Analysts from Maybank Securities and RHB Bank Singapore maintain their “buy” calls for Singapore Telecommunications (Singtel) Z74 , even though the telco missed consensus expectations for the FY2023 ended in March, which they attribute to foreign exchange depreciation in the region.
Singtel reported a set of positive results for FY2023, where earnings were up 14% to $2.23 billion, compared to $1.95 billion a year ago, due to the strong performance of its core businesses, underpinned by robust mobile growth and price increases as international travel and roaming recovered, and 5G adoption and demand for information and communications technology (ICT) services rose.
Analyst Kelvin Tan from Maybank says that on a constant currency basis, profit after taxation and minority interests (patmi) would be in line with estimates. Tan has therefore kept his “buy” call with an unchanged target price of $3.10, while rolling forward the telco’s valuations to FY2024.
Similarly, analysts from RHB note that the key deviation from consensus earnings for Singtel was due to a weaker Australian dollar, which fell 6% ytd. However, they note that Singtel has had its highest dividend per share (DPS) payout since FY2019, and have since raised their target price from $3.30 to $3.40, representing a 34% upside and 4% FY2024 yield.
RHB analysts say that Singtel has a “good operational showing” with a return on invested capital (ROIC) at 8.3%.
Although group revenue and ebitda fell by a marginal 5% and 2.2% ytd, a stronger ebitda margin of 25.2% was achieved, largely on account of tight cost controls.
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RHB analysts note that the positive offsets were from associate contributions (+6.1% ytd) on Airtel’s outperformance and lower depreciation expense.
“A final DPS of 5.3 cents (FY22: 4.8 cents) puts full-year DPS at 14.9 cents (including special DPS of 5 cents), the highest since FY2019 with ordinary DPS of 9.9 cents at the top-end of its 60-80% payout, ahead of our and market expectations,” they say.
Likewise, Tan from Maybank Securities says that historical data shows that ROIC has a positive correlation with Singtel’s share price, and as the telco continues to commit to lifting ROIC toa low double-digit within two to three years while improving core profitability and narrowing holding company discount, he believes the share price should react positively.
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Tan “continues to be encouraged by Singtel’s focus on reinvigorating its core business while capitalising on growth trends”, noting plans to scale regional data centres, expanding its footprint and digital banking products for GXS bank, and scaling up NCS, the telco’s digital ICT arm, to deliver sustainable dividends (+60% y-o-y) for shareholders.
Meanwhile, RHB analysts note that Singtel’s roaming demand has come back. Singapore consumer revenue grew 5% y-o-y in 2HFY2023, an additional 11.2% ytd, while ebitda gained 15%. Mobile services revenue jumped 12% supported by a further recovery in roaming revenue and higher migrant traffic which bolstered prepaid sales and a stronger 5G adoption.
They also note that Singtel’s asset recycling has resulted in more than $6 billion, and see scope for more cash to be returned as management has set targets for additional $6 billion from further asset divestments.
As at 3.13pm, shares in Singtel are trading flat at $2.47.
