Highlights

SingTel - Defending Mobile Market Share; Reassessing Digital Life Businesses

Date: 24/05/2021

Source  :  UOB KayHian
Stock  :  SingTel       Price Target  :  2.84      |      Price Call  :  BUY
        Last Price  :  2.24      |      Upside/Downside  :  +0.60 (26.79%)
 


  • SingTel's 2HFY21 results are likely to contract to S$900m-1b in the absence of travel-related revenue and a challenging enterprise business environment. The Singapore telecoms landscape saw benign competition but ARPU was diluted by SIM-only plans.
  • We expect SingTel to continue to offer a 5% dividend yield as the S$1.21b exceptional item booked in FY21 was non-cash.
  • SingTel may sell its digital life assets as it reassesses its future path. Maintain BUY with a DCF-based target price of S$2.84.

SingTel's 2HFY21 Results: Still Not Out of the Woods…

  • We expect SingTel (SGX:Z74) to register 2HFY21 core net profit of S$900m-1b vs 2HFY20’s S$1.145b core net profit. The quarter is expected to be characterised by:
    1. absence of roaming and travel-related revenue,
    2. ARPU dilution in Singapore due to migration to SIM-only plans – similar trend seen in StarHub (SGX:CC3)’s 1Q21 results, despite stable market share,
    3. lower Nationwide Broadband Network migration revenue in Australia (as NBN network rollout nears completion),
    4. challenging operating parameters for Optus enterprise, and
    5. decline in digital legacy business.
  • This is expected to be partly offset by potentially stronger associate earnings due to stellar performances by Airtel in India and Globe in the Philippines.
  • SingTel's 2HFY21 results will be out on 27 May 21.

… as Singtel guides a net exceptional loss of S$1.2b for FY21.

  • SingTel announced on 14 May 21 that it is booking in SingTel guides that it expects to post net exceptional losses of S$839m in 2HFY21, bringing total exceptional losses to S$1.21b for FY21.
  • SingTel will provide further details on the group’s strategic direction and priorities when it announces FY21 results. The total impairment accounts for 3% of market capitalisation.

Stock Impact

Expect FY21 dividend of S$0.115 (5% dividend yield).

  • SingTel stressed that over 90% of the total exceptional charges of S$839m recorded in 2HFY21 were non-cash items. As such, the company expects its FY21 dividend payout to be tied to its underlying net profit, which excludes these one-off exceptional losses.
  • We maintain our FY21 net dividend forecast of S$0.115 per share (1HFY21: S$0.051 per share).

Strategic review to be completed by FY22.

  • In a move to diversify its traditional life businesses. The options include:
    1. restructuring of the product or business segments,
    2. full or partial divestment, and/or,
    3. business combinations.
  • SingTel is open to explore any strategic partnership with complementary capabilities to reset these businesses, with a timeframe of 12 months.

Optus impairment charges expected to ease from FY22 onwards.

  • Since 2017, we do not expect significant impairments to be booked from FY22 onwards.

Earnings Revision

  • No change to earnings forecast.

Valuation & Recommendation

  • Maintain BUY on SingTel with a DCF-based target price of $2.84 (discount rate: 7%, growth rate: 1.5%). At our target price, SingTel will trade at 14x FY22F EV/EBITDA (five-year mean EV/EBITDA). We believe the earnings weakness is largely priced in with current valuation as the SingTel trades at -1 standard deviation below its 5-year mean EV/EBITDA.
  • Key re-rating catalysts for SingTel include:
    1. reopening of repair in Singapore.

Source: UOB Kay Hian Research - 24 May 2021

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