SingTel - Phillip Securities 2022-11-14: Bharti Shines In Earnings & Dividends

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

SingTel - Bharti Shines In Earnings & Dividends

  • SingTel (SGX:Z74)'s 1HFY23 (Apr to Sep 2022) results were within expectations. Revenue and EBITDA were 48%/46% of our FY23e estimates. A special dividend of 5 cents was announced following the S$2.2bn proceeds from sale of Bharti stake.
  • Underlying earnings rose 2% to S$1bn supported by an 8% growth in associate earnings to S$813mil led by a turnaround in Bharti. There was a large drag in earnings from NCS with EBIT down 49% to S$53mil.
  • We maintain our FY23e forecast for SingTel largely intact. Our ACCUMULATE rating and SOTP-based target price of $3.05 for SingTel are unchanged.

SingTel's 1HFY23 – The Positives

Strength in Singapore consumer.

  • Singapore consumer segment grew EBITDA 10% y-o-y to S328mil.
    • Mobile enjoyed EBITDA expansion from a 12.6% y-o-y rise in ARPU as roaming revenue returned with borders re-opening. Roaming is around 60% of pre-pandemic levels. Penetration of roaming has risen as compared to using SIM cards of destination countries.
    • Revenue was impacted by a 21% decline in pay TV to S$74mil due to the cessation of EPL.

Turnaround in Bharti is still underway.

  • Bharti earnings spiked more than 3-fold to S$172mil. Improvement in earnings came from the 24% y-o-y increase in ARPU to Rp190 (S$3.2) and 9% y-o-y rise in 4G mobile customers to 210.3mil.

SingTel's 1HFY23 – The Negatives

Still a work in progress for NCS.

  • EBITDA for NCS declined 26% y-o-y to S$110mil. Part of the weakness was from post-acquisition charges in Australia such as staff retention and earnouts and overall higher staffing cost.

Losses in GXS Digital bank.

  • The digital bank associate registered a S$27mil loss in 1H23. Expectations are for break even in 2025 rather than 2027.
  • From a banker to everyone strategy, GXS will pivot to selected segment. Loans will be targeted to mobile devices and niche small medium enterprises. The advantage of GXS is the lower customer acquisition cost by embedding GXS into Grab and Singtel apps plus tapping on both customer bases.

Provisions in Optus.

  • There were two provisions made on Optus –
    1. goodwill impairment of S$1bn from higher WACC, lower Australian dollar and weaker economic outlook assumptions;
    2. A$140mil provision for the cyber attack based on independent review, credit monitoring services for impacted customers and replacement of customer documents.
  • It does not include potential class action (no notification so far) and penalties from pending investigations.


  • We expect a recovery in earnings for SingTel to be led by mobile operations in India and Singapore.
    • Singapore Consumer: Roaming will drive EBITDA growth in FY22e. Without EPL content cost, margins in payTV are expected to rise. Churn rates in pay TV have been lower than expected.
    • Optus: There has been a jump in consumer churn and flight to quality post the cyber attack. Other actions were the pause in marketing and customer retention activities.
    • Enterprise: Limited growth expected. Recovery in mobile services from roaming revenue will be offset by weakness in legacy fixed voice business. The new data centre in Tuas and Thailand in 2025 will be significant driver to EBITDA growth. Total capacity to expand from current 60MW to appr. 120MW over three years.
    • NCS: With ambitions to become a pan-APAC IT service provider, we expect sluggish earnings until FY25e. NCS is investing in headcount, especially in lower cost countries such as Vietnam and India.
    • Associate: Bharti will lead earnings growth in associates as ARPUs remain on an upward trajectory. Our expectations are improving economic conditions will support discretionary spending in prepaid mobile and ARPU for the other associates.

Maintain ACCUMULATE on SingTel with an unchanged target price

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2022-11-14