• SingTel's 2HFY21 core net profit fell 22% y-o-y but FY21 beat our forecast by 8%.
• Lower Optus, Singapore, Globe & Tsel profits were partly aided by Bharti.
• We reiterate our ADD call on SingTel with a 6% lower SOP-based target price of S$2.90.

SingTel's 2HFY21 Core EPS Fell 22% Y-o-y; FY21 Beat Our Forecast by 8%

• SingTel (SGX:Z74)’s 2HFY21 (Oct 2020 to Mar 2021) core net profit fell 22% y-o-y (+7% h-o-h) due to Telkomsel (Tsel), Optus, Globe and Singapore, partly offset by smaller Bharti losses.
• SingTel's FY21 core net profit slightly beat our forecast by 8% (key variance: smaller-than-expected Bharti losses) but missed Bloomberg consensus by 14%.
• SingTel's 2HFY21 dividend fell to S$0.024 per share (2HFY20: S$0.0545). FY21 dividend of S$0.075 per share (71% payout) was in line with our estimates.
• For FY22, SingTel guides for:
  1. regional associates’ dividends at ~S$1.3bn,
  2. capex at ~S$2.4bn (FY21: S$2.1bn) and
  3. 60-80% dividend payout ratio, which is within our expectations (75%).

Singapore Was Still Weak; Optus Turned Around to Profits H-o-h

• Singapore’s 2HFY21 core net profit fell 31% y-o-y (-25% h-o-h). Consumer EBIT was down 36% y-o-y on weaker Life LBIT to S$46m.
• Meanwhile, Optus’s 2HFY21 core net profit tanked 83% y-o-y to A$31m but saw a turnaround h-o-h (1HFY21: -A$23m). Consumer EBIT fell 60% y-o-y on lower NBN migration fees and higher traffic cost. Consumer mobile service revenue rose 1% y-o-y, with ARPU up 4%. Enterprise EBITDA grew 44% y-o-y (+15% h-o-h).

Telkomsel/Globe Dragged Associate Earnings; Bharti Improved

• 2HFY21 associate contribution fell 5% y-o-y. Telkomsel/Globe were the main drag on lower Bharti losses (1HFY21: -S$89m).

New Strategic Direction Offers Hope

• Key highlights of SingTel’s new strategic direction are:
  1. plans to expand NCS’s focus beyond satellites and fibre networks under its portfolio.

Reiterate ADD With 6% Lower SOP-based Target Price of S$2.90

• Our SOP-based target price for SingTel is reduced after we cut FY22-23F core earnings per share forecast on lower earnings from Singapore, Bharti (consensus) and Telkomsel (after Telkomsel’s 4Q20 results).

• Key re-rating catalysts: FY22F core earnings per share rebound and asset monetisation.
• Current SingTel's share price implies an FY3/22F EV/EBITDA of just 4.5x for SingTel Singapore and Optus, with decent FY22-24F yields of 3.9-5.9% p.a.
• Downside risk: price wars in its operating markets.

Source: CGS-CIMB Research - 28 May 2021