SingTel - Phillip Securities 2022-08-29: Currency Drag This Quarter

SINGTEL (SGX:Z74)

SingTel - Currency Drag This Quarter

SingTel (SGX:Z74)'s 1QFY23 results were within expectations. 1QFY23 revenue and EBITDA were 24%/24% of our FY23e estimates. We removed Amobee from our forecast. It has been classified as a subsidiary for sale. There was a 4% headwind from Optus due to weaker AUD.

1QFY23 underlying EBITDA expanded 3% y-o-y (or up 5% in constant currency) to S$977mil, excluding NBN migration revenue and Amobee. Regional associates' earnings rose 12% y-o-y to S$411mil. The 6% depreciation in the Thai Baht and Philippine Peso also impacted earnings.
Our FY23e PATMI forecast for SingTel is raised 5% to S$2.15bn to account for the S$129mil exceptional gain from dilution of stake in Australia Tower Network and share of Airtel revaluation of foreign currency convertible bonds. Revenue and EBITDA forecasts were modestly impacted by the removal of Amobee.
Our ACCUMULATE rating and SOTP-based target price for SingTel are maintained at $3.05.
SingTel has announced a 3.3% stake in Bharti Airtel worth S$2.25bn to Bharti Telecom. The gain on sale for SingTel is S$0.6bn. We view the disposal positively. It reflects the ability to realise gains from its portfolio of associates trading at a holding company discount and an opportunity for special dividends.

Singapore consumer enjoyed a strong 11% y-o-y recovery in 1QFY23 EBITDA. We believe roaming revenue supported an 11% y-o-y (and q-o-q) rise in blended ARPU.
Earnings drag came from TV revenue, a decline of 14% y-o-y. Australia enjoyed a 6% y-o-y improvement in EBITDA excluding NBN. We believe the reopening of borders and relaxation of movement restrictions supported mobile revenue growth.

Despite a healthy 13% y-o-y rise in revenue in 1QFY23, NCS EBIT dropped 24.6% y-o-y. NCS is investing in higher headcount and higher staff costs which is significantly diluting margins. Group enterprise fared better with EBIT flat on a y-o-y basis. The pick-up in roaming, data centre and cybersecurity revenue is offset by the structural decline in voice revenue.

We expect a recovery in earnings for SingTel mobile operations:
1. Reopening of borders will drive roaming revenue in the Singapore and Australia consumer and enterprise segments;
2. Economic recovery post-lockdown in emerging markets of Thailand, Philippines and Indonesia. The weakness in the currency will be a near-term drag;
3. Improving competitiveness and pricing power will elevate ARPU in India together with a larger migration of 4G customers.
SingTel will dispose of a 3.3% stake in Bharti Airtel worth S$2.25bn to Bharti Telecom. The gain on sale for SingTel is S$0.6bn. We view the disposal positively. It reflects the ability to realise gains from its portfolio of associates trading at a holding company discount and an opportunity for special dividends. In SingTel's announcement, Bharti Enterprise said it will “work towards equalising their effective stake in Airtel over time”. This implies an opportunity for SingTel to further wind down its stake gradually either through the Bharti Telecom shareholding or by replicating a similar structure.
Note: Bharti Telecom is the largest shareholder of listed Bharti Airtel with a 35.4% stake. Major shareholders of Bharti Telecom are Bharti Enterprise (50.6%) and Singtel (49.4%). Post disposal, SingTel’s stake in Bharti Airtel is a direct 10.5% plus an indirect stake of 19.2%.

Our FY23e PATMI forecast for SingTel is raised 5% to S$2.15bn to account for the S$129mil exceptional gain from dilution of stake in Australia Tower Network and share of Airtel revaluation of foreign currency convertible bonds. Revenue and EBITDA forecasts were modestly impacted by the removal of Amobee.
Our SOTP-based valuation is based on 7x EV/EBITDA for SingTel’s core Singapore and Australia businesses, at S$1.15/share. SingTel's associates are marked to market at S$1.90/share after a 20% discount to reflect volatility in their share prices.
See

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2022-08-29

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 3.050 SAME 3.050