• SingTel delivered 1QFY22 core earnings of S$451m, a 33% y-o-y surge on the back of the stable consumer landscape in Singapore, improved Optus performance and a turnaround at associate Airtel.
• While SingTel's 1QFY22’s core earnings were below our full-year forecast, revenue and EBITDA were in line. The discrepancy on our end stemmed from lower-than-expected associates and tax rates.
• We cut FY22-24 forecasts by 8%/4%/4% respectively. Maintain BUY on SingTel with a marginally lower target price of S$2.75.

SingTel's 1QFY22 Core Earnings Below Expectations…

• SingTel (SGX:Z74) reported 1QFY22 core net profit of S$451m (+31% y-o-y).

• We deem SingTel's 1QFY22 core earnings to be below expectations as it accounted for only 17% and 20% of house and the street’s full-year estimates respectively. The discrepancy on our end stemmed from lower-than-expected associate contribution and higher-than-expected tax rate in the quarter.

…but revenue and EBITDA were in line.

• That said, SingTel's 1QFY22 top-line and EBITDA were ccounting for 23% of our full-year forecast.

Stock Impact

• Consumer: Postpaid ARPU was stable q-o-q thanks revenue and EBITDA. Including NCS and Trustwave, enterprise revenue was 3% higher y-o-y. This was driven by higher ICT revenue on higher demand for data centres and cyber security services, offset by declining carriage service.

Earnings Revision

• We cut FY22-24 earnings forecasts for SingTel by yield of 4-5% for SingTel in FY22-24.

Valuation & Recommendation

• Maintain BUY with a marginally lower DCF-based target price of $2.75 (discount rate: 7%, growth rate: 1.5%) in tandem with the earnings cut. At our target price, SingTel will trade at 13x FY22F EV/EBITDA (5-year mean EV/EBITDA).
• SingTel's share price trades at 1 standard deviation below its 5-year mean EV/EBITDA of 13x.

• Near-term focus for Singtel. Besides to help SingTel bridge the current market valuation gap as a conglomerate.
• Key re-rating catalysts include:
  • successful monetisation of 5G;
  • faster-than-expected recovery in Optus’ consumer and enterprise businesses; and
  • market repair in Singapore.

Source: UOB Kay Hian Research - 13 Aug 2021