• SingTel reported 5% y-o-y higher 2HFY22 core earnings of S$941m (-4% h-o-h), thanks to strong performances in Optus consumers and India. FY22 core earnings are in line with our estimates but below the street’s forecasts.
• SingTel is expected to fare well in FY23 with momentum in Optus consumers, higher prepaid and roaming with border reopening, NCS’s double-digit growth trajectory and smart capital recycling – S$3b of potential asset monetisation identified in the near term.
• BUY on weakness.

FY22: in Line With House, Below Consensus

• SingTel (SGX:Z74) reported 2HFY22 core net profit of S$941m (+5% y-o-y, -4% h-o-h) as Optus continued to report strong mobile performance especially in the postpaid segment and associate earnings jumped 24% y-o-y with the turnaround in Airtel. This brings FY22 core net profit to S$1,923m (+11% y-o-y), in line with our expectations but 8% below street estimates.
• Sustainable dividend. SingTel proposed a final dividend of S$0.048/share. FY22 dividend of S$0.093/share represents 80% of core earnings payout. This translates to a net dividend yield of 3.4%. Management reiterated its mandate to pay between 60-80% of core net profit for FY23.

Positive Outlook

• Building momentum into FY23 via:
  1. consumer business – strong performance in Australia (ARPU-accretive Optus Choice Plans) and higher roaming from border reopening;
  2. enterprise – ongoing digitalization to drive double-digit revenue growth for NCS; and
  3. smart capital recycling – SingTel have identified around S$3b of potential asset monetization in the near term.
• The cashflow from asset monetization will be channeled towards advancing 5G advantages, data centre, Digibank and NCS.

Inflationary Pressure – Mindful of the Risk

• SingTel remains cognisant of higher opex and will look towards back of staff costs due to scaling up of digital talent to support business growth.

SingTel - Recommendation

• Maintain BUY stock will trade at 13x FY23 EV/EBITDA (its five-year mean EV/EBITDA).

• Key re-rating catalysts include:
  • successful monetisation of 5G,
  • monetisation of data centres and/or NCS, and
  • market repair in Singapore and resumption of regional roaming revenue.

Source: UOB Kay Hian Research - 30 May 2022