Lim Hui Jie Wed, May 25, 2022
CGS-CIMB Research has maintained its add call and target price of $3.30 on Singtel, expecting the telco’s FY2022 ended March results to meet estimates as it releases its results on 27 May.
Analyst Foong Chong Chen and Sherman Lam say that Singtel’s 2HFY2022 core net profit is likely to rise 8-9% y-o-y, meeting their forecast.
This is based on its associates’ reported results and CGS-CIMB’s estimates for its Singapore and Optus operations, and as such, they believe Singtel’s 2HFY22F core net profit will come in at $970 million- $980 million, up 8-9% y-o-y.
This is mainly due to Bharti’s earnings turnaround, and to a smaller extent, higher earnings from Singapore and Australia’s Optus.
Based on Singtel’s earlier announcements, its reported 2HFY2022 results may be boosted by gains on the sale of its 70% stake in Australia Tower Network of $538 million and 1.6% stake in Airtel Africa of $34 million.
Foong and Lam say full year core net profit for FY2022 may have also risen 12-13% y-o-y to about $1.95 billion, with meet their forecast.
They expect Singtel to declare a 2HFY2022 distribution per share (DPS) of 4.4 cents, bringing full-year DPS to 8.9 cents, which represents a 75% payout ratio.
For Singtel’s Singapore segments, Foong forecasts that its 2HFY2022 core net profit will rise 1-5% y-o-y and up 2-6% h-o-h to $250 million-$260 million, or up 7-11% y-o-y if Job Support Scheme credits were stripped out.
This would be led by higher consumer service revenue, as well as lower depreciation and net finance costs.
Meanwhile, the analysts expect Optus’ earnings contribution to increase by 45-61% y-o-y (up 25-39% h-o-h) to $45 million- $50 million.
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 lower NBN migration fees, and higher depreciation, amortisation and net finance cost.” Foong and Lam write.
Separately, they estimate that associates’ contribution to Singtel should be up 16-18% y-o-y, based on reported results.
The main driver, Foong and Lam highlight, is a turnaround in its share of Bharti’s profits to an estimated $145 million-$155 million, compared to a $9 million loss in 2HFY2021.
This is due to continued growth in mobile subs, as well as increased average revenue per user (ARPU) and EBITDA margin, following tariff hikes in July and Nov 2021.
The analysts point out, “notably, a 130% q-o-q spike in Bharti’s 4QFY2022 earnings bodes well for Singtel’s FY2023”.
Meanwhile, its share of Telkomsel earnings may fall 4-7% y-o-y to $320 million- $330 million due to lingering effects from an earlier price war, declining legacy revenue and higher tower
lease cost.
However, they see earnings improving as competition has further eased, with various players optimising tariffs in March and April.
Some potential rerating catalysts for Singtel are further asset monetisation, and expansion into higher-growth business areas. On the other hand, downside risks for Singtel are price wars between the company and its competitors.
As at 4.38pm, shares of Singtel traded at $2.64, with a FY2022 P/E ratio of 22.4 and dividend yield of 3.33%.