CGS-CIMB Research is reiterating its “add” recommendation on Singapore Telecommunications (Singtel) with a target price of $3.20, as analysts Foong Choong Chen and Sherman Lam are expecting a “decent” 1QFY2023 for the group.
Singtel is expected to release its 1QFY2023 business performance update on Aug 24 and based on CGS-CIMB’s estimates and the reported results of the group’s associates, the analysts are estimating a 6%-9% y-o-y growth in core net profit to about $480-490 million, thanks to better associates’ earnings.
On a q-o-q basis, Foong and Lam are expecting a 3%-5% increase in core net profit, also due to better performance from associates, as well as improved profits from the consumer segment.
“1QFY2023 core earnings per share (EPS) likely formed 19%-20% of our FY2023 forecast,” writes the analysts in their Aug 18 report.
For the group’s consumer segment, which is likely to lead the group’s increase in core net profit and Ebit q-o-q, the analysts are estimating a y-o-y decline or about 5%-12% in the first quarter. The q-o-q increase is likely due to some depreciation normalisation, lower opex and recovery in roaming revenues.
Group Enterprise EBIT (including NCS and Trustwave) may have eased 15%-20% y-o-y, or 4%-9% lower q-o-q, due to lower margin in the carriage business, NCS’s higher staff cost and bigger Trustwave losses. The analysts expect Amobee to post LBIT of $10-15 million, broadly stable y-o-y but narrower compared to 4QFY2022’s LBIT of $28 million.
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At Optus, the group’s Australian arm, Foong and Lam expect consumer EBIT to fall some 30%-36% y-o-y as a drop-off in NBN migration revenue and higher depreciation more than offset mobile revenue growth (more rational competition).
“Nonetheless, this gauge may have jumped 1.4x-1.6x q-o-q off a low base, led by continued decent take-up of Optus’s Choice plans and cost containment,” they add.
As for the group’s profits from associates, the analysts are expecting an overall improvement in 1QFY2023, with an estimated 16%-19% y-o-y growth, underpinned by a four-fold jump in Bharti’s contribution to $80-85 million, thanks to higher subscriptions, as well as better ARPU and Ebitda margins.
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“While Bharti’s earnings were slightly soft, we see this as largely in line as Singtel’s earnings may rise more materially in 2Q-4QFY2023,” says the analysts.
Additionally, higher Telkomsel contribution, due to easing competition, despite the sale-and-leaseback of its towers, is expected to contributed to the group’s profits from associates.
On a q-o-q basis, the analysts think that associate earnings are likely to rise 2%-5%, thanks to stronger earnings at Telkomsel (positive seasonality, tariff optimisation since Feb 2022) and Globe (lower opex and interest cost). “We see Telkomsel’s earnings rising further in 2QFY2023 given it raised prices in Jun-Jul 2022,” writes the analysts.
While pending Singtel’s 1QFY2023 business update, the analysts are retaining their forecasts.
As at 10.10am, shares in Singtel are trading at $2.68.
Photo: Albert Chua/ The Edge Singapore
