Profit misses but dividend beats estimates
- 2HFY22 underlying net profit of S$941m (+5% y-o-y, -4% h-o-h) was 15% below our estimate due to weaker than expected Singapore and associates
- 2HFY22F dividend per share of 4.8scts beat our 4.5Scts estimate. This coupled with 1H22 DPS of 4.5Scts brought FY22 DPS to 9.3Scts (80% payout ratio).
- Maintain BUY with unchanged TP of S$3.13 as we expect high holding company discount of ~30% to narrow towards 10-15%
Core underlying operating profit was quite weak due to Singapore while Australia continued to recover. Core EBIT excludes National Broadband Network (NBN) migration revenue in Australia and Job support scheme grants in Singapore, which will be largely absent going forward. 1H22 underlying core EBIT (excluding associates) of S$454m rose 6% y-o-y but declined 12% compared to 1H22. Main culprit was Singapore consumer business. Underlying Singapore consumer EBIT declined to S$128m (-7% y-o-y) compared to , -15% h-o-h) compared to our expectations of S$165m mainly due to premium handset shortages, increased shift towards SIM only plans and longer replacement cycles. Underlying Australia consumer EBIT of S$122m (+100% y-o-y) compared to S$94m in 1H22 was inline.
Associate post-tax contribution of S$774m (+18% y-o-y, +3% h-o-h) was 8% below our expectations despite a solid Bharti. Bharti contributed S$198m profit in 2H22 compared to S$50m in 1H22 and S$9m loss in 1H21 in line with our estimates. However, this was partially offset by (i) Globe contributing only S$97m profit in 2H22 compared to S$136m in 1H22 and S$113m in 2H21. (ii) Telkomsel contributing S$342m in 1H22 compared to S$365m in 1H22 and S$345m in 2H21.
Outlook remains healthy across Singapore, Australia and India. Singapore should benefit from strengthening of prepaid and roaming revenue from return of foreign workers, tourists and uptake of 5G. Australia to continue to benefit from rising ARPU from rising take-up of Optus Choice plans offering 5G. Bharti is expected to grow its net profit by 60-70% in FY23F from rising ARPU. Indonesia should be largely stable due to consolidation in the mobile sector reducing the number of players.
Media reports claim that Singtel Group intends to sell a stake in Bharti Airtel worth up to US$2 billion to Bharti Telecom. Singtel’s 31.7% stake in Bharti is worth S$21bn based on the market price and comprises almost 34% of our Singtel’s valuation. Any partial sale could force investors to reduce the holding company discount (currently ~30%) on Singtel’s associate investments in our view if Singtel’s investments are more aligned with their market prices. Potential proceeds could be deployed in other growth areas like data-centre in our view Singtel has not commented on the rumours though.
its ney
Source: Company