• BUY this preferred sector pick, SOP-based TP of SGD3.30, 34% upside with 5% forward dividend yields. Singtel’s 3Q/9MFY23 (Mar) results were light against our forecast (consensus miss) on weak regional currencies. The lifting of China borders, closure of Optus’ cyber security incident (contained in 3QFY23), scaling up of NCS and continued robust Airtel growth should fuel a robust FY23-25F core earnings CAGR of 14%, with dividend upside from asset recycling. Our TP has a 6% ESG premium bolted in. Downside risks: Competition, underperforming earnings and continued FX woes.

• FX weakness and NCS investments mask robust associate showing. Overall results reflect the FX weakness for AUD and regional currencies, and extended investments in NCS. This was partially offset by stronger associates and the recovery in roaming revenues. 9MFY23 core earnings of SGD of SGD1.56bn (+7.4% YoY) made up 70% of our forecast (consensus: 67%). 9MFY23 consolidated revenue fell 5.1% but would have improved by some 5% on constant currency (excluding National Broadband Network or NBN migration revenue and Amobee), mainly from a stronger Optus (+2.2% in AUD terms) and NCS (+18%). Associate share grew 13.3% in 9MFY23 (+18% on constant currency) with Airtel (+109% YoY) as the key standout. We retain our forecast as the AUD/SGD has rebounded c.4% from Oct 2022, lows and on expectations of a further recovery in roaming revenues.

• Singapore consumer 9MFY23 EBITDA up 11%, Optus cyber-attack issue looks to be behind. Consumer revenue rose 11.4% QoQ on revenue seasonality and roaming recovery (c.65% of pre-pandemic levels) with EBITDA up 12.2%, helped by the cessation of EPL content. Mobile service revenue has normalised to 1Q20 levels (on an absolute basis), up 14% YoY in 3QFY23 (YTD: +11.8%) with travel restrictions lifted (with the exception of China which removed border controls in mid-Jan) and higher 5G adoption which mitigated competition from SIM-only plans. Prepaid revenue was also bolstered by the 5G service (launched in Aug 2022) with the benefit of the return of foreign workers. Optus mobile service revenue grew 4.4% YoY (9MFY23: +3% YoY) on roaming recovery and positive impact of the 2QFY23 repricing, which saw the 2.5% YoY list in postpaid ARPU. While postpaid base contracted 26k in 4Q22 (-65k at the peak following the data breach in late Sep 2022), subs net-adds have turned positive since mid-December, helped by the resumption in seasonal marketing activities. There were no further provisions (YTD: SGD142m) during the quarter for the data breach.

• NCS margin is set to improve. 3QFY23 revenue gained 21% YoY (9MFY23: +18%) with stronger contributions from new Australian assets, with digital revenue contribution at >50%. EBITDA fell 29% (9MFY23: -27%) on continued investments to shore up its digital capabilities. Profitability is, nonetheless, set to improve hereon – with ongoing repricing of services (to reflect higher staffing cost and inflation) and cost optimisation.

Source: RHB Research - 17 Feb 2023