- Keep BUY, with new SOP-based SGD3.40 TP from SGD3.30, 34% upside and 4% FY24F (Mar) yield. FY23 results missed on AUD weakness, albeit. with the highest DPS payout since FY19. With FY23 return on invested capital (ROIC) rising to 8.3% (FY22: 7.3%), management has set a new low double-digit target in the medium term. We cut FY24F- 25F core earnings by 2-5% post results call, with FY26F introduced. Our TP (inclusive of a 6% ESG premium) is lifted slightly after updating the valuations of associates. Singtel remains our sector preferred pick.
- A miss on FX, albeit, good operational showing with ROIC at 8.3%. 4QFY23 core earnings of SGD489m (-12.5% QoQ, +4.4% YoY) brought FY23 core earnings to SGD2.05bn (+7% YoY), at 90% of our forecast (consensus: 93%) with the key deviation coming from the weaker AUD (-6% YTD). Group revenue and EBITDA fell a marginal 5% and 2.2% YTD with stronger EBITDA margin of 25.2% notched (FY22: 24.6%), largely on account of tight cost controls. The positive offsets were from associate contributions (+6.1% YTD) on Airtel’s outperformance and lower depreciation expense. A final DPS of 5.3 SG cents (FY22: 4.8 SG cents) puts full-year DPS at 14.9 SG cents (including special DPS of 5 SG cents), the highest since FY19 with ordinary DPS of 9.9 SG cents at the top-end of its 60-80% payout, ahead of our and market expectations.
- Roaming roars back. Singapore consumer revenue grew 5% YoY in 2HFY23 (+ 11.2% YTD) while EBITDA gained 15%. Mobile services revenue (MSR) jumped 12%, supported by a further recovery in roaming revenue (postpaid roaming revenue trebled YoY and is at 60% of pre-pandemic levels), higher migrant traffic which bolstered prepaid sales and stronger 5G adoption. Optus’ mobile revenue ticked up 3% on market price repair with EBITDA up 1% (+4% ex-NBN migration revenue). Meanwhile, NCS, Singtel’s digital ICT arm, saw 16% revenue growth in FY23 although EBIT fell 35% on higher staff cost and investments to boost its capabilities. It has nonetheless registered two consecutive quarters of EBIT growth on cost containment efforts, supported by a strong sales pipeline of SGD3.2bn.
- More asset monetisation to come. Singtel’s asset recycling has thus far netted >SGD6bn. We see scope for more cash to be returned (management targets for additional SGD6bn from further asset divestments (eg sale of Comcenter HQ and disposal of infrastructure assets such as data centres and satellites). Key risks are competition, FX weakness and weaker-than- expected earnings.
- ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.
Source: RHB Research - 26 May 2023
