RHB Group Research's research team has kept its “buy” call and $3.30 target price on Singapore Telecommunications, with a series of positive drivers for the stock.
First, Singtel is set to enjoy a recovery in roaming revenue in the wake of the pandemic, as well as prepaid sales, as international travel resumes.
RHB notes that Singtel’s mobile service revenue for 3QFY2023 was up 14% y-o-y and that roaming revenue was already at 65% of pre-pandemic levels.
Most recently, with China’s reopening, the recovery momentum is seen to be more pronounced. The stronger numbers are expected when Singtel reports its 4QFY2023 ending March.
In addition, Singtel’s enterprise technology subsidiary NCS is seen to report better earnings as it charges more for its services and as it gains more scale.
“We see the repricing of services and solutions (inflation adjustments) mitigating the pressure on NCS’ earnings, which have been crimped by significant headcount investments to drive new capabilities and expertise,” says RHB.
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In 3QFY2023, NCS’s ebitda was down 29% y-o-y even though revenue was up 21% y-o-y, thanks to contributions from newly-acquired ICT assets in Australia.
Elsewhere, Bharti, Singtel’s largest and most valuable associate company, is expected to enjoy further earnings recovery.
Last but not least, with an active capital recycling strategy in place, RHB expects room for higher dividend payout.
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Since the middle of 2021, Singtel has realised proceeds of some $5.8 billion from sale of assets and while some of the money has been used to fund 5G mobile networks and other capex, there’s room for the company to pay out more dividends.
For 9MFY2023, Singtel has already declared an interim dividend of 4.6 cents, plus a special dividend of 5 cents to be paid out over two tranches. This brings the payout ratio thus far to 48% and RHB believes there’s room for the ratio to be raised to between 60 and 80%.
