SINGTEL (SGX:Z74)
SingTel - FY21 Missed Expectations; Strategic Reset To Bridge Valuation Gap
- SingTel delivered 2HFY21 core earnings of S$896m, improving 7% from 1HFY21 but down 22% y-o-y. FY21 core earnings of S$1.7b accounts for 92% of our full-year estimates, slightly missing expectations.
- SingTel has guided a dividend policy of 60- 80% core earnings payout in the near term to conserve cash for future growth. As such, we trim our dividend forecasts to $0.10 / S$0.1125 / S$0.125 for FY22-24, translating to 4-5% dividend yield.
- Maintain BUY on SingTel and a target price of S$2.84.
SingTel's FY21 results below house and street estimates.
- SingTel (SGX:Z74) reported a 2HFY21 core net profit of S$896m, an improvement of 7% from 1HFY21 but decreasing 22% from 2HFY20. This excludes exceptional items of S$1.2b for impairment in Amobee and Trustwave booked in 2HFY21. See SingTel's announcements.
- The weaker y-o-y earnings reflect:
- 10% y-o-y decline in Singapore mobile revenue,
- challenges in digital advertising space,
- margin compression from NBN and fixed line in Australia, and
- higher depreciation.
- This was partly offset by stable associate contribution, boosted by Airtel India and Africa.
- SingTel's FY21 core net profit of S$1,733m (-30% y-o-y) accounts for 92% and 86% of our and street’s full-year expectations repectively.
FY21 dividend below expectations.
- SingTel has declared a final net dividend of S$0.024 per share. This represents ~45% of 2HFY21 core PAT payout.
- SingTel's FY21 full-year net dividend of S$0.075 represents 71% core PAT payout, below our expectations. This translates to a 3% FY21 dividend yield. See SingTel's Dividend History.
Dividend policy at 60-80% of PAT to reserve cash flow for strategic investment.
- SingTel is guiding a 60-80% underlying net profit payout in the near term. Beside repositioning Amobee and Trustwave, SingTel will now be focusing on:
- capitalising the digital/IT growth trend via strategic partnerships,
- leveraging its infrastructure assets (data centres, towers and fibre) to unlock value,
- sweating its key assets, and
- investing in 5G for future monetisation.
- This is expected to help SingTel bridge the current market valuation gap as a conglomerate.
STOCK IMPACT
- SingTel's FY21 EBITDA margin fell 3ppt y-o-y to 24.5% due to:
- lower revenue as a result of the COVID-19 pandemic,
- continuous network investment, as well as
- lower margin from NBN and fixed-line revenue.
- This was partly offset by higher Jobs Support Scheme grants of S$107m in FY21 vs FY20’s S$50m.
- Positively, cost savings for FY21 amounted to S$386m, thanks to efforts to lower content cost through renegotiations and a lean cost structure via digitisation initiatives.
EARNINGS REVISION/RISK
VALUATION/RECOMMENDATION
- Maintain BUY on SingTel with a DCF-based target price of $2.84 (discount rate: 7%, growth rate: 1.5%). At our target price, SingTel will trade at 13.5x FY22F EV/EBITDA (five-year mean EV/EBITDA).
- We believe the earnings weakness has been largely priced into its current valuation as SingTel's share price trades at below its 5-year mean EV/EBITDA.
- See
- Key re-rating catalysts for SingTel include:
- reopening of economies towards 2022,
- successful monetisation of 5G,
- faster-than-expected recovery in Optus’ consumer and enterprise business, and
- market repair in Singapore.
Chong Lee Len
UOB Kay Hian Research
|
Chloe Tan Jie Ying
UOB Kay Hian
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https://research.uobkayhian.com/
2021-05-28
SGX Stock
Analyst Report
2.840
SAME
2.840
