Comprehensive Analysis of Regional Telecommunications Companies

Singapore Telecommunications (Singtel)

Broker Name: UOB Kay Hian
Date of Report: Thursday, 14 November 2024

Company Overview

Singtel is a well-established telecommunications company offering a wide range of services including fixed-line, mobile, data, internet, TV, and digital solutions. The company operates not just in Singapore but also has significant operations in Australia, India, Indonesia, Thailand, and the Philippines.

Stock Performance and Major Shareholders

The share price of Singtel stands at S\$3.19 with a target price of S\$3.58, indicating a potential upside of 12.3%. The major shareholder, Temasek Holdings, holds 52% of the shares. The company has a market cap of S\$52,677.7 million (US\$39,338.1 million). Singtel’s stock has shown a significant price performance, with a year-to-date increase of 29.1%.

1HFY25 Results

Singtel reported higher underlying net profit of S\$1.2 billion for 1HFY25, marking a 6.1% year-on-year increase. This growth was driven by contributions from Optus and NCS, along with better cost discipline resulting from the group’s cost-out programme. The group’s EBITDA rose by 9.0% year-on-year to S\$1.947 billion, despite a slight decline in overall group revenue by 0.5% year-on-year to S\$6.992 billion.

Segment Performance

• Optus: Optus reported a 7.4% year-on-year increase in EBITDA for 1HFY25, driven by a 4.1% increase in mobile service revenue and higher margins from the enterprise segment. The EBITDA margin improved by 1.8 percentage points year-on-year.
• Singapore Consumer: Despite a 0.9% year-on-year decline in operating revenue, EBITDA increased by 2.6% due to better cost efficiencies.
• NCS: NCS saw a 2.5% year-on-year increase in revenue for 1HFY25, with a significant surge in EBITDA by 24.3% year-on-year, driven by better cost efficiencies and higher revenue.
• Digital InfraCo: The segment reported an 8.7% year-on-year increase in overall revenue, driven by the data center (Nxera) business. However, overall EBITDA fell by 1.4% year-on-year due to lower project-based satellite fees and continued investment costs.

Dividend and Future Outlook

Singtel declared a higher core interim dividend of 5.6 Singapore cents per share for 1HFY25, along with a value realisation dividend of 1.4 Singapore cents per share, making the total dividend 7.0 Singapore cents per share, a 35% year-on-year increase. The annualised yield is around 4.4%. The company also plans to unlock shareholder value by recycling about S\$6 billion of capital in the medium term, which might come from paring down stakes in regional associates and non-core fixed assets.

Financial Projections

For FY25, Singtel’s net turnover is projected to be S\$14,527.2 million with an EBITDA of S\$3,712.7 million. The net profit is expected to reach S\$3,001.2 million, translating to an EPS of 15.7 Singapore cents. The dividend yield is projected to be 5.2% for FY25.

Valuation and Recommendation

The recommendation for Singtel remains a “BUY” with a target price of S\$3.58 based on a discounted cash flow (DCF) model with a discount rate of 7% and a growth rate of 2.5%. Key re-rating catalysts include successful monetisation of 5G, data centres, and NCS, along with market repair in Singapore.

Conclusion

Singtel’s performance in 1HFY25 showcases stable growth and robust financial health. With strategic initiatives aimed at unlocking shareholder value and improving margins across various segments, Singtel remains a solid investment option for those looking to capitalize on the telecommunications sector. The company’s strong dividend yield and potential for future growth make it an attractive play against market volatility.