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SingTel – earnings show recovery in motion 

SingTel reported its first half financial year earnings yesterday, which showed a 109.2% jump to $954 million from $466.1 million during the same period last financial year. Macquarie Research (MQ) believes SingTel’s latest earnings show recovery in motion and maintain their Outperform rating on SingTel shares. Despite a 12.7% rally in SingTel shares since July 2021, the year-to-date performance of SingTel shares at +11.7% continue to lag the STI’s +14.1% year-to-date increase. MQ’s 12-month target price is 9.5% higher than SingTel’s share price of $2.58 as of 10:00AM on 12 November 2021…

Below is an excerpt of the Macquarie Research (MQ) research report released on 11 November 2021:

Singtel (ST) reported its first half of financial year 2021/2022 (1HFY22 results) before market open yesterday. 

Impact

The good. 

Within Consumer, Australia was the standout. Optus was able to grow average revenue per user to A$40/mth (first half of last financial year: A$36/mth) whilst maintaining market share. Optus earnings before interest, tax, depreciation and amortisation (EBITDA) margin expanded as a result to 29% (first half of last financial year: 27%). Optus sees upside from both domestic and overseas reopening. 

Enterprise was another bright spot, led by NCS, which saw revenue up 4% YoY and bookings rise to S$1.1b (+43% YoY). Amobee returned to positive EBITDA on the back of higher advertising spend. 

Underlying segment EBITDA margin was either stable, or improved YoY. Headline EBITDA margin appeared softer year on year, but was largely due to the effects of higher government grants in the prior period coming off.

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The not so good. 

The lower dividend of 4.5 S cents came as a negative surprise. While SingTel’s management was confident of paying a final dividend on the higher of the 60-80% payout range (first half of this financial year: 76%), this will depend on second half earnings. This leaves some downside risk should the region see another unexpected outbreak. 

Regional associates ex Airtel were flat year on year, impacted by travel restrictions, but are expected to improve as travel resumes.

The interesting. 

ST reported more than 200k 5G customers, and continues to see strong take-up. Data centres, a more than S$250m revenue business, exhibited 20% YoY growth. ST announced plans to build a new cable landing station & 30 to 40MW DC in Singapore.

Action and recommendation

Reiterate Outperform. MQ sees value in SingTel, which continues to trade with a negative stub value despite improvement in its core business and associates.

MQ has a Target Price of S$2.83, based on a Sum of Parts methodology.