Comprehensive Analysis of Telco Companies: A Deep Dive

Broker Name: CGS International

Date of Report: November 5, 2024

Netlink NBN Trust

Netlink NBN Trust (NLT) has demonstrated resilience with a 1.1% year-on-year (yoy) growth in its Distribution Per Share (DPS) for the first half of the fiscal year ending March 2025 (1HFY25). The declared DPS of 2.68 Singapore cents is in line with expectations despite a core net profit decline of 3% yoy due to higher operating expenses (opex).

Financial Performance

NLT’s revenue and core net profit for 1HFY25 declined by 0.2% and 2.6% respectively, primarily due to lower ancillary project revenue. However, fibre connection revenue continued to grow yoy as higher connection numbers offset lower pricing. Excluding exceptional items such as PPE disposal gain and write-off, the core net profit was marginally lower due to increased operating costs, including staff and IT expenses.

Market Position and Future Outlook

With residential connection numbers reflecting a slight decline of 0.3% quarter-on-quarter (qoq) but a growth of 1.9% yoy, NLT anticipates ongoing quarterly fluctuations in connection numbers due to telcos promoting attractive upgrade plans for 10Gbps broadband. This increased churn is seen positively as it is likely to result in higher installation revenues for NLT.

Investment and Credit Metrics

NLT plans to maintain elevated capital expenditure (capex) at approximately S\$135 million in FY25F, investing in growing its regulated asset base, including a new central office, upgrades for a 10Gbps fibre network, and IT system enhancements. As of the end of September 2024, NLT’s net gearing was healthy at 25.3%, with 74.1% of outstanding loans at fixed rates and a low effective average interest rate of 2.7%.

Recommendation

CGS International reiterates an “Add” recommendation for NLT, with a Dividend Discount Model (DDM)-based target price (TP) of S\$0.95, based on a 6.85% cost of equity (COE) assumption. Potential re-rating catalysts include earnings-accretive acquisitions and stronger Non-Building Address Points (NBAP) connections growth. Downside risks involve margin pressure from higher operating expenses and unexpected increases in interest costs impacting profitability.

Indonesia Telcos

Indosat

Indosat (ISAT IJ) is recommended as an “Add” with a target price of IDR 2,670. The company boasts a market capitalization of USD 4,893 million and shows promising growth with a forward Price-to-Earnings (P/E) ratio of 15.2 for CY24F and 13.5 for CY25F. Indosat’s recurring Return on Equity (ROE) is expected to be 15.9% for CY24F and 16.3% for CY25F, with a dividend yield of 2.9%.

Telekomunikasi Indonesia

Telekomunikasi Indonesia (TLKM IJ) holds a “Hold” recommendation with a target price of IDR 3,050. With a market cap of USD 17,419 million, TLKM’s forward P/E ratios are 10.9 for CY24F and 10.7 for CY25F. The company’s recurring ROE is projected at 18.1% for CY24F and 17.3% for CY25F, and it offers a dividend yield of 5.9%.

XL Axiata

XL Axiata (EXCL IJ) is also rated as a “Hold” with a target price of IDR 2,350. With a market capitalization of USD 1,858 million, the forward P/E ratios stand at 16.1 for CY24F and 13.2 for CY25F. The company’s recurring ROE is estimated at 6.8% for CY24F and 7.9% for CY25F, with a dividend yield of 3.7%.

Malaysia Telcos

Axiata Group

Axiata Group (AXIATA MK) is recommended as an “Add” with a target price of MYR 3.67. The company has a market capitalization of USD 4,976 million. The forward P/E ratios are 33.8 for CY24F and 18.5 for CY25F. Axiata’s recurring ROE is projected at 3.0% for CY24F and 5.3% for CY25F, with a dividend yield of 4.2%.

CelcomDigi Bhd

CelcomDigi Bhd (CDB MK) is another “Add” with a target price of MYR 4.50. With a market cap of USD 9,119 million, the forward P/E ratios are 26.2 for CY24F and 16.1 for CY25F. The recurring ROE is expected to be 9.2% for CY24F and 15.0% for CY25F, and the dividend yield is 3.8%.

