RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Fri, 3 Feb 2023, 11:31 AM


Singtel - 1HFY23- Dividend Boost; Keep BUY

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  • Keep BUY, new SGD3.30 TP (SOP) from SGD3.55, 26% upside, 4.7% FY24F (Mar) yield. 1HFY23 results were light relative to our and Street forecasts (40-41%) on FX weakness and higher interest expense. The pleasant surprise came from a special dividend. We see further core topline improvement, as roaming traffic regresses to pre-pandemic levels. Our ESG score is lowered to 3.3 from 3.6 post a recent cyber-security incident involving Optus with an adjusted 6% premium bolted to our TP. Singtel is our preferred sector pick. Key risks: Competition and earnings misses.
  • 1HFY23 core earnings ticked up 2.2% (+6% on constant currency terms) as stronger associate contributions (+11%) more than offset higher financing costs (revaluation losses from derivative asset) and FX weakness (AUD, THB, and PHP). Overall FX impact is manageable at -3% of 1HFY23 core earnings given the group’s diversified portfolio with 93% of debt on fixed rates. A special 5 cents DPS was declared (payable in two tranches) with surplus cash returned from the asset recycling programme. This comes on top of the interim 4.6 cents payout (76% of core earnings). Post 1HFY23 results call, we lower FY23F core earnings by 11% to reflect the weaker AUD and latest opex run-rate. FY24F-25F earnings were toned down 5-6%.
  • Mobile revenue is recovering well, but NCS’ profitability remains under pressure. Singapore and Optus mobile service revenue rose 10.4% and 2% in 1HFY23 (+1-2% QoQ) with Singapore roaming revenue at c.60% of pre- pandemic levels (1QFY23: 49%) and some benefits from the mobile price repair Down Under. We expect the positive momentum to continue with key upside risk from the (eventual) reopening of China’s borders (a key market). Optus EBITDA grew 2.5% YoY (+7.8% YoY ex-National Broadband Network or NBN migration revenue) on good cost management. While NCS revenue surged 20% YoY with maiden contributions from the newly acquired Australian ICT assets, EBIT fell 49% from higher depreciation, staff expenses, and investments in digital capabilities. Associate growth continues to be spearheaded by Airtel, which offset weaker contributions from Indonesia and Thailand.
  • Committed to winning back customer trust. A SGD142m provision (exceptional item) was booked for the late Sep 2022 cyber-attack on Optus together with SGD1bn in goodwill impairment (non-cash) from macro headwinds. Optus has re-started customer acquisition activities after suspending them earlier due to the incident, which saw personal data of 9.8m customers compromised. It has seen some stabilisation in churn post net disconnections in the “tens of thousands” (of >10m subs). We have reviewed our benchmark ESG score to factor in the cyber-attack, which has negatively impacted Optus’ brand franchise. Overall, our ESG premium was reduced to 6% from 12% with a moderated score for the social pillar.

Source: RHB Research - 11 Nov 2022

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Labels: Singtel

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Chart Stock Name Last Change Volume 
Singtel 2.54 -0.01 (0.39%) 21,958,700 

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