Singapore Telecommunications (Singtel) on Aug 15 announced its business update for 1QFY2025 ended June.
During the period, net profit was 42.9% higher y-o-y at $690 million, with a net exceptional gain compared to a net exceptional loss in the last corresponding quarter.
Underlying net profit was up 5.4% to $603 million and would have increased 8.7% in constant currency terms from strong core operating performance, partly offset by lower profit contributions from Airtel and Telkomsel.
Operating revenue was down 2.1% while EBITDA and EBIT rose 8.4% and 27% respectively with Trustwave’s deconsolidation from October 2023. In January 2024, the group completed the sale of Trustwave.
Optus’ mobile service revenue rose 4.7%, lifted by price increases from postpaid plans and a higher prepaid customer base. However, overall operating revenue declined 3.2%, reflecting lower ICT and project-based satellite revenues. With the improved mobile performance coupled with effective cost management, EBITDA was up 4.6%. EBIT rose 58% as depreciation and amortisation charges fell from a lower asset base. In June 2024, Optus paid $1.3 billion to acquire 900 MHz spectrum.
Singtel Singapore’s operating revenue was stable in a highly competitive market. Mobile service revenue was up 6.8%, mainly from growth in roaming and Internet of Things (IoT) connectivity given the strong traction in connected cars. The increase was negated by continued structural decreases in legacy carriage services especially fixed voice and data and Internet.
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On an underlying basis (in constant currency basis and excluding Trustwave’s contributions in the last corresponding quarter), operating revenue was stable while EBITDA and EBIT increased 5.6% and 16% respectively, mainly driven by growth in Optus and NCS.
NCS’ operating revenue was up 3.8% due to growth in its Gov+ and Telco+ businesses.
Digital InfraCo’s revenue grew 5.8%, driven mainly by Nxera from higher customer reservation fee, increased utility pass-through and price up-lifts, partly offset by lower fees from project-based satellite deployment services.
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“We had a solid start to FY2025 with improvements in our core businesses in Singapore and Australia and momentum in our growth engines in the first quarter. This helped mitigate lower contributions from our regional associates due mainly to significant currency headwinds in Africa. NCS recorded strong bookings and Nxera continues to expand its platform through a new data centre project in Malaysia, reflecting strong demand from digitalisation and AI adoption. Singtel also announced together with KKR an investment into STT GDC. These are positive trends as we execute to our Singtel28 growth strategy. Although the macroeconomic environment appears more challenging, we remain optimistic about the growth opportunities across our markets and are well-positioned with the resources and capabilities to capture them,” says Singtel’s group CEO Yuen Kuan Moon.
Analysts say
Following the results update, DBS Group Research is reiterating its “buy” call and $3.50 target price, as earning are slightly ahead led by the group’s core business.
Optus is benefiting from cost-cutting done in 2HFY2024 and tariff hikes done in May 2024 leading to a 5% y-o-y rise in mobile revenue to A$1.0 billion ($870 million). “We expect another tariff-hike at Optus in late FY2025 following Telstra’s 4%-5% hike in July 2024,” say the research team.
In line with Singtel’s guidance, DBS projects 10% growth in core EBIT, translating to about $100m million growth in core EBIT in absolute terms, which is likely to exceed given $82 million achieved in 1QFY2025. “We project value realisation dividend (VRD) of 4 cents in FY22025 vs Singtel’s guidance of 3-6 cents implying room for higher VRD from continued focus on additional divestments of $6 billion by FY2028,” say the research team.
Beyond this year, Singtel is expected to benefit from growth of its data-centre business (Nxera) in FY2026/FY2027 as it expands its current operational capacity of 62MW to over 155MW. NCS and Nxera comprise 12% of group EBITDA, and this could exceed 20% by FY2028. DBS also expects Bharti’s contribution to improve from solid operational growth while Telkomsel is expected to benefit from improving competitive environment.
Citi Research has also kept its “buy” call but trimmed target price to $3.60 from $3.70. This reflects changes in Telkomsel contributions and additional financing expenses on Bharti Telecom. While 1QFY2025 momentum had started softly owing to associates, analyst Arthur Pineda retains a positive view with healthy underlying profit momentum (+5% y-o-y/+9% in constant currency) for the period, while 6%-7% yield remains intact, providing downside support.
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Pineada is bullish on the group’s core businesses in both Singapore and Australia, expecting Australia to see better quarters ahead. Singtel’s new growth businesses are also doing better, ac contributions from NCS and Digtal InfraCo improved. However, associates lay on the softer side, pulled down by softness in Bharti, as a result of currency translation losses and higher financing expenses on its holding company, Bharti Telecom.
Management maintained guidance for FY2025 (high single digit/low double digit EBIT growth, 3-6 cents extra dividend on top of its normal dividend and $1.1 billion in associate dividend). “While we do note that 1QFY2025 is running well ahead of EBIT targets (+27%), the challenge lies primarily on the associate level. Associate dividends received as of 1QFY2025 ($0.8 billion) also provides confidence on Singtel’s own dividend,” says Pineda.
At the close of Aug 15, shares in Singtel gained 3.8% to trade at $3.02. In the past five days, the stock has grew 4.9%.
Maybank Research views this correction, from the group’s 9% decline since it went ex-dividend on Aug 1, as a buying opportunity, as fundamentals are unchanged and we are seeing a turnaround in its various businesses: Optus, SG Mobile and NCS margins.
Maybank has kept its “buy” recommendation and $3.40 target price, based on three catalysts: potential consolidation in Singapore; ongoing turnaround of Optus; and dividend visibility (prospective yield of 5-6%).
“As the interest rate cycle turns, we see Singtel, alongside its associates (AIS, Globe Tel and Netlink Trust), as potential beneficiaries as their dividend yield to bond yield spreads widen,” says analyst Hussaini Saifee in an Aug 12 report.
