FY22: Earnings In Line; Building Momentum Into FY23
Singtel reported 5% yoy higher 2HFY22 core earnings of S$941m (-4% hoh), thanks to
strong performances in Optus consumers and India. FY22 core earnings are in line with
our estimates but below the street’s forecasts. Singtel is expected to fare well in FY23
with momentum in Optus consumers, higher prepaid and roaming with border reopening,
NCS’s double-digit growth trajectory and smart capital recycling – S$3b of potential asset
monetisation identified in the near term. BUY on weakness. Target price: S$2.90.
RESULTS
• FY22: In line with house, below consensus. Singapore Telecommunications (Singtel)
reported 2HFY22 core net profit of S$941m (+5% yoy, -4% hoh) as Optus continued to report
strong mobile performance especially in the postpaid segment and associate earnings jumped
24% yoy with the turnaround in Airtel. This brings FY22 core net profit to S$1,923m (+11%
yoy), in line with our expectations but 8% below street estimates.
• Sustainable dividend. Singtel proposed a final dividend of 4.8 S cent/share. FY22 DPS of 9.3
S cent/share represents 80% of core earnings payout. This translates to a net dividend yield of
3.4%. Management reiterated its mandate to pay between 60-80% of core net profit for FY23.
• Positive outlook. Building momentum into FY23 via: a) consumer business – strong
performance in Australia (ARPU-accretive Optus Choice Plans) and higher roaming from
border reopening; b) enterprise – ongoing digitalization to drive double-digit revenue growth
for NCS; and c) smart capital recycling – Singtel have identified around S$3b of potential
asset monetization in the near term. The cashflow from asset monetization will be channeled
towards advancing 5G advantages, data centre, Digibank and NCS.
• Inflationary pressure – Mindful of the risk. Singtel remains cognisant of higher opex and
will look towards cost discipline. In particular, energy rates are hedged and data centre utility
cost is being passed through. In addition, there is an ongoing workforce optimization and the
group is locking in network maintenance contracts
STOCK IMPACT
• Consumer. In Australia, mobile service revenue rose 4% yoy in 2HFY22 as a result of higher
penetration of Optus Choice plans. This led to higher EBITDA (+11% yoy) and doubled the
EBIT for 2HFY22. 2HFY22 subscribers: +273,000; ARPU: +3% yoy to A$31/month.
• In Singapore, 2HFY22 mobile service revenue rose 2% yoy with the return of roaming (+30%
yoy). Postpaid ARPU increased by S$1/month yoy to S$31/month, while Singtel maintained
subscribers this quarter, thanks to the rollout of 5G services.
• Enterprise. 2HFY22 revenue dropped 3% yoy on lower legacy carriage revenue, information
and communication technologies (ICT) revenue was stable.
• NCS experienced a 9% yoy increase in revenue with bookings amounting to S$1.4b. EBIT
and EBITDA (excluding Job Support Scheme) was down 2% respectively on the back of staff
costs due to scaling up of digital talent to support business growth.
EARNINGS REVISION/RISK
• None.
VALUATION/RECOMMENDATION
• Maintain BUY with a DCF-based target price of S$2.90 (discount rate: 7%, growth rate:
1.5%) as we roll over our valuation window to FY23. At our target price, the stock will trade at
13x FY23 EV/EBITDA (its five-year mean EV/EBITDA).
• Key re-rating catalysts include: a) successful monetisation of 5G, b) monetisation of data
centres and/or NCS, and c) market repair in Singapore and resumption of regional roaming
revenue.