Small bump on the road; still set for recovery
? 3QFY22 core NP (-1% yoy, -11% qoq) missed due to associate earnings.
? Weaker Group Enterprise earnings offset by Consumer and associates yoy.
? Reiterate Add with 14% higher TP of S$3.30. Singtel is our top SG telco pick.
9MFY3/22 results missed on lower-than-expected associate profits
3QFY22 core net profit (NP) eased 0.8% yoy to S$473m due to lower Group Enterprise earnings, higher Amobee loss and corporate costs. Qoq, it fell 11.1% on lower associate profits and higher corporate costs. 9MFY22 core net profit was a slight miss at 70%/65% of our/Bloomberg consensus FY22 forecasts, due to lower-than-expected associates’ earnings. 3Q reported NP included S$538m net gain on Australia Tower Network sale.
Stronger SG/AU Consumer earnings buffer Group Enterprise drop
Despite lower Job Support Scheme (JSS) credits, 3QFY22 Singapore (SG) Consumer EBIT rose 14.9% yoy (+7.6% qoq) due to a) 1.8% yoy mobile service revenue growth on higher 5G plan adoption, b) some roaming recovery, and c) cost savings, though device sales were hit by supply constraints. Group Enterprise EBIT (including Trustwave and NCS) was in line, down 7.4% yoy (+2.9% qoq) due to lower JSS credits, fewer ICT deals and NCS’s staff recruitment drive. Meanwhile, Amobee’s LBIT rose to S$17m from 3QFY21’s S$4m LBIT (2QFY22: -S$14m). Optus Consumer EBIT was better-thanexpected, up 8.4% yoy (+94.0% qoq), as steadier competition, good take-up of its Choice plans and lower costs more than offset lower NBN migration fees and weak device sales.
Bharti’s turnaround supports overall associates’ profit growth
3QFY22 associate profits (ex-SG) climbed 12.9% yoy, thanks to a turnaround in Bharti’s contribution to S$45m (3QFY21: -S$28m) on higher subs, average revenue per user (ARPU; upward tariff revisions) and EBITDA margin, partly offset by weaker performance at AIS (-11.4%), Globe (-27.4%) and Telkomsel (-6.4%; possibly due to higher tower leases) earnings. The latter two also led to associate earnings waning 6.2% qoq, partly cushioned by Bharti (higher ARPU) and AIS.
FY22-24F core EPS cut by 5-6%
Post-3QFY22, we cut FY22-24F core EPS by 5-6%, mainly after factoring in lower SG earnings (slower post-Covid-19 roaming recovery, lower device sales). We now see core EPS rebounding 13% yoy in FY22F, then rising 30%/17% yoy in FY23F/24F, driven by a) higher associate earnings (led by Bharti) due to easing competition, b) roaming revenue recovery, and c) higher Optus earnings (more rational competition, cost savings).
Reiterate Add with 14% higher SOP-based TP of S$3.30
Our SOP-based TP rises due to higher fair values for associates (+40 Scts), led by Bharti (+26 Scts; 20% discount to Bloomberg consensus TP). Re-rating catalysts: FY22-23F core EPS recovery, further asset monetisation, and expansion into higher growth business areas (e.g. regional data centres, digital banking). Its current share price implies FY22F EV/EBITDA of just 2.5x for Singtel SG and Optus. Key downside risk: price wars.