Cost optimisation efforts to show in 3Q
- We estimate 3Q core net profit was S$570m (+2% yoy) as absence of Trustwave losses was partially offset by weaker Optus and associate profits.
- Cost optimisation efforts should drive SG margin expansion in FY25F but Optus’s recovery could be subdued on potential churn and ARPU impact.
- Reiterate Add at a higher SOP-based TP of S$2.90 as we roll forward our valuation. Asset monetisation is a near-term catalyst, in our view.
3QFY3/24F: Removal of Trustwave losses, weaker associate profits
Singtel will report 3QFY3/24F results on 23 Feb. We estimate core net profit was S$570m (+4% qoq, +2% yoy), mainly driven by the divestment of Trustwave. We see revenue declining to S$3.6bn (+1% qoq, -3% yoy) as steady Singapore operations was likely dragged by weaker Optus (impact from network outage and weaker A$). We believe EBIT was S$299m (+7% qoq, +4% yoy), with removal of Trustwave losses partially offset by lower Optus contribution. Share of pre-tax associate profits should have dipped 3% yoy due to weaker Telkomsel (reduced stake) and AIS (higher interest expenses) contribution, and strengthening of S$ against assoc. currencies.
Decent SG growth but pace of Optus recovery could be bumpy
We see healthy Singapore EBITDA growth in FY25F (+7% yoy), premised on 1) realisation of cost synergies from ongoing cost optimisation initiatives, 2) growing NCS contribution supported by expansionary efforts and concerted cost optimisation, and 3) absence of c.S$110m in Trustwave losses. For Optus, while our channel checks indicate that mobile price hikes were conducted by some industry players in Jan-Feb 24, we remain cautious on the pace of mobile segment recovery given potential churn and discounts offered following its network outage in Nov 23. Optus underwent a Senate inquiry, with findings set to report at end-Feb 24; potential imposition of large fines/penalties remains an overhang on investor sentiment, in our view.
Healthy outlook for assocs to drive FY25-26F earnings growth
Heading into FY25F, we expect sustained market recovery to translate positively for assoc profits, particularly for those located in markets that underwent material consolidation (AIS, Telkomsel). We believe Bharti will remain a key earnings driver (c.20% of group FY25F net profit) on ARPU and market share gains, with potential for tariff hikes in 2HCY24F, in our view. That said, we trim our FY24-26F core EPS by 2-4% on lowered Bharti Bloomberg consensus estimates following its 3QFY3/24 results.
Reiterate Add: higher TP of S$2.90 as we roll forward our valuation
Reiterate Add as we see healthy FY24-26F earnings growth driven by associates and cost cuts. Re-rating catalysts: industry consolidation, further asset monetisation. Downside risks: large fines levied on Optus, intensifying competition affecting ARPU and subs growth, and prolonged FX headwinds impacting Optus and associates.
