SingTel - UOB Kay Hian 2022-02-16: 3QFY22 Earnings In Line; Expect Stronger Footing

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

SingTel - 3QFY22 Earnings In Line; Expect Stronger Footing

  • SingTel reported firm y-o-y 3QFY22 core earnings of S$473m (- 11% q-o-q) as Optus had a good run (aided by postpaid ARPU uplift) and stable mobile service revenue in Singapore. This was partly offset by lower devices sales, softer enterprise revenue and higher finance cost. 9MFY22 core earnings is in line with our estimate but below the street’s forecast.
  • SingTel expects 2HFY22 dividend to mirror 1HFY22’s dividend of S$0.045.
  • Maintain BUY call on SingTel with a higher target price of S$2.90 as we roll over valuation to FY23.

SingTel's 9MFY22 core earnings in line.

  • SingTel (SGX:Z74) reported 3QFY22 core net profit of S$473m (flat y-o-y; -11% q-o-q) as Optus continued to report strong performance for mobile while benign competition in Singapore paved the way for stable mobile service in the quarter. Sequential weakness was due to:
    1. lower equipment sales caused by the global chip shortage,
    2. lower enterprise revenue (-3% y-o-y, -7% q-o-q) on a continuous decline in the legacy carriage business, and
    3. higher finance cost from higher tower lease liabilities in Australia.
  • SingTel's associate earnings was stable q-o-q and up 16% y-o-y thanks to a rebound in India’s and Africa‘s underlying performances. 9MFY22 core earnings of S$1.46b (+11% y-o-y) came in within our but below street’s expectations, accounting for 72% and 65% of full-year forecasts respectively.
  • Consumer: Dragged by lower devices sales. In Australia, mobile service revenue rose 5% y-o-y in 3QFY22 as a result of higher penetration of Optus Choice plans. This was partly offset by the lower nationwide broadband network (NBN) migration revenue (3QFY22: A$7m vs 3QFY21: A$72m) and lower equipment sales. This quarter saw a 3% y-o-y increase in ARPU for Optus postpaid to A$40/month (stable q-o-q) and a net addition of 36,000 postpaid subscribers. Prepaid ARPU was stable at A$20/month with 31,000 prepaid subscribers net additions this quarter.
  • In Singapore, 3QFY22 mobile service revenue was flat y-o-y, with stronger postpaid revenue (+4% y-o-y) and higher roaming revenue offset by lower prepaid revenue (-15% y-o-y) and lower equipment sales. Postpaid ARPU increased by S$1/month y-o-y and q-o-q to S$30/month, while Singtel added 16,000 postpaid subscribers this quarter, thanks to the rollout of 5G services. Prepaid ARPU eroded S$2/month y-o-y and q-o-q to S$13/month, while subscribers declined by 30,000 q-o-q.
  • Enterprise: Digital revenue grew 11% y-o-y. Enterprise revenue was down 3% y-o-y and 7% q-o-q due to the continued decline in the legacy carriage business. Stable information and communication technologies (ICT) revenue (mainly driven by higher demand for data centres and cyber security services) was partly offset by fewer ICT deals and lower fixed voice revenue. NCS experienced a 6% increase in revenue in 3QFY22 with bookings amounting to S$611m.
  • Digital: Trustwave recorded lower revenue and higher losses this quarter following the divestment of its payment card industry compliance business. We understand that the Trustwave business in North America is currently carved out and management is looking to divest it. Both assets have been de-emphasised following the write-down in Dec 21 (amounting to ~S$1b of impairment).

SingTel - Earnings forecast & Recommendation

  • SingTel's management expects 1HFY22 dividend to be at the upper range of its 60-80% dividend payout policy, mirroring the absolute dividend amount of 1HFY22. We have forecasted dividend of S$0.095 per share for FY22. This will translate to a dividend yield of 3.7%.
  • Maintain BUY call on SingTel with a higher DCF-based target price of S$2.90 (discount rate: 7%, growth rate: 1.5%) as we roll over our valuation window to FY23. At our target price, SingTel will trade at 13x FY23 EV/EBITDA (its 5-year mean EV/EBITDA).
  • See
  • Key re-rating catalysts include:
    • successful monetisation of 5G,
    • faster-than-expected recovery in Optus’ consumer and enterprise businesses, and
    • market repair in Singapore and resumption of regional roaming revenue.

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2022-02-16
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