1HFY23F: Earnings likely rose but missed
- 1HFY23F core net profit likely rose 5-9% yoy and 9-14% hoh to S$1.03bn1.07bn but likely missed estimates at 41-43% of our FY23F forecast.
- Bharti was likely the sole driver of the yoy growth as earnings from TSEL, AIS and Singapore operations should have been weaker yoy.
- Reiterate Add with TP of S$3.20. Singtel is our top Singapore telco pick.
1HFY3/23F core net profit likely up yoy & hoh but may miss slightly
Singtel will release its 1HFY23 results on 10 Nov 2022. Based on its associates’ reported results and our estimates for Singapore, Optus and Globe, we estimate 1HFY23F core net profit rose 5-9% yoy to S$1.03bn-1.07bn, driven by growth at associates. Hoh, we believe core net profit rose 9-14% on improved associates’, Singapore and Optus performance. Although we see earnings further improving in 2H, 1HFY23F core net profit likely slightly missed at 41-43% of our FY23F forecast (Bloomberg consensus: 42-43%) as Bharti’s 1HFY23 tracked behind consensus. In addition, regional associate currencies and A$
further weakened vs. S$ in Oct-Nov. Assuming 75% payout ratio, Singtel could declare a 1HFY23F DPS of 4.7-4.9 Scts (yield: 1.9%).
Singapore earnings to stay subdued; Optus may be flat yoy
We think Singapore’s 1HFY23F core net profit eased 0-4% yoy, driven by i) softer enterprise EBITDA (continued decline in carriage services), ii) higher depreciation (5G network rollout), and iii) nil Job Support Scheme credits (1HFY22: S$4m), partly offset by deconsolidation of Digital Life (DL) losses. Hoh, Singapore core net profit likely rose 21- 26% on higher mobile revenue (roaming recovery), lower content cost and deconsolidation of DL. Meanwhile, we estimate Optus core net profit growth was flat yoy at S$30m-40m (up 17x hoh). While revenue and EBITDA should have been higher yoy, we think it was offset by higher depreciation and net finance cost.
Bharti likely the key driver for associate earnings growth
We estimate 1HFY23F associate contribution (in S$ terms) climbed 13-16% yoy, based on reported results and our estimates (for Globe). We believe Bharti was the key driver for this, with contribution nearly quadrupling to S$190m-200m (1HFY22: S$49m) on the back of continued subs, average revenue per user (ARPU) and EBITDA margin improvements. This should have been partly offset by lower earnings at Telkomsel (TSEL; down 3-5% yoy to S$345m-355m) and AIS (down 12-16% yoy to S$110m-115m). Hoh, we believe associate profits rose 12-15%, stemming from better performance at Bharti, Globe and TSEL (easing competition and seasonally stronger demand during Lebaran).
Reiterate Add with unchanged SOP-based TP of S$3.20
We keep our earnings forecasts for Singtel, pending the release of its results. Key re-rating catalysts: FY23-24F core EPS recovery, further asset monetisation and expansion into higher growth business areas (e.g. regional data centres). Its current share price implies FY24F EV/EBITDA of just 2.6x for Singtel Singapore and Optus, and FY23-25F yields of 4.5-6.3% p.a. Key downside risk: price wars, which will dent its revenue/net profit.