Comprehensive Analysis of Singtel and Its Key Associates

Date: November 11, 2024
Broker: Maybank Research Pte Ltd

Introduction

Singapore Telecommunications (Singtel) has shown a mixed performance in the second quarter of FY25 based on the results of its key associates. This comprehensive analysis delves into the performance of Singtel’s associates including Bharti Airtel, Globe Telecom, AIS, and Telkomsel, highlighting their strengths, weaknesses, and future prospects.

Bharti Airtel: Strong All-Round Performance

Bharti Airtel has demonstrated impressive growth in the second quarter of FY25. Its revenue and EBITDA surged by 12% year-on-year (YoY), while capital expenditure (capex) declined by 17% YoY. The India business saw a 17% YoY revenue growth, and the Africa business, in constant FX terms, reported a 21% YoY increase.

India mobile Average Revenue Per User (ARPU) rose by 15% YoY and 11% quarter-on-quarter (QoQ), reaching INR 233. There is potential upside as the management aims for an ARPU of INR 300 in the medium term. Bharti Airtel’s earnings for 2QFY25 increased significantly by 32% YoY and 34% QoQ.

Globe Telecom: Mobile and GCash Drive Growth

Globe Telecom posted strong earnings growth of 22% YoY in the second quarter of FY25, with flat QoQ results. Despite a slowdown in mobile momentum to 3% YoY in 3QCY24 from 7% in 1HCY24, the company offset this with a robust 27% YoY growth in enterprise revenue.

GCash, Globe’s mobile wallet service, exhibited exceptional performance with a 104% YoY earnings increase, contributing an impressive 22% to Globe’s core earnings.

Telkomsel: Continued Softness in Performance

Telkomsel’s earnings have been disappointing, with core earnings declining by 23% YoY and 16% QoQ. The softness in mobile revenue (-5% YoY, -3% QoQ) and flat revenue from Indihome contributed to the overall decline. Additionally, Telkomsel’s costs increased moderately, leading to a 3.8 percentage points (ppt) YoY and 2.6ppt QoQ decline in EBITDA margin.

The overall industry momentum in Indonesia is softening, and Telkomsel continues to lose market share as competitors report 3-8% YoY revenue growth for 3QCY24.

AIS: Stable Performance with Growth Prospects

AIS reported a 12% YoY increase in core profit for 3QCY24, with flat QoQ results, aligning with MIBG and consensus forecasts. AIS Mobile’s revenue grew by 5.6% YoY and 0.6% QoQ, supported by impressive subscriber gains and higher ARPU. Additionally, Fixed Broadband (FBB) revenue surged by 146% YoY and 2.1% QoQ.

Investment Recommendations

Maybank Research Pte Ltd maintains a “BUY” recommendation for Singtel, emphasizing the stable performance of its associates, except for Telkomsel. The report highlights potential growth from data centers and enterprise segments in India, as well as GCash in the Philippines. The core business prospects include data center growth and Optus’ revival. Additionally, a forward yield of 5-6% makes Singtel a defensive investment.

The 12-month price target for Singtel is SGD 3.70, indicating a 19% upside from the current share price of SGD 3.25.

Key Financial Metrics and Valuation

• Revenue: SGD 14,470 million in FY25E, growing to SGD 14,979 million in FY27E.
• EBITDA: SGD 3,781 million in FY25E, reaching SGD 4,148 million in FY27E.
• Core Net Profit: SGD 2,569 million in FY25E, increasing to SGD 3,656 million in FY27E.
• Core EPS: 15.6 cents in FY25E, rising to 22.1 cents in FY27E.
• Net Dividend Yield: 5.2% in FY25E, increasing to 6.1% in FY27E.
• ROAE: 10.8% in FY25E, improving to 15.1% in FY27E.
• EV/EBITDA: 16.9x in FY25E, reducing to 15.6x in FY27E.

ESG Initiatives and Performance

Singtel has made significant strides in its Environmental, Social, and Governance (ESG) initiatives. The company has set ambitious targets, including reducing Scope 1 and 2 emissions by 25% by 2025 and Scope 3 emissions by 30% by 2030. Singtel has also brought forward its net-zero goal to 2045 from 2050.

In FY23, Singtel achieved an 11.31% reduction in Scope 1 and 2 absolute emissions and improved GHG emissions intensity. The company completed four solar energy generation projects and scaled up its “Donate Your Data” initiative to support disadvantaged students.

The Board of Singtel consists of 14 directors, with 43% being female, and key committees are chaired by independent directors. The company has shown commitment to gender equality and employee training, with significant investments in training and development.

Conclusion

Singtel and its key associates have shown mixed performance in 2QFY25, with Bharti Airtel and Globe Telecom leading the way in growth. Despite Telkomsel’s continued softness, the overall outlook for Singtel remains positive, bolstered by potential growth areas and a strong ESG commitment. Investors can expect stable returns and potential upside from Singtel’s diversified portfolio and strategic initiatives.