Analysts from six brokerages have maintained their "add", “buy” or “accumulate” calls on Singtel, although they differ in their target prices.
PhillipCapital, OCBC Investment Research and RHB Group Research have raised their target prices on the stock to $3.05, $3.06 and $3.55 respectively, from their previous figures of $2.86, $2.98 and $3.37
On the other hand, UOB Kay Hian has maintained its target price at $2.90, while Citibank has trimmed its target price from $3.44 to $3.22. CGS-CIMB Research has also lowered its target price from $3.30 to $3.20.
For those who raised their target prices, PhillipCapital’s head of research Paul Chew said Singtel's FY2022 revenue met his expectations at 101% of estimates, although the telco’s EBITDA was at 93% of estimates due to lower-than-expected NBN migration earnings.
He also pointed to improving earnings in Australia, with mobile service revenue rising 4% y-o-y to A$1.84 billion ($1.8 billion), supported by average revenue per user (ARPU) and subscriber growth.
In addition, Optus mobile plans are gaining traction with customers for their more differentiated offering in terms of 5G speed, on-demand product features and improvement in customer service levels.
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However, he does highlight that despite this, total consumer revenue in Australia declined due to a drop in NBN migration revenue (down 83% y-o-y) and slower equipment sales (down 25% y-o-y).
Elsewhere, Chew notes a “huge reversal” in Bharti earnings, driven by a 23% rise in ARPU and a 12% increase in 4G subscribers in India. Airtel Africa also delivered a 24% improvement in EBITDA through subscribers and ARPU growth.
Despite its higher target price estimate, the research team at OCBC has deemed Singtel's results for the 2HFY2022 as a miss.
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The telco's underlying net profit stood 24% below the team's expectations. However, its final dividend per share, which brings its total payout ratio to 80%, is seen as a "prudent" approach to capital allocation moving forward.
"In terms of guidance, Singtel expects to incur $2.6 billion in capex in FY2023, and will be maintaining its dividend policy of paying out 60-80% of underlying profit," the OCBC team writes.
Further to its report, the team sees Singtel as being "well-positioned" to benefit from the reopening tailwinds.
This is given how Singapore and regional associate markets should benefit from increasing normalisation.
"We are also constructive on NCS as an important growth driver, though upside to EBITDA margins might be challenging given the cost involved in recruiting suitable talents," they add.
RHB notes the FY2022 core earnings rebounded after four consecutive years of decline. The recovery thesis remains intact with the reopened borders fueling a rebound in roaming and mobile revenues.
“Singtel remains our preferred Singapore telco pick, with an FY2022-2024 compounded annual growth rate (CAGR) forecast of 22% with the capital recycling and strategic business reset as catalysts.”
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The team believes that investors should “look beyond the earnings miss.” Saying that despite Singtel’s results coming in at 93% of its forecast, mobile revenue has turned the corner.
Singapore mobile revenue was up 4.4% y-o-y, the third consecutive quarter of increase and 0.5% higher vs 1HFY2022.
“We see a stronger recovery in the June quarter (1QFY2023) from stronger roaming and prepaid sales as travel restrictions ease with the full opening of the Malaysia-Singapore borders from April 1.”
UOB Kay Hian’s Chong Lee Len and Chloe Tan says Singtel is expected to fare well in FY2023 with momentum in Optus consumers, higher prepaid and roaming with border reopening.
This is in addition to NCS’s double-digit growth trajectory and smart capital recycling, with $3 billion of potential asset monetisation identified in the near term.
The analysts also call the dividend that Singtel paid out “sustainable”, with the 4.8 cents per share final dividend bringing the total distribution per share for FY2022 to 9.3 cents per share.
This represents 80% of core earnings payout and translates to a net dividend yield of 3.4%. Singtel’s management reiterated its mandate to pay between 60-80% of core net profit for FY23.
However, there will be inflationary pressure, the analysts say, but Singtel remains cognisant of higher opex and will look towards cost discipline.
In particular, energy rates are hedged and data centre utility cost is being passed through. In addition, there is an ongoing workforce optimisation and the group is locking in network maintenance contracts.
In contrast, Citi’s Arthur Pineda and Luis Hilado, who cut their target prices explained that there was “no denying the soft FY2022 close”, and called the results “admittedly weak”.
They say that Singtel’s 2HFY2022 faced across-the-board softness with mobility and travel restrictions in place across the region following the unexpected Omicron wave.
Regional associates had seen material pressure in FY2021-2022 with reduced pre-paid consumer spending owing to lockdowns. contributing to FY2022's earnings miss.
The anticipated roaming and enterprise recovery. which had been relevant for Singapore & Australia was also delayed given the travel restrictions/conditions.
However, they do see “light at the end of the tunnel,” as Singtel’s key markets have seen the benefit of local and international re-openings as they adopt endemic strategies and accept the limited risks from Omicron.
Pineda and Hilado say that associates in India and Indonesia are seeing material industry price uplifts.
In addition, both the Singapore segment and Optus indicated that while roaming contributions were soft, they have seen significant upticks in April, with usage returning to about 30% of pre-Covid levels from 1QFY2023.
Moreover, they note that the Malaysia border re-opening exercise will also drive pre-paid take-up, with over 200,000 foreign workers yet to return.
Singtel’s growth investments and capital activities to be visible into FY2023-2024, with NCS contributions forecasted to improve by $0.3 billion into FY2023 on its recent acquisitions alone.
Its data centre contributions will pick up with additional capacities locked in Singapore and regional JVs now established in Thailand and Indonesia, and Singtel says it expects to take in JV partners and about $3 billion in capital recycling opportunities to fund these.
Finally, CGS-CIMB analysts Foong Choong Chen and Sherman Lam have deemed Singtel's FY2022 earnings as in line with their estimates. The telco's dividend for the 2HFY2022 was also seen as a "positive surprise".
The analysts also see improving prospects in Indonesia on the back of easing competition, with various players optimising tariffs in March to April.
However, the analysts are less optimistic about Optus's earnings for the FY2023 due to a further drop off in NBN migration fees, plus higher depreciation and net finance costs.
While Foong and Lam see Singtel's core earnings per share (EPS) rising by 30% in the FY2023 and 22% in the FY2024, they have cut their core EPS estimates for the FY2023 by 2.4% to account for the lower projected earnings for its Singapore, Optus, Telkomsel and Bharti segments. The analysts have, however, upped their core EPS estimates for the FY2024 by 1.1%.
Re-rating catalysts, in their view, include a core recovery in the telco's FY2023 to FY2024 EPS, further asset monetisation and expansion into higher-growth business areas.
However, price wars in the telco industry could be a downside risk.
As at 2.09pm, shares of Singtel are trading at $2.64, with a FY2023 P/B ratio of 1.5x and dividend yield of 4.6%, according to RHB.
