• SingTel's 3QFY21 group EBIT (including regional associates’ PAT) likely fell 23-25% y-o-y (4-6% q-o-q) to S$605m-615m; in line/slightly ahead of our expectations.
• We see weaker earnings y-o-y from Singapore, Optus and Telkomsel, partly mitigated by smaller negative contribution from Bharti.
• Reiterate ADD on SingTel, with an unchanged SOP-based target price.

SingTel's 3QFY21 Earnings Likely Down Y-o-y But in Line/ Slightly Beat Forecast

• SingTel (SGX:Z74) will release its 3QFY21 (Oct 2020 to Dec 2020) business performance update on 11 Feb.
• Based on its associates’ reported results and our Singapore/Optus estimates, we estimate SingTel’s 3QFY21F group earnings before interest and tax (EBIT) (including regional associates’ profit after tax) fell 23-25% y-o-y to S$605m- 615m, mainly due to Singapore, Optus and Telkomsel, partly buffered by smaller Bharti losses. Q-o-q, we think the gauge slid 4-6% on weaker Singapore Consumer, Group Enterprise and Bharti performance.
• SingTel's 9MFY21F group EBIT was likely in line/slightly ahead at 82-83% of our FY21F forecast, on narrower-than-expected Bharti losses.

COVID-19 the Cause of the Y-o-y Drop in SG Consumer, Enterprise…

• Singapore Consumer EBIT likely fell 39-43% y-o-y due to the adverse impact of COVID-19 border closures (on roaming and tourist/migrant workers SIM card sales) and stiff mobile competition, and fell 18-23% q-o-q on lower Job Support Scheme (JSS) credits and seasonally higher marketing costs.
• We estimate SingTel's group Enterprise EBIT eased 7-12% y-o-y owing to
  1. ongoing declines in carriage services (higher margin) and
  2. COVID-19, which hit roaming and delayed ICT projects; and fell 6-11% q-o-q on fewer JSS credits in Singapore and potentially lower margin at Optus.
• Meanwhile, Digital Life's loss before interest and tax (LBIT) likely widened 10-17% y-o-y and 57-67% q-o-q (2QFY21 benefited from one-offs), in our view.

…& Optus Consumer; Lower Bharti Loss Lifts Drag on Associates

• We estimate 3QFY21F Optus Consumer EBIT plunged 53-57% y-o-y on
  1. lower mobile revenue (lower roaming, tourist/foreign student SIM card sales and data price competition),
  2. declining NBN migration fees and
  3. higher NBN-related traffic cost; but recovered 44-56% q-o-q on seasonally higher equipment sales as lockdowns were lifted in most states in Oct.
• We estimate SingTel's 3QFY21F associate profits (ex-Singapore, in S$ terms) may have risen 5-8% y-o-y, based on reported results. This will be mainly due to smaller share of Bharti losses at S$30m-32m (continued mobile subs and ARPU growth), partly offset by lower Telkomsel profits. q-o-q, associate profits may have eased 5-8% on wider share of Bharti losses (2QFY21 may have been boosted by one-off derivative gains), partly aided by higher contribution from AIS and Intouch.

Reiterate ADD With Unchanged SOP-based Target Price of S$3.10

• We maintain our earnings forecasts for SingTel, pending the release of its 3QFY21 results on 11-Feb.
• Significant core earnings per share recovery in FY22F and asset monetisation are potential re-rating catalysts. Its 15.2x FY22F EV/OpFCF is roughly in line with its 13-year mean, with decent FY21-23F yields of 3.1-6.2% per annum.
• Downside risk: price wars in its operating markets.

Source: CGS-CIMB Research - 9 Feb 2021