• Maintain BUY and SOP-based TP of SGD3.55 from SGD3.37, 32% upside and c.5% yield. FY22 (Mar) core earnings rebounded (+11%) after four consecutive years of decline. The recovery thesis remains intact with the reopened borders fueling a rebound in roaming and mobile revenues. Singtel remains our preferred Singapore telco pick (FY22-24F CAGR: 22%) with the capital recycling and strategic business reset as catalysts. Our TP bakes in a 12% ESG premium, reflecting the exemplary sustainability efforts, which rank amongst the best regionally.

• Look beyond the earnings miss. Singtel’s FY22F (Mar) results fell short of expectations, at 93% of our forecast (consensus: 87%). Relative to ours, the deviation was largely on account of higher tax expense with revenue and EBIT meeting estimates (98-99%). Core earnings lifted 11% as higher associate contributions (+19%) and lower financing cost offset higher taxation against a 2% revenue slippage (flat if NBN migration revenue and Job Support Scheme (JSS) credits excluded). QoQ, core earnings fell 1% from lower EBITDA and revenue seasonality. A final DPS of 4.8 SG cents puts full year DPS at 9.3 SG cents/share – at the top end of its 60-80% guidance.

• Mobile revenue has turned the corner. Singapore mobile revenue was up 4.4% YoY, the third consecutive quarter of increase and +0.5% HoH (vs 1HFY22). Singapore consumer EBITDA (excluding JSS) was flat YoY in 1HFY22 on tight cost controls (FY22: +1%). We see a stronger recovery in the June quarter (1QFY23F) from stronger roaming (roaming traffic was at c.30% of pre-pandemic levels in 4QFY22) and prepaid sales as travel restrictions ease with the full opening of the Malaysia-Singapore borders from 1 Apr. Meanwhile, Australia/Optus mobile revenue consumer mobile revenue gained 6.7% YTD (2HFY22: +3.8% YoY) from higher adoption of the ARPU-accretive Choice plans while EBITDA (ex-NBN) jumped 19% YoY.

• NCS seeing improving pipelines. While pressure from the legacy carriage revenue continued, Optus enterprise EBITDA rose 19% in FY22 due to good cost discipline and mobile performance. NCS (Singtel’s regional digital arm) saw revenue gain 2.3% YoY in 1HFY22, albeit, EBITDA fell 6% (-2% excluding JSS) on higher staff cost related to the scaling up of digital talents. YTD, NCS EBITDA lifted 1.3% on 3.3% revenue growth, the latter driven by accelerated digitalisation in the enterprise (25% of revenue) and public sectors, with digital business making up 49% of revenue (FY21: 41%). Singtel sees incremental revenue uplift of c.SGD300m in FY23F from the recent acquisitions of Dialog and ARQ in Australia.

• Key risks are competition, execution of its strategic business reset, and weaker-than-expected earnings.

Source: RHB Research - 30 May 2022