HFY21: -A$23m). Consumer EBIT fell 60% y-o-y on lower NBN migration fees and higher traffic cost. Consumer mobile service revenue rose 1% y-o-y, with ARPU up 4%. Enterprise EBITDA grew 44% y-o-y (+15% h-o-h).

Telkomsel/Globe dragged associate earnings; Bharti improved

  • 2HFY21 associate contribution fell 5% y-o-y. Telkomsel/Globe were the main drag on lower Bharti losses (1HFY21: -S$89m).

New strategic direction offers hope

  • Key highlights of SingTel’s new strategic direction are:
    1. plans to expand NCS’s focus beyond satellites and fibre networks under its portfolio.

Reiterate ADD with 6% lower SOP-based target price of S$2.90

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-28
SGX Stock Analyst Report ADD MAINTAIN ADD 2.90 DOWN 3.100