On the verge of recovery
PATMI in line with expectations; Maintain BUY
3QFY22 core PATMI of SGD1,688m (+37% YoY) was broadly in line with street/slightly behind MIBG estimate, driven by the expansion of consumer business across Singapore and Australia. Associates’ pre-tax profits rose (+17% QoQ, 20% YoY) as Airtel demonstrated sustained profit turnaround with strong performance in both India and Africa. Our P&L forecasts are unchanged but we raise our SOTP TP to SGD2.98 after inputting higher valuation for regional associates. Singtel remains our Top Pick within the
telco sector. Re-iterate BUY call. We transfer coverage to Kelvin Tan.
Recovery proves challenging
9MFY22 consolidated group revenue fell to SGD3,913m (-7.7% QoQ) on lower NBN migration revenue and equipment sale while EBITDA rose 6.1% QoQ. Singapore mobile service revenue was stable with more adoption of higher ARPU 5G plans and higher roaming from increased international travel. Though Optus operating revenue fell 11% YoY, EBITDA rose steadily on healthy growth (+5.1%) in mobile. Group Enterprise operating revenue fell (-3.1% QoQ, -0.9% YoY) attributed to lower usage and pricing pressures
in its legacy carriage business. NCS’ revenue rose (6.4% QoQ, 8.3% YoY) driven by various growth engines (Digital, Cloud, Platforms and Cyber) which contribute 49% of operating revenue. NCS’ bookings amounted to a strong S$611m with a pipeline of projects in various sectors.
Regional associates continue to be resilient
Pre-tax contributions from the regional associates rose (16.4% QoQ, 19.6% YoY) driven by Bharti Airtel (BHARTI IN, CP: INR711, BUY, TP: INR890). Airtel posted robust mobile growth due to tariff hikes and a higher 4G customer base. Weaker Telkomsel’s performance (-3.4% QoQ, -0.4% YoY) was hampered by increased price competition and lags in its legacy business. AIS’ posted reduced pre-tax profits (-6.5% QoQ) due to 8% depreciation of the Thai Baht. Globe underperformed after devastation from Typhoon Odette and weaker consumer spending due to Covid-19.
Capturing digital growth
Operational revenue should improve further as associate earnings recover from lockdowns and as economic conditions stabilise. Easing border restrictions should support the Singapore and Australia consumer divisions. Besides extending 5G leadership, the Group is focusing on i) building new businesses across Asia underpinning investment in digital banking in Indonesia and ii) collaborating with regional partners to develop their data centre expertise. We continue to see strong growth in data center services
as enterprises accelerate digital transformation. Singtel’s strategic investments should help to recycle capital and crystallise value from existing assets, allowing it to build future growth drivers, in our view.