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1HFY22: Positive signs of earnings recovery

  • 1HFY3/22 core net profit rose 17% yoy (up 10% hoh) to S$983m, largely in line at 47% of our FY22F forecast (consensus: 44%).
  • Better Bharti, Globe and Optus earnings yoy, plus higher investment income, more than offset lower Singapore profits.
  • Reiterate Add with TP of S$2.90. Singtel is our top Singapore telco pick.

1HFY3/22 core net profit in line; up 17% yoy

1HFY22 core net profit rose 17.4% yoy (on constant currency: 19.1%) to S$983m, due to higher Bharti, Globe and Optus earnings and investment income (gain from derivative asset revaluation), partly offset by lower Singapore earnings. Hoh, core net profit rose 9.6% on better Bharti, Globe and Telkomsel performance. 1HFY22 core net profit was in line at 47% of our FY22F forecast (Bloomberg consensus: 44%), as consensus expects Bharti’s earnings to pick up substantially hoh in 2HFY22F. 1HFY22 DPS was 4.5 Scts (- 11.8% yoy, payout ratio: 76%). Singtel said it expects to pay dividends at the upper half of its 60-80% policy range for FY22, which is in line with our 75% payout assumption.

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SG Consumer EBIT stayed tepid; ex-JSS, Enterprise EBIT rose 13%

Singapore’s (SG) 1HFY22 core net profit fell 26% yoy. Consumer EBIT was down 15% yoy (-3% hoh) on higher depreciation (5G rollout) and drop-off in Jobs Support Scheme (JSS) credits (ex-JSS: -2% yoy). Meanwhile, Group Enterprise (including NCS and
Trustwave) EBIT fell 5% yoy (flat hoh) due to lower JSS credits (ex-JSS: +13% yoy) and continued decline in carriage services. Ex-JSS, NCS’s EBIT itself was up 13% yoy on revenue growth and increased mix of higher-margin services. These were partly buffered by 49% narrower yoy Amobee LBIT of S$25m, as advertising spend rebounded.

Optus returns to profitability on better mobile revenue & lower opex

Optus turned around to a 1HFY22 core net profit of S$36m (1HFY21: -S$22m; +16.6% hoh). Consumer EBIT rose 14% yoy, led by healthy 10% growth in mobile service revenue (good traction for its Choice plans, more stable competition) and lower Covid-19- related costs, which more than offset a A$158m yoy drop in NBN migration fees.

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Bharti was the key driver for associate earnings growth

1HFY22 associate contribution (in S$ terms) climbed 21% yoy, due to Bharti’s turnaround to S$49m profit (1HFY21: -S$89m; higher subs, ARPU and EBITDA margin) and 11% higher Globe earnings (revenue growth, lower corporate tax rate). Hoh, associate profits rose 15%, driven by Bharti, Globe and Telkomsel (easing competition since end-Mar 21).

Reiterate Add with unchanged SOP-based TP of S$2.90

We retain our forecasts for Singtel, and reiterate our Add rating with an unchanged TP. Key re-rating catalysts: FY22F core EPS recovery, further asset monetisation and expansion into higher growth business areas (e.g. regional data centres). Its current
share price implies an FY22F EV/EBITDA of just 1.9x for Singtel Singapore and Optus, and FY22-24F yields of 3.7-5.7% p.a. Key downside risk: price wars.