RHB Group Research is maintaining its "buy" call on Singapore Telecommunications (Singtel) with a target price of $3.37, while keeping the stock as its preferred telco exposure.
In a Nov 12 report, the RHB research team says, "We expect a stronger 2HFY2022 ending March as the relaxation of travel restrictions should prop up mobile revenue. Airtel’s stellar performance should sustain, while the focus on the Asean B2B business and tailwinds from industry digitalisation initiatives will bolster enterprise revenue."
Singtel has reported earnings of $954 million for its half year ended Sept 30, double from the year earlier period, driven by better showing from its regional associates and improvements in the operating environment.
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Specifically, Singtel’s associate in India, Bharti, has shown signs of a stronger turnaround after being weighed down for years by stiff competition and other market-specific factors. The better bottomline was also because of the absence of one-off hits taken this time last year.
Revenue in the same period was up 3% y-o-y to $7.65 billion, led by higher mobile revenue in Australia and better showing by its ICT subsidiary NCS.
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Singtel's results were in line with RHB's expectations, at 47% of the research house's numbers with a stronger 2HFY2022 anticipated from the recovery in mobile revenue.
The research team notes that Singapore consumer mobile revenue remain steady in 1HFY2022 as higher 5G adoption was offset by weaker prepaid and roaming weakness. Mobile postpaid ARPU was up 12% y-o-y with pricing discipline upheld. A year into the launch, Singtel has over 200,000 5G subscriptions in Singapore, with about 1.5 million 5G-capable device customers in Australia.
While enterprise revenue grew 0.3% y-o-y in 1HFY2022, EBIT fell 1.1% as strong ICT revenue growth was offset by weakness in carriage (legacy) revenues.
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The research team believes that the group has placed a strategic focus on the enterprise segment. Singtel said a new 30- 40MW data centre (DC) will be built on a site adjacent to its existing cable landing station in Tuas, which will be ready in three to four years. Another 70MW in DC capacity is planned in Thailand and Indonesia as part of the regionalisation of its enterprise/B2B business. This would more than double existing DC capacity to over 170MW in five years.
Singtel is poised to ride a DC growth boom, as the Asean DC market is projected to grow at a 18% 2020-2025 CAGR to US$5.7 billion, with Singapore, Indonesia, and Thailand making up 76% of the market, according to the RHB research team.
Meanwhile, share of regional associates jumped 21% y-o-y in 1HFY2022, led by the turnaround in Airtel with double-digit expansion in revenue and EBITDA. This partly offset weaker contributions from Telkomsel and Advanced Info Service from the resurgence of Covid-19 cases. Singtel remains upbeat on the prospects in India with the positive ARPU accretion set to continue.
As at 11.10am, shares in Singtel are trading at $2.41 or 1.5 times FY2022 book with a dividend yield of 3.6%.
Photo: Bloomberg
