SingTel - OCBC Investment 2021-08-12: Broad-based Improvement

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

SingTel - Broad-based Improvement

  • Growth clocked across multiple business segments.
  • On track to divest up to 70% of Optus tower assets by 2H 2021.
  • Maintain Fair Value of S$2.89.

Recovery underway

  • SingTel (SGX:Z74) provided an encouraging 1QFY22 business update. The group’s revenue for the quarter grew 8% y-o-y to S$3.8b, or up 9% on an underlying basis excluding Optus’ NBN migration revenues. This came off the back of broad-based growth across the various business segments including Singapore Consumer, Australia Consumer, Group Enterprise, NCS, Trustwave and Amobee.
  • For Australia Consumer, we note increased mobile ARPU and service revenue, driven by higher penetration of Optus Choice plans. EBITDA for the quarter rose 11% y-o-y to S$997m due to the improvement registered in Australia, or 31% on an underlying basis excluding Optus’ NBN migration and Jobs Support Scheme (JSS) credits from the Singapore government. Specifically for Optus, EBITDA (in AUD) grew 12% y-o-y as a result of improved mobile postpaid ARPU, cessation of COVID-19 related customer fee waivers and rebates and lower bad debt provisions.
  • SingTel’s share of regional associates’ post-tax contributions rose 37% y-o-y to S$366m (or +41% in constant currency), largely due to the turnaround in Airtel’s results from the net loss clocked in 1QFY21 due to the strong mobile growth in India driven by customer growth and 4G upgrade. At the same time, Globe’s net profit was boosted by lower tax expense following a corporate tax rate reduction from March 2021.
  • Consequent to the strong operating performance from Australia Consumer and net profit contribution from Airtel, SingTel’s underlying net profit rose 31% y-o-y (or 33% y-o-y in constant currency terms) to S$451m.

Strategic initiatives to unlock value still need time to play out

  • We believe that time will still be needed for management to execute the various key strategic initiatives that were highlighted last quarter, and we remain particularly encouraged by management’s focus on increasing ROIC from mid-single-digit levels to low-to-mid-teens over the longer term.
  • SingTel remains on track with its plans to divest up to 70% of Optus tower assets by 2H 2021, which we believe could be a potential near-term catalyst.
  • We retain our fair value estimate of S$2.89 for now, having previously assigned an ESG premium as SingTel has scored well on a number of key issues relative to the industry average.
  • See

SingTel - ESG Updates

  • SingTel continues to institute strong Singapore, though retaining its skilled workforce could be key to maintaining that edge.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-08-12
SGX Stock Analyst Report BUY MAINTAIN BUY 2.890 SAME 2.890