Maybank Securities is maintaining its “buy” call on Singapore Telecommunications Z74 (Singtel) with a target price of $3.10, ahead of the local telco’s FY2024 ended March earnings, which is set to be announced on May 23.
“We expect Singtel’s associate earnings contribution in 4QFY2024 to grow 9% y-o-y/ 15% q-o-q. Singtel’s key associates’ core earnings in the March quarter increased by 13-29% y-o-y. However, Singtel-level contribution would be partly offset due to Telkomsel stake dilution and FX depreciation,” says analyst Hussaini Saifee.
Based on the associates’ results trend, the analyst expects Singtel’s FY2024 core earnings to be 3% below his expectation. However, he sees limited risk to DPS expectation of 11.8 cents for FY2024 (2HFY2024 DPS of 6.6 cents), translating to an attractive 5.5% annualised dividend yield.
This DPS expectation is slightly below Bloomberg consensus of 12.4 cents. “Based on our reading of associates’ delivery, assuming Singtel misses earnings by 3%, it can still meet our DPS expectation at a dividend payout ratio of 87%. To meet street DPS expectations, the payout ratio has to be about 91% and as such we see slight downside to the street’s FY2024 DPS expectations,” says Saifee.
Singtel’s official payout ratio is 70-90% of core earnings while management has indicated it expects to pay at the higher end of the range. The group’s balance sheet remains in a strong position with cash balance further boosted by the recent Bharti stake sale.
Associates driving FY2024 earnings
AIS’s core profit of THB 8.6 billion grew 28% y-o-y, 22% q-o-q and was 20% higher than Maybank’s forecast and consensus. Earnings growth was helped by strong costs control and should dispel any concerns about 3BB-acquisition-led earnings dilution.
Bharti’s core earnings grew 14% y-o-y, 18% q-o-q. Bharti’s India and South Asia revenues/EBITDA grew by a firm 13%/14% y-o-y, but partially offset by decline in Africa revenues/EBITDA owing to currency devaluation.
Telkomsel’s 1QFY2024 core earnings increased 18% y-o-y, 5% q-o-q, helped by Indihome-integration-linked synergies.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Globe’s core earnings grew 13% y-o-y, 35% q-oq-q, helped by a firm mobile revenue growth of 8% y-o-y and expanding GCash profitability (up 138% y-o-y and contributes 17% of Globe’s core earnings).
As at 11.50am, shares in Singtel are trading at $2.44.
