SINGTEL (SGX:Z74)
SingTel - Help From Bharti & A$
- SingTel (SGX:Z74)'s FY21 revenue met but EBITDA was below, at 91% of our FY21 estimate. Excluding exceptionals, PATMI declined 22% in 2H21. Bharti’s (BHARTI IN) turnaround and a 9% appreciation of A$ in 2H21 boosted earnings. Final dividend was slashed by 56% to S$0.024.
- Exceptional losses of S$1.1bn in 2H21 included impairment of S$589mn for Amobee and S$336mn for Trustwave. 'HAT trick' of write-offs plus Hooq totalled S$1.18bn in the past two years.
- SingTel announced a new strategic direction with an emphasis on 5G consumer and enterprise in Singapore and Australia, NCS as a new engine of growth and value-unlocking of infrastructure assets. No surprises. We are wary of value-unlocking as it is unclear whether it will involve disposals or mere refinancing.
- We reduce SingTel's FY22e EBITDA forecast by 13% to factor in weaker Singapore mobile and Australia broadband earnings.
- Maintain NEUTRAL on SingTel with SOTP-based target price lowered to S$2.32 from S$2.44, incorporating lower associate valuations. Outlook is sluggish with minimal growth in core operations and indifferent dividend yields of 3.7%.
The Positives
Stable Optus mobile revenue.
- Mobile revenue was unchanged at A$2.74bn. Blended ARPU managed to rise 6% y-o-y to A$31. This offset a 4.5% y-o-y decline in subscribers to 9.97mn. Prepaid ARPU suffered the most with a 12% decline due to fewer inbound travellers and foreign students.
Bharti remained the bright spot.
- Operating profits for Bharti in India and Africa surged 74% y-o-y in 2H21 to S$541mn. Revenue expanded from higher ARPUs and subscribers. However, underlying profit contributions were negated by high finance costs of S$420mn.
- SingTel’s 31.7% stake in Bharti Airtel is worth S$16.6bn, marked to market.
The Negatives
HAT trick* cost of S$1.2bn.
- On 14 May, SingTel announced impairment charges for intangible assets and goodwill for Amobee (S$589mn) and Trustwave (S$336mn). Adding in a S$195mn impairment for Amobee last year and liquidation of Hooq (S$68mn), its acquisition-cum-digital adventure cost at least S$1.18bn over two years, excluding operating losses. Management mentioned that without partners, it is unable to scale up faster. (*HAT: H - Hooq; A - Amobee; T - Trustwave).
Final dividend slashed.
- Final dividend was cut 56% y-o-y to S$0.024 (2H20: S$0.0545). SingTel's FY21 full-year dividend was S$0.075 or S$1.23bn, down 39% from the S$0.1225 or S$2.0bn in FY20. This represents a 71% payout of underlying net profits.
- Guided payout for FY22e is 60-80%. Associate dividends (net of withholding tax) in FY21 were S$1.29bn (FY20: S$1.29mn).
Outlook
- Operational outlook is sluggish. Areas with earnings momentum should be Bharti and NCS. SingTel plans to pivot further to 5G connectivity and enterprise applications could power medium-term earnings. But the size of the market and timing of 5G applications such as autonomous vehicles, analytics for the public sector and robotics in manufacturing remain unclear.
Singapore consumer:
- Loss of roaming revenue will likely keep EBITDA sluggish. SingTel is accelerating 5G deployment with standalone compatible SIM cards issued in late April 2021. 5G subscribers as at 31 March 2021 totalled 100,000 or 4% of its 2.78mn postpaid subscribers. Other mobile-data initiatives are the launch of apps such as augmented reality books (Bookful), virtual reality live music (MelodyVR) and data-free gaming (RiotGO).
Australia consumer:
- NBN migration and site preparation revenue contributed S$308mn to EBITDA in FY21 or 16% of the total. We expect this to decline further with only 37k on-net broadband customers left for full transition to NBN in FY22e. FY21 on-net customers declined by 192k while off-net only added 175k.
- Optus booked an impairment charge of S$204mn for its legacy on-net fixed access network. Another S$101mn was staff-related exceptional charges. We expect staff costs to be materially lower following this restructuring. Optus’ underlying net profit in FY21 was A$8mn.
- Optus tower divesment expected 2H21.
Enterprise:
- The push in enterprise will likely be cloud and 5G solutions. Legacy revenue streams such as voice should remain a drag. NCS performed well in FY21 with 15% EBIT growth, excluding Jobs Support Scheme grants. NCS’ EBIT of S$249mn in FY21 accounted for around 32% of group enterprise EBIT. NCS will be unveiling details of its growth plans in the coming weeks. The public sector remains its largest customer.
Maintain NEUTRAL with lower target price of S$2.32, from S$2.44
- We reduce SingTel's FY22e EBITDA forecast by 13% to factor in weaker Singapore mobile and Australia broadband earnings. Our target price for SingTel drops to S$2.32, following lower associate valuations.
- We value SingTel’s core Singapore and Australia businesses at 6x EV/EBITDA (S$0.77 per share) and associates (S$1.55) at marked-to-market valuations with a 20% discount to reflect volatility in their share prices.
- See
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2021-05-31
SGX Stock
Analyst Report
2.32
DOWN
2.440
