SingTel's FY21 Core Profit Met MKE’s Forecast, Maintain BUY

• SingTel (SGX:Z74)'s FY21 headline profit of S$553.7m (-48% y-o-y) missed MKE/ consensus estimates on the back of exceptional charges of S$1.2b, which includes non-cash impairment charges for investment in Amobee and Trustwave. Excluding the exceptional charges, core profit would have met our forecast but still missed street’s estimate.
• Our new SOTP-based target price for SingTel is trimmed by 4% to account for thinner EBIT margins and revised estimates by our various analysts covering its associate.
• Nevertheless, we see SingTel's new strategic direction – while mostly expected – as a positive with a focus on growth in 5G and ICT. ADD to this upside catalysts from a return of roaming revenue as vaccines progress. Maintain BUY.

Revenue in Line

• SingTel's FY21 consolidated revenue of S$15.6b (-5% y-o-y) met MKE/consensus estimates. The decline was driven by a tapering of Optus’ National Broadband Network (NBN) migration revenue, ongoing impact of COVID-19 and continued carriage erosion. EBITDA margin of 23.5% (-3ppt) met MKE/ consensus expectations.
• The narrower EBITDA margin was driven by higher mix of low margin NBN customers and lower roaming services. EBIT of S$1.1b came in a tad below our estimate on higher-than-expected depreciation. We have cut our earnings per share forecast for SingTel by 8-10% to account for these.

Regional Associates Continued to be Resilient

• Regional associates’ pre-tax contribution rose 4% to S$1.7b despite challenging operating landscape brought by SingTel has guided for regional associates’ dividends to be at S$1.3b, while capex (inc 5G networks) to be at S$2.4b.

5G and NCS: the New Growth Drivers for Singtel

• SingTel also annouced its new, long-term strategic direction. It aims to capture untapped 5G forward to more detailed plans on execution.

• Having said that, the strategic reset is a positive development as it provides the new CEO a clean slate to affect changes. As part of this, we think potential partial stake sales could include BHARTI and INTUCH. Nevertheless, SingTel is unlikely to exit any of its markets given that it is focusing on new growth projects through partnership with other market players.

Source: Maybank Kim Eng Research - 28 May 2021