2H22F: Bharti’s turnaround to lift earnings
? 2HFY3/22F core net profit may have risen 8-9% yoy to S$970m-980m
(steady hoh). Based on this, we expect Singtel to meet our FY22 estimates.
? We see a turnaround in share of Bharti’s earnings based on reported results.
? Reiterate Add and TP of S$3.30. Singtel is our top Singapore telco pick.
2HFY3/22F core net profit likely rose 8-9% yoy & met our forecast
Singtel will release its 2HFY3/22 results on 27 May. Based on its associates’ reported
results and our estimates for its Singapore and Optus operations, we believe Singtel’s
2HFY22F core net profit came in at S$970m-980m, up 8-9% yoy (steady hoh). This is
mainly due to Bharti’s earnings turnaround, and to a smaller extent, higher earnings from
Singapore and Optus. Based on Singtel’s earlier announcements, its reported 2HFY22
results may be boosted by gains on sale of its 70% stake in Australia Tower Network
(S$538m) and 1.6% stake in Airtel Africa (S$34m). FY22F core net profit may have risen
12-13% yoy to S$1.95bn-1.96bn, meeting our forecast. We expect Singtel to declare a
2HFY22 DPS of 4.4 Scts, bringing full-year DPS to 8.9 Scts (75% payout).
Singapore’s & Optus’s earnings may be better yoy & hoh
We forecast Singapore’s 2HFY22F core net profit rose 1-5% yoy (up 2-6% hoh) to
S$250m-260m, or up 7-11% yoy ex-Job Support Scheme credits. This would be led by i)
higher consumer service revenue, plus ii) lower depreciation and net finance cost.
Meanwhile, we see Optus’s earnings contribution jumping 45-61% yoy (up 25-39% hoh)
to S$45m-50m. This would be due to higher mobile revenue, as well as lower marketing
and cost of sales, owing to the take-up of its higher-margin Optus Choice postpaid plans
and more rational competition. These should more than offset a) lower NBN migration
fees, and b) higher depreciation, amortisation and net finance cost, in our view.
Bharti’s turnaround to lift associates’ earnings contribution
We estimate 2HFY22F associate contribution (in S$ terms) to be up 16-18% yoy (up 2-
3% hoh), based on reported results. The main driver is a turnaround in its share of
Bharti’s profits to S$145m-155m (2HFY21: -S$9m), on continued growth in mobile subs,
average revenue per user (ARPU) and EBITDA margin, following tariff hikes in Jul and
Nov 21. Notably, a 130% qoq spike in Bharti’s 4QFY22 earnings bodes well for Singtel’s
FY23F. Meanwhile, share of Telkomsel earnings may fall 4-7% yoy to S$320m-330m due
to lingering effects from an earlier price war, declining legacy revenue and higher tower
lease cost (after transfer of 14k towers to Mitratel). However, we see earnings improving
as competition has further eased, with various players optimising tariffs in Mar-Apr.
Reiterate Add and SOP-based TP of S$3.30
We keep our earnings forecasts, pending the release of Singtel’s results. Potential rerating catalysts: FY22-23F core EPS recovery, further asset monetisation, and expansion
into higher-growth business areas. Its current share price implies an FY22F EV/EBITDA
of just 3.7x for Singtel Singapore and Optus. Downside risk: price wars.