HSBC Global Research, UOB KayHian (UOBKH), Maybank Securities, RHB Bank Singapore, CGS International and Citi have maintained their “buy” calls on Singapore Telecommunications Z74 (Singtel), following the release of its 1HFY2025, ended September, results on Nov 13.
HSBC, CGSI and UOBKH have kept their target price unchanged at $3.65, $3.70 and $3.58, respectively.
Citi has kept its target price of $3.60, while RHB has a target price of $3.60 as well.
On the other hand, Maybank has lowered its target price from $3.70 to $3.65.
Key results
For the six months ended Sept, Singtel reported a 6% y-o-y growth in underlying net profit to $1.19 billion, forming 78% and 46% of RHB’s and UOBKH’s forecast, respectively.
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According to CGSI’s Kenneth Tan and Lim Siew Khee, this is “largely in line” with their forecasts, at 47% of their and Bloomberg’s consensus FY2025F estimates.
This was attributed to strong performance from Optus and NCS on the back of price uplifts and higher margins, lower operating costs from the group’s cost-out programme and robust revenue growth from Digital Infraco.
According to CGSI’s Tan and Lim, while NCS’s 1HFY2025 revenue came in “softer than expected” with just an increase of 3% y-o-y, the enterprise services unit of Singtel managed to eke out an operating profit margin (OPM) that has “outperformed meaningfully” as a result of cost optimisation and securing higher-margin projects.
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Separately, Optus’ ebit grew a solid 58% in 1HFY2025 and OPM reached 5.5% in 1HFY2025, ahead of CGSI’s estimate of 4.8%, driven by cost reductions and better Enterprise margins due to orderbook rationalisation.
Maybank’s Hussaini Saifee expects “the momentum of Optus’ mobile revenue to be sustainable and it has yet to reprice a chunk of postpaid customer base.”
This is supported by Citi analysts Arthur Pineda and Luis Hilado who note that more users are likely to migrate to new plans in the next quarter as previous price plans expire and mobile net subscriber addition have also normalised from the prior period’s challenges linked to network outages and cyber breach.
1HFY2025 core revenue grew 2% y-o-y, helped by Optus mobile which rose 4% y-o-y and data centres (DC) which grew 17% y-o-y.
Digital Infraco saw a 8.7% y-o-y increase in overall revenue, driven by Nxera, Singtel’s DC business, which saw ebitda grow 11.4% y-o-y from utility pass-through and strong capacity demand.
Maybank’s Saifee expects growth to reverse in 2HFY2025 and accelerate only once the new DC facilities ramp-up in 2025 to 2026.
As such, management has revised up FY2025 ebit guidance to “low double-digit growth” from “high single-digit to low double-digit growth”, previously.
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Dividends
Singtel declared a higher 1HFY2025 interim dividend of 5.6 cents per share and a value realisation dividend (VRD) of 1.4 cents per share, taking total 1HFY2025 dividends to 7 cents, representing a 35% y-o-y increase.
Management notes that Singtel has identified about $6 billion of capital recycling in the medium term which UOBKH’s Chong and Llelleythan anticipates will come from “paring down its stakes” in regional associates and non-core fixed assets.
Singtel currently has $2 to $3 billion of excess cash after accounting for current growth initiatives and 5G capex.
UOBKH’s Chong and Llelleythan are of the opinion that the excess cash may lead to higher core dividends, towards the higher end of the group’s 70% - 90% underlying profit after tax and minority interest (patmi) dividend policy in 2HFY25.
Additionally, Chong and Llelleythan anticipate Singtel to pay a higher so-called value realisation dividend (VRD), potentially reaching the mid-to-upper end of its 3-6 cents per share FY2025 full-year guidance, assuming any potential divestment or stake sale in 2HFY25.
This VRD, as articulated by Singtel for the first time when it announced its FY2024 earnings in May, is derived from excess cash freed up from its on-going capital recycling efforts.
“Every $1 billion in cash would lead to a VRD of 5-6 cents per share, around additional 1.5% dividend yield,” Chong and Llelleythan add.
Similarly, HSBC’s Piyush Choudhary is cheered by the prospects of higher dividends.
“We estimate DPS to increase by 6.7% y-o-y in FY2025 to 16 cents and 6.3% y-o-y in FY2026 to 17 cents,” Choudhary adds.
Singtel Singapore
Within Singtel Singapore, 1HFY2025 operating revenue dipped 9% y-o-y, while earnings before interest, taxes, depreciation and amortisation (ebitda) was higher from cost efficiencies.
“Despite intense pricing competition and an ongoing market shift to lower-end plans, 1HFY25 mobile service revenue increased 4.1% y-o-y on the back of higher roaming and Internet of Things connectivity,” UOBKH analyst Chong Lee Len and Llelleythan Tan Yi Rong notes.
Due to stiff competition, postpaid average revenue per user (ARPU) fell q-o-q to $32 per month, while postpaid subscribers decreased 16,000 q-o-q.
Prepaid ARPU was stable q-o-q at $10 per month while subscribers remained largely stable.
Singtel’s associates
In Indonesia, Telkomsel’s profit after tax (PAT) fell 18% in 1HFY2025, although partially offset by the stronger performance at AIS, Glove and Airtel India which grew 10% - 20% y-o-y.
According to Maybank’s Saifee, notes that “similar to Singapore, management sees potential mobile consolidation in Indonesia is fuelling competition.”
“Indihome’s growth also softened, although management remains optimistic of it reverting back to growth as integration of Telkomsel and Indihome is almost completed and as Indihome rolls out new home passes,” Saifee adds.
Airtel is also expected to see the full quarter impact of the July tariff re-pricing in subsequent quarters.
Looking ahead
CGSI’s Tan and Lim expect Singtel Singapore’s y-o-y ebit growth to slow down in 2HFY2025 due to higher depreciation expenses and an absence of Trustwave losses in 2HFY2024F.
RHB notes that Singtel’s “management views the procurement of the 700MHz spectrum in Singapore as a key service differentiator with the launch of 5G on the band slated for early 2025, ahead of its rivals.”
HSBC’s Choudhary believes that Singtel’s strategic initiatives will lead to core business ebitda rising, reversing six years of decline.
Furthermore, he expects NCS margins to expand and data centre capacity to double in Singapore to 120 megawatts (MW) by 2026.
Thus, HSBC’s Choudhary forecasts Singtel’s ebitda to expand at a 4% compound annual growth rate (CAGR) to $4 billion by FY2027 and ebit CAGR of 9% to $1.5 billion by FY2027.
“We expect profits and dividends to rise, driven by growth in its core business and higher earnings from regional associates, supported by improving ARPU across countries. We expect underlying net profit to expand by 15% CAGR over the next three years,” HSBC’s Choudhary notes.
