CGS-CIMB Research analysts Foong Choong Chen and Sherman Lam have kept “add” on Singtel with an unchanged target price of $2.90.
Foong and Lam’s report comes ahead of Singapore Telecommunications’ (Singtel) results for the 1HFY2022 ended September.
Singtel will be announcing its results for the period before the market opens on Nov 11.
The way Foong and Lam see it, Singtel’s associates Bharti, Optus and Globe have proven integral to setting the main telco on a sustainable earnings recovery trajectory, where their earnings could more than buffer weakness at Singapore and higher corporate costs.
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In their report dated Nov 5, Foong and Lam said that Singtel’s core net profit for the 1HFY2022 is expected to rise 12%-14% y-o-y to $940-950 million and 5%-6% h-o-h, due to growth at Bharti and Globe, and turnaround at Optus. This is broadly in line at 45%-46% with their forecast for the FY2022.
The pair also estimate that Singtel’s associate contribution climbed 22%-24% y-o-y, with Bharti believed to be a key driver.
Bharti’s positive contribution of $45-$50 million with lower interest cost was on the back of continued subscriptions and EBITDA margin improvements, coupled with Globe’s likely staged strong net profit growth on robust revenue made associate profits jump 15%-17%.
Optus returning to the black with a core net profit of $15 million-$20 million, from its core net loss of $22 million in 1HFY2021 (down 35%-52% h-o-h), is also likely fuelled by continued good traction for its Choice plans, more stable competition in addition to lower Covid-19-related costs (for marketing and staff) y-o-y.
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This comes against the backdrop of Singapore’s subdued earnings in 1HFY2022, where its core net profit fell 17%-20% y-o-y in lieu of a drop-off in Job Support Scheme credits, stiff mobile competition and higher depreciation on the 5G network rollout, partly offset by a turnaround in Digital Life earnings. Singtel’s core net profit, nevertheless, likely rose 7%-11% h-o-h on lower costs.
To this end, the analysts value Singtel’s associates at $2.51 per Singtel share.
The key downside risks for this sector include potential price wars, which would dent its revenue/net profit.
On the other hand key re-rating catalysts are the core earnings per share (EPS) recovery in FY2022, further monetisation of its assets and expansion into higher growth business areas such as regional data centres.
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Furthermore, Foong and Lam also noted that Grab-Singtel will likely start its Singapore digital bank operations in early-2022 while a Grab-led consortium (which Singtel is a part of) is a front-runner for a digital banking licence in Malaysia, to be awarded by 1Q2022.
In addition, in light of several data breaches in the past, Singtel has significantly built up its cybersecurity infrastructure evolving it into a crucial business opportunity, with its cybersecurity revenue growing from $86 million in FY2015 to $564 million in FY2021. This represents 8% of its Singapore service revenue.
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The analysts continue to choose Singtel as its top local pick. Singtel’s current share price implies an FY22F EV/EBITDA of 2.4 times for Singtel Singapore and Optus, and FY22-24F yields of 3.8%-5.8% p.a.
As of 4.57pm, shares in Singtel are trading at 0.78% down at $2.57 on Nov 10.
Photo: Bloomberg
