Comprehