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Analysts remain positive on Singtel after 1Q earnings show 'decent start' to FY2023

Felicia Tan
Felicia Tan8/29/2022 09:33 PM GMT+08  • 5 min read
Analysts remain positive on Singtel after 1Q earnings show 'decent start' to FY2023
The Singtel building in Singapore. Photo: Samuel Isaac Chua/The Edge Singapore
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Analysts from CGS-CIMB Research, Maybank Securities, PhillipCapital, RHB Group Research and UOB Kay Hian are keeping their “add”, “buy” and “accumulate” calls on Singapore Telecommunications (Singtel) after the telco saw a “decent start” to the FY2023.

On Aug 24, Singtel reported a net profit of $628 million for the 1QFY2022 ended June, 41.3% higher y-o-y. This was driven by better associate earnings, as well as higher earnings from Optus and its Singapore consumer arm.

The quarterly core net profit was slightly higher than CGS-CIMB’s preview estimate of $480 million to $490 million due to the deconsolidation of Amobee, say analysts Foong Choong Chen and Sherman Lam. On a q-o-q basis, Singtel’s core net profit rose by 7%, slightly held back by a 1% q-o-q drop in associate earnings. Core earnings per share (EPS) for the 1QFY2023 formed 20% of Foong and Lam’s FY2023 forecast.

“We see this as largely in line as Singtel’s earnings may rise more materially in 2QFY2023-4QFY2023 (led by roaming recovery, Bharti and Telkomsel),” the analysts write.

Following the in-line results, Foong and Lam are keeping their forecasts and target price unchanged at $3.20.

“Singtel’s current share price implies FY2023 EV/EBITDA of just 3.4x for Singtel Singapore/Optus, with good 4.3%-6.0% yields per annum (p.a.) in FY2023-FY2025,” they write.

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Maybank Securities analyst Kelvin Tan has upped his target price estimate to $3.15 from $3.02 previously as Singtel’s core net profit stood in line with expectations at 25% of his full-year estimates. The telco remains Tan’s top pick within the sector.

In his report, Tan is forecasting for Singtel to deliver a three-year earnings CAGR of 15% from the FY2023 to FY2025.

“This reflects monetization of 5G in Singapore and Australia, potential divestment of Trustwave, double-digit NCS growth and regional associates benefitting from economic reopening,” Maybank’s Tan writes.

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“A regional data centre is also shaping up as Singtel aims to add another 100MW of capacity within three to five years to build a data centre portfolio with $8 billion valuation,” he adds. “Notably, Optus recently announced legacy price plan hikes of AUD4/month to adjust for inflationary pressure. This effectively lifts average revenue per user (ARPU) by 7%-10% for Singtel’s Australian consumer mobile business. We expect [an improvement in] mobile service ebit (+5.6% y-o-y) and ebitda margin growth (+2.8 percentage points y-o-y) in FY2023.”

Further to his report, Tan sees bright prospects for the telco.

“Core business segments in Singapore and Australia are gradually recovering following the resumption of foreign travel. Rising contribution from associates will further support earnings growth, making SingTel an exciting stock that offers a better mixture of growth (+15% y-o-y) and dividend yields above 4% in FY2023 – FY2025,” he says.

PhillipCapital analyst Paul Chew is also retaining his target price of $3.05 as Singtel’s 1QFY2023 results stood within his expectations.

He has, however, upped his FY2023 patmi estimates by 5% to $2.15 billion to account for the $129 million exceptional gain from Singtel’s dilution of its stake in Australia Tower Network (ATN) and the share of Airtel’s revaluation of foreign currency convertible bonds.

“Revenue and ebitda forecasts were modestly impacted by the removal of Amobee,” says Chew.

The analyst remains positive on Singtel’s prospects, with a recovery in earnings for the telco’s mobile operations.

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“[The] reopening of borders will drive roaming revenue in the Singapore and Australia consumer and enterprise segments; economic recovery post-lockdown in emerging markets of Thailand, Philippines and Indonesia. The weakness in the currency will be a near-term drag; [and] improving competitiveness and pricing power will elevate ARPU in India together with a larger migration of 4G customers,” says Chew.

Chew is also positive on Singtel’s disposal of its 3.3% stake in Bharti Airtel. The telco made the move on Aug 25, a day after it released its results.

“We view the disposal positively. It reflects the ability to realise gains from its portfolio of associates trading at a holding company discount and an opportunity for special dividends,” he writes.

The team at RHB Group Research are retaining their target price of $3.55 as they see a further improvement in roaming traffic and prepaid sales from Singtel’s 1Q results.

“Singtel remains our preferred telco pick on its positive earnings execution and the unlocking of latent value from asset monetisation exercises,” says the team. “A 6% environmental, social and governance (ESG) premium imputed into our TP reflects the group’s leading ESG traits.”

Finally, UOB Kay Hian analysts Chong Lee Len and Llelleythan Tan have retained their target price of $2.90 as Singtel’s earning stood in line with their estimates.

“At our target price, the stock will trade at 13x FY23 EV/ebitda (its five-year mean EV/ebitda),” they write.

To them, key re-rating catalysts include the successful monetisation of 5G, the monetisation of data centres and/or NCS, and the market repair in Singapore and resumption of regional roaming revenue.

Shares in Singtel closed 1 cent lower or 0.38% down at $2.64 on Aug 29.

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