SingTel - UOB Kay Hian 2021-08-13: 1QFY22 Earnings Below Expectations; Revenue & EBITDA In Line

SINGTEL (SGX:Z74)

SingTel - 1QFY22 Earnings Below Expectations; Revenue & EBITDA In Line

SingTel delivered 1QFY22 core earnings of S$451m, a 33% y-o-y surge on the back of the stable consumer landscape in Singapore, improved Optus performance and a turnaround at associate Airtel.
While SingTel's 1QFY22’s core earnings were below our full-year forecast, revenue and EBITDA were in line. The discrepancy on our end stemmed from lower-than-expected associates and tax rates.

We cut FY22-24 forecasts by 8%/4%/4% respectively. Maintain BUY on SingTel with a marginally lower target price of S$2.75.

SingTel (SGX:Z74) reported 1QFY22 core net profit of S$451m (+31% y-o-y). See SingTel's announcements. Key drivers were:
- improved Optus performance alongside an 11% AUD appreciation; and
- higher associate contribution (+33% y-o-y) amid a turnaround in Airtel.
We deem SingTel's 1QFY22 core earnings to be below expectations as it accounted for only 17% and 20% of house and the street’s full-year estimates respectively. The discrepancy on our end stemmed from lower-than-expected associate contribution and higher-than-expected tax rate in the quarter.

That said, SingTel's 1QFY22 top-line and EBITDA were ccounting for 23% of our full-year forecast.

Consumer: Postpaid ARPU was stable q-o-q thanks revenue and EBITDA. Including NCS and Trustwave, enterprise revenue was 3% higher y-o-y. This was driven by higher ICT revenue on higher demand for data centres and cyber security services, offset by declining carriage service.

We cut FY22-24 earnings forecasts for SingTel by yield of 4-5% for SingTel in FY22-24.

Maintain BUY with a marginally lower DCF-based target price of $2.75 (discount rate: 7%, growth rate: 1.5%) in tandem with the earnings cut. At our target price, SingTel will trade at 13x FY22F EV/EBITDA (5-year mean EV/EBITDA).
SingTel's share price trades at 1 standard deviation below its 5-year mean EV/EBITDA of 13x.
See
Near-term focus for Singtel. Besides to help SingTel bridge the current market valuation gap as a conglomerate.
Key re-rating catalysts include:
- successful monetisation of 5G;
- faster-than-expected recovery in Optus’ consumer and enterprise businesses; and
- market repair in Singapore.

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2021-08-13

SGX Stock Analyst Report BUY MAINTAIN BUY 2.75 DOWN 2.840