Encouraging scorecard; dividends still expected to be at upper half of policy range
• 3QFY22 underlying net profit forms ~21% of our forecast, broadly within expectations
• Remain constructive on process of unlocking value and capital recycling
• Maintain FV of SGD2.98
In-line results – Singtel’s 3QFY22 results were broadly within expectations. Group operating revenue fell 8% YoY to SGD3.9b due to lower equipment sales and NBN migration revenue. 3QFY22 underlying EBITDA (excluding Optus’ NBN migration revenues and JSS from the Singapore government) rose 6% YoY, which was boosted by traction in Optus Choice plans. Regional associates saw PBT rise 16% YoY to SGD469m due to the turnaround in Airtel, which went from a net loss in the same quarter a year ago to a net profit this quarter. We understand that strong operating momentum was registered in India and Africa, but these were partly offset by weaker performances in Telkomsel and Globe due to Covid-19. All considered, underlying net profit rose 13% YoY to SGD473m – this forms ~21% of our full-year forecast, which we deem to be broadly within expectations.
FV of SGD2.98 – Specifically for Singapore Consumer, operating revenue dropped 5% mainly due to lower mobile equipment sales revenue in light of supply constraints arising from the global chipset shortages, lower mobile connections and longer handset replacement cycles. Still, mobile service revenue was stable given the greater adoption of higher ARPU 5G plans as well as higher roaming from increased international travel being offset by lower voice and a decline in prepaid from a shrinking foreign customer base. Barring unforeseen circumstances, Singtel still expects to pay dividends at the upper half of its dividend policy range of between 60%-80% of FY22’s underlying profit. We remain constructive on Singtel and its process of unlocking value and capital recycling. The group has already disposed of 70%
equity stake in ATN in Nov’21, and there have been media reports relating to its Australian fiber assets on a potential sale, partnership with an investor or a sale and lease back. We believe that the group’s core businesses remain well-positioned to benefit from the reopening of economies over time, even though visibility is naturally limited at this juncture. We make no change to our estimates nor FV of SGD2.98 for now.
ESG Updates
As of September 2021, Singtel’s board lacked an independent majority, fully independent key committees, and an independent chairman. This structure, may undermine the board’s capacity to provide strong oversight of management and financial reporting practices. Further, risks highlighted by multiple controversies—related to its data security and business ethics practices—weigh on Singtel’s rating. Still, relative to industry peers, Singtel appears to have strong labor management programs. BUY. (Research Team)