CGS International is reiterating its “add” call on Singapore Telecommunications Z74 (Singtel) with an increased target price of $3.70 from $3.40, on the expectations that the group will see a strong 1HFY2025 ended September. The target price increase is based on higher Bharti and Intouch market values, as well as higher AIS target price.
“We estimate 1HFY2025 EBIT at $712 million (+23% y-o-y), indicating 2QFY2025 EBIT growth remained strong (+18% y-o-y) and ahead of full-year guidance due mainly to cost savings and absence of Trustwave losses (divested in January),” say analysts Kenneth Tan and Lim Siew Khee. Singtel’s results are expected to be released on the week of Nov 11.
The analysts also believe that the share of pretax associate profits for the first half period could come in flattish as stronger associate operating results are dampened by continued Singapore dollar appreciation against key currencies (mainly Indian Rupees and Indonesia Rupiah); elevated finance costs from Bharti Telecom (parent company of Bharti Airtel); and lower Telkomsel stake.
“All-in, we expect 1HFY2025 core net profit at $1.20-$1.22 billion (+7-9% y-o-y) and an interim DPS of 5.7 cents (1HFY2024: 5.2 cents),” say the analysts.
On top of that, the analysts are expecting Singapore margins to rise in 1HFY2025 as they think Singtel is channelling more of its opex cuts towards Singapore in FY2025, which should translate nicely into margin expansion for the segment as a whole.
Coupled with absence of Trustwave losses, Tan and Lim think 1HFY2025 Singapore EBIT margin could expand 2.7 percentage points (ppt) from the previous year. On the revenue front, they expect flattish y-o-y growth in 1HFY2025, with stronger NCS (backed by healthy bookings) and Digital InfraCo (price uplifts) offset by a slight decline in Singtel Singapore (lower legacy contribution, but helped by subs-driven mobile growth).
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Over in Australia, Optus-focused opex cuts (ongoing since Oct 2023) should continue bearing fruit in 2QFY2025. “We expect 1HFY2025 EBIT margin to grow 1.3 ppt y-o-y; cost outs, improved post-paid pricing and increased focus on higher-margin enterprise accounts are key margin drivers, while higher amortisation charges (commencement of 900 MHz spectrum licences) could weigh,” say the analysts, as they expect 1HFY2025 revenue to look weak, with an estimated 3% y-o-y decline. But they do note that this is mostly due to enterprise order book rationalisation.
Overall, Tan and Lim continue to like Singtel for its robust FY2024-FY2027 EPS CAGR of 12% and decent 5.3% yield.
As at 3.40pm, shares in Singtel are trading at $3.19.
