• Maintain BUY and SOP-based TP of SGD3.55, 33% upside with c.5% FY23F (Mar) yield. Singtel’s recent investor day (SID 2022) offered insights on operational targets, NCS, and its regional data centre (RDC) plans. The asset recycling programme is sufficient to meet incremental 5G capex and growth initiatives with a good buffer for dividends. Price and market repair are near/mid-term catalysts, with enterprise and RDC as longer-term drivers. Singtel remains our preferred SG telco pick. Our TP includes a 12% ESG premium, with 20% of top management incentives tied to ESG KPIs.

• Singtel reaffirmed its high single-digit ROIC target (FY22: 5.4%). Its 5G and growth capex has been sufficiently met via proceeds from its asset recycling programmes (>SGD3.5bn raised to date) with a buffer for dividends. While there is no outright net debt/EBITDA target (FY22: 1.7x), it would look to further debt refinancing when the opportunity arises. The group’s investments and/or stakes in associates will be guided by ROIC and growth prospects of the markets.

• Price and market repair. A stronger recovery in mobile revenue is a foregone conclusion, with roaming revenue at 46-50% of pre-pandemic levels in 1QFY23 in Singapore and Optus (recovery at 90% by end-FY23). For Singapore, it believes a sensible move would be for the industry to raise prices, given inflationary pressures. The launch of its hybrid/challenger prepaid brand (Heya- SGD10/100GB) is timely, considering the target market of migrant workers (85% of pre-pandemic levels), value seekers and capitalising on rising 5G take-up (480,000, 12% of overall base). Optus notes the tier-2 market (>40 mobile virtual network operators) still saw fierce competition, notwithstanding the market price repair. Meanwhile, Bharti expects ARPU to reach INR300 by end-FY23F (1QFY23: INR183) on further price repair and data uplift, with downside risks from a slower-than- expected migration from feature phones to smartphones as a result of macroeconomic headwinds. AIS sees good potential to take market share, as its peers are distracted by the merger.

• Scaling up enterprise and RDC. The continued scaling up and investments in staffing will see enterprise headcount grow from 12,000 to c.20,000 (across the Asia-Pacific), albeit at the expense of EBIT in the medium term (1QFY23: -25% YoY). NCS is targeting SGD5bn in revenue by FY26 (FY22: SGD2.4bn) or a 21% CAGR, with 40% made up of enterprises/non-government. This is to be achieved via: i) End-to-end service offerings including digital services, ii) a shift away from public sector deals, and iii) doubling down on ex-SG markets (1QFY23: 11%).

• Key risks are competition across Singapore, Australia, Thailand, Indonesia and India (Airtel), 5G monetisation challenges and weaker-than-expected earnings.

Source: RHB Research - 7 Sep 2022