Maxis Berhad

Maxis Berhad (MAXIS MK) holds a “Hold” rating with a target price of MYR 3.90. The company’s market capitalization is USD 6,680 million, with forward P/E ratios of 21.2 for CY24F and 20.8 for CY25F. Maxis’s recurring ROE is projected at 22.9% for CY24F and 23.9% for CY25F, and it offers a dividend yield of 4.7%.

Telekom Malaysia

Telekom Malaysia (T MK) is rated as an “Add” with a target price of MYR 8.60. The company’s market capitalization is USD 5,747 million, with forward P/E ratios of 14.8 for CY24F and 13.1 for CY25F. Telekom Malaysia’s recurring ROE is estimated at 17.0% for CY24F and 18.3% for CY25F, and it provides a dividend yield of 4.0%.

Philippines Telcos

Globe Telecom Inc

Globe Telecom Inc (GLO PM) is not rated (NR) but has a significant market cap of USD 5,868 million. The forward P/E ratios are 15.5 for CY24F and 14.8 for CY25F. Globe Telecom’s recurring ROE is expected to be 15.6% for CY24F and 14.9% for CY25F, with a dividend yield of 4.4%.

PLDT Inc

PLDT Inc (TEL PM) holds an “Add” recommendation with a target price of PHP 1,500. The company’s market cap is USD 5,257 million, with forward P/E ratios of 8.7 for CY24F and 8.0 for CY25F. PLDT’s recurring ROE is projected at 29.6% for CY24F and 28.4% for CY25F, and it offers a dividend yield of 6.5%.

Singapore Telcos

Netlink NBN Trust

Netlink NBN Trust (NETLINK SP) is rated as an “Add” with a target price of SGD 0.95. The company’s market capitalization is USD 2,693 million, with forward P/E ratios of 33.5 for CY24F and 32.6 for CY25F. Netlink’s recurring ROE is estimated at 4.2% for CY24F and 4.5% for CY25F, and it provides a dividend yield of 5.9%.

SingTel

SingTel (ST SP) is also recommended as an “Add” with a target price of SGD 3.70. The company boasts a market cap of USD 39,625 million, with forward P/E ratios of 21.1 for CY24F and 18.3 for CY25F. SingTel’s recurring ROE is expected to be 9.8% for CY24F and 11.4% for CY25F, with a dividend yield of 5.2%.

Starhub

Starhub (STH SP) holds an “Add” rating with a target price of SGD 1.40. The company’s market cap is USD 1,578 million, with forward P/E ratios of 13.1 for CY24F and 11.5 for CY25F. Starhub’s recurring ROE is projected at 27.4% for CY24F and 29.2% for CY25F, and it offers a dividend yield of 6.2%.

Thailand Telcos

Advanced Info Service

Advanced Info Service (ADVANC TB) is recommended as an “Add” with a target price of THB 282. The company has a market capitalization of USD 23,994 million, with forward P/E ratios of 25.9 for CY24F and 22.9 for CY25F. Advanced Info Service’s recurring ROE is projected at 33.5% for CY24F and 37.1% for CY25F, with a dividend yield of 3.5%.

True Corporation

True Corporation (TRUE TB) holds a “Hold” recommendation with a target price of THB 12.70. The company’s market cap is USD 12,503 million, with a forward P/E ratio of 44.5 for CY25F. True Corporation’s recurring ROE is expected to be -5.2% for CY24F and 11.3% for CY25F, with no dividend yield for CY24F.

Conclusion

The telco sector across various regions shows diverse performance metrics and potential. Notably, companies like Netlink NBN Trust and SingTel in Singapore, alongside Advanced Info Service in Thailand, exhibit strong market positions and promising future growth. Investors should consider these insights and monitor the sector’s developments closely to make informed investment decisions.