Samantha Chiew Published on Fri, Aug 13, 2021

Singapore Telecommunications (Singtel) recently reported a net profit of $445 million for its 1QFY2022 ended June in its latest business update on Aug 12. This is in comparison to a net loss of $20 million last year, which was mainly due to restructuring costs and one-off costs from its associates Telkomsel and Bharti Airtel.

Operating revenue for the period increased by 7.5% y-o-y to $3.80 billion, as the group saw improvement across all its segments, with the exception of Singtel-originated business. The latter has been progressively transferred to Singapore since April 1 as part of the group’s restructuring.

With a positive start to its FY2022 period, analysts are upbeat on the stock as Maybank Kim Eng, UOB Kay Hian and RHB Group Research are keeping their “buy” calls on Singtel with target prices of $2.83, $2.75 and $3.00 respectively, as 1QFY2022 results were broadly in line with the research houses’ estimates.

For MKE, the stock remains its top pick within the telco sector. Analyst Kareen Chan says, “Overall, we are seeing green shoots emerging despite the challenging operating environment. Singtel could see sustained EPS recovery momentum, driven by: turnaround in Bharti’s profit; increase in ARPU from 5G plans; and return of roaming revenues with the gradual re-opening of travel borders.”

Chan expects a broad-based recovery for the group, and this can be seen as Singtel’s revenue has improved y-o-y across all business segments.

Furthermore, with 5G now widely in the market, 5G ARPU is rising and expected to continue so in both Singapore and Australia. Meanwhile, growth momentum of NCS remains on track, with digital, cloud, platforms & cybersecurity (31% y-o-y) making up 45% of its business revenue.

While keeping positive on Singtel, UOBKH is remaining cautious as it expects lower associate contribution (from Globe and Telkomsel) and higher tax expenses. With that, it has cut earnings forecasts by 8% for FY2022, 4% for FY2023 and 4% for FY2024. “For dividend, we assume a 60% dividend payout, in line with management’s guidance. This translates to a dividend yield of 4-5% for FY2022-2024,” says analyst Chong Lee Len.

Chong notes that some of Singtel’s near term focus includes repositioning Amobee and Trustwave. It will also be focusing on: capitalising the digital/IT growth trend via strategic partnerships; leveraging its infrastructure assets (data centres, towers and fibre) to unlock value; sweating its key assets; and investing in 5G for future monetisation. This is expected to help Singtel bridge the current market valuation gap as a conglomerate.

RHB Group Research continues to see value in the stock and expect core earnings to recover in FY2022 after four years of decline. It notices “green shoots” emerging in the group’s core mobile business after two consecutive quarters of decline, despite roaming and prepaid revenues remaining weak due to the lack of international travelling.

“Overall, a stronger recovery in mobile revenue is still contingent on the gradual relaxation of international travel into 2022 which would drive a meaningful rebound in roaming and prepaid sales,” says the research team.

RHB research team is also upbeat on the group’s enterprise segment, which has remained resilient. During the 1QFY2022 period, revenue for the enterprise segment was 4% y-o-y, led by a 7.5% increase in ICT revenue which offset a decline in carriage revenue. Specifically, NCS saw revenue grow by 5.7% y-o-y with previously deferred projects restored coupled with enterprise digitalisation efforts.

“NCS is pivoting to become an Asian B2B digital services provider with the focus on new and digital capabilities/solutions, cloud and cyber security. We see potential for NCS to further scale-up its digital revenue streams, backed by new $473 million bookings secured, adding to the $1.3 billion inked in 2HFY2021,” says the research team.

As at 3.40pm, shares in Singtel are trading at $2.40, giving it a FY2022 price-to-book ratio of 1.3% with a dividend yield of 4.0%, according to RHB’s estimates.

Photo: The Edge Singapore/ Albert Chua