• We expect SingTel's FY22F/23F core earnings to recover 65.4%/19.3% y-o-y, led by a rebound in associate, Singapore and Optus net profits.
• We estimate FY22F/23F dividend of 12.2/14.5 cents (75% payout), backed by robust FCF/share of 12.4/14.1 cents and net debt/EBITDA of below 2.0x.
• Reiterate ADD on SingTel with an unchanged SOP-based target price of S$3.10.

SingTel Group's Core EPS to Recover in FY22F, Led by Associates…

• While SingTel (SGX:Z74)’s FY21 (Apr 2020 to Mar 2021) core earnings may fall 34.9% y-o-y (mainly due to COVID-19), we see it rebounding 65.4%/19.3% y-o-y in FY22F/23F, led by a recovery in associates (+91.1%/+18.1%), Singapore and Optus profits.
• Its share of Bharti’s FY22F/23F net profit could improve to S$446m/S$725m (FY21F: -S$484m) while Telkomsel’s net profit may rise 4.2%/6.9% y-o-y as competition stabilises and data usage continues to grow.
• We expect AIS’s (ADVANC TB) FY22F/23F net profit to grow 4.1%/7.2% y-o-y and Globe’s to inch up 3% p.a.
• If Bharti’s losses remain, SingTel’s FY22F/23F core earnings may grow at a more moderate 7.3%/13.5% y-o-y, in our view.

… and Improved Singapore & Optus Earnings

• We expect Singapore’s core net profit to recover 13.7%/17.9% y-o-y in FY22F/23F (FY21F: -27.6%) on the back of a projected recovery in mobile (international roaming, prepaid usage, device sales), digital life and enterprise revenues from the impact of COVID-19, partly offset by structural carriage declines and enterprise EBITDA margin erosion (lower contract value on renewals).
• For Optus, we forecast FY22F/23F core net profit to bounce 11.2%/66.4% y-o-y off a very low base in FY21F (-90.6% y-o-y). This will be driven by higher mobile (+4.6%/+0.4%) and enterprise revenues as we assume full recovery from COVID-19 in FY23F, coupled with cost-saving initiatives, which should more than buffer the drop in National Broadband Network (NBN) migration fee.

SingTel's FY22-23F Dividend to be Backed by Robust FCF/share & Balance Sheet

• In its 1HFY21 results release, SingTel said it will review its dividend policy at end-FY21. We currently assume FY22F/23F dividend of 12.2/14.5 cents (75% payout), backed by FCF/share of 12.4/14.1 cents and a net debt/EBITDA that falls from 2.1x at end-FY21F to a manageable 1.7x/1.5x at end-FY22F/23F. This may be further supported by potential special dividends from Telkomsel’s tower sales (we estimate proceeds to be S$266m) and Optus’s tower sales, which could raise at least A$2bn (as reported by Australian Financial Review in Mar 2020).
• We also think SingTel may declare a small special dividend after the tower sale (4 cents if 30% of these proceeds are paid out).

Reiterate ADD; SOP-based Target Price Kept at S$3.10

• Key re-rating catalysts: h-o-h earnings recovery in 2HFY21F and asset monetisation. SingTel's FY22F EV/OpFCF (full recovery year) of 15.6x is roughly in line with its 13-year mean, with attractive 3.1-6.0% FY21-23F yields.
• Downside risk: price wars in its markets, which will weigh on SingTel’s group revenue and earnings going forward.

Source: CGS-CIMB Research - 10 Dec 2020