Slightly below expectations; focus on improving core business
- 3QFY22 underlying net profit of S$473m (-1% y-o-y) was 6-7% below our expectations of S$500m-510m due to weaker than expected Telkomsel & Globe.
- Core underlying operating profit, a critical factor for the stock price and a reason for high holding company discount continues to improve
- Maintain BUY with unchanged TP of S$3.13 as we expect high holding company discount of ~40% to narrow.
3QFY22 underlying profit of S$473m masked sharp improvement in core underlying EBIT from Singapore and Australia
Source: Company
Associate post-tax contribution of S$332m (+13% y-o-y, -14% q-o-q) was 11% below our expectations as Telkomsel and Globe offset the gains from Bharti Airtel. Telkomsel was impacted by weak consumer spending amid COVID-19, price competition and drop in its legacy revenue. Globe was impacted by COVID-19 and devastating Typhoon Odette which hit the Philippines in Dec 2021. AIS’s contribution was also impacted by 8% depreciation of Thai Baht.
Source: Company
Core underlying operating profit, a critical factor for the stock price and a reason for high holding company discount continues to improve. The core business in Singapore and Australia, seems to be recovering well as reflected in underlying core EBIT of S$306m (+25% y-o-y, +22% q-o-q) led by broad-based improvement across Singapore and Australia. Core EBIT excludes National Broadband Network (NBN) migration revenue in Australia and Job support scheme grants in Singapore, which will be largely absent going forward.
Underlying core business EBIT has been improving quickly excluding one-offs like NBN migration fee in Australia and JSS grants in Singapore
Source: Company
9MFY22 underlying profit of S$1456m (+11% y-o-y) comprises 70% of our FY22F projection of S$2084m. Our FY2FF projections should still be achievable given that (i) Bharti Airtel will benefit from full quarter of its 18%-25% tariff hike effective from 26 Nov 2021 (ii) ongoing improvement in the core business in Singapore and Australia.
Maintain BUY with unchanged TP of S$3.13. High holding company discount of 40% mainly due to weakness in the core business is being resolved.