SINGTEL (SGX:Z74)
SingTel - Operational Turnaround + Asset Divestments
- Australia business expected to recover in FY22F after making improvements in 2H21. Bharti’s earnings contribution is set to rise sharply.
- SingTel’s FY22F/23F earnings forecast cut by 6%/5% post-FY21 results to factor in a sluggish Telkomsel.
- Maintain BUY call on SingTel with higher target price of S$3.01.
SingTel's 2H21 earnings below our estimates
- SingTel (SGX:Z74)'s 2H21 underlying profit of S$896m (+7% sequentially, -22% annually) was 10% below our estimates. This was due to weaker-than-expected
- core business in Singapore, and
- Telkomsel and Globe contribution.
- Being the first results announcement of SingTel under the new CEO Mr Moon since he came on board in Jan 2021, we think this could be a part of kitchen-sinking exercise to provide him with a clean slate.
Can Optus improve in FY22F?
FY21 was a highly disappointing year for Optus.
- In FY21, Optus’ underlying profit fell by a whopping 98% to A$8m due to weakness in the Australia consumer business.
- Excluding National Broadband Network (NBN) migration fee, Australia consumer business dipped into red with an operating loss of A$21m in FY21 vs A$353m operating profit in FY20. This was mainly due to
- intense competition in the mobile business,
- pandemic-related expenses, and
- lower margins in the fixed-line business with migration to NBN.
…but there was a sharp 10% sequential improvement in Australia consumer revenue in 2HFY21.
- Excluding NBN migration fee, Australia consumer business reported a 2HFY21 operating profit of A$61m after reporting a loss of A$82m in 1HFY21. This was on the back of a 10% sequential improvement in operating revenue to A$3552m in 2HFY21. This was mainly driven by higher postpaid revenue arising from increased penetration of higher-ARPU Optus Choice plans, which come with unlimited data that is capped by fair usage policy and without any contractual obligation.
Optus’ price-hike in May 2021 might support the recovery further.
- In May 2020, Optus raised its SIM-only plans by A$6 across the A$35m to be received as NBN migration revenue in FY22
We tweak SingTel’s total core EBITDA by 5%/-2% in FY22F/23F.
- We expect SingTel's Singapore EBITDA to decline by 6% y-o-y to higher margins as well as an overall rebound in the Singapore telco sector.
- Australia EBITDA is expected to remain stable in FY22F, primarily led by the rising penetration of Optus Choice plans. Optus witnessed a turnaround in its consumer EBIT (exc. NBN) to S$36m (from S$16m in 2Q21), driven by the increasing penetration of Optus Choice plans that offer higher margins.
SingTel's core business trading at 77% below our fair value of 64 cents per share.
- The market value of SingTel’s associates is S$2.22 per share after dividend per share of S$0.085 & S$0.094 respectively based on 70% payout ratio.
- See
- Potential Catalysts include resumption of earnings growth after four years of decline and divestment of assets.
- SingTel’s earnings to benefit from stabilisation of core earnings before interest, taxes, depreciation and amortisation (core EBITDA) in FY22F (a 4% drop in FY22F after declining 16% in FY21) and a sharp rise of ~S$300m in post-tax earnings from Bharti,
- SingTel could divest assets – Optus’s towers and others – to unlock value based on true market value of those assets.
Sachin MITTAL
DBS Group Research
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https://www.dbsvickers.com/
2021-06-09
SGX Stock
Analyst Report
3.010
UP
2.93
