SingTel - UOB Kay Hian 2021-05-28: FY21 Missed Expectations; Strategic Reset To Bridge Valuation Gap

SINGTEL (SGX:Z74) | SGinvestors.io 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

  • No changes to our earnings forecast for SingTel.
  • We cut our SingTel's FY22-24 dividend forecasts to $0.10 / S$0.1125 / S$0.125 respectively, in line with management’s guidance. We assume a 60% dividend payout. This translates to a dividend yield of 4-5% for SingTel in FY22-24.

VALUATION/RECOMMENDATION






Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2021-05-28
SGX Stock Analyst Report BUY MAINTAIN BUY 2.840 SAME 2.840



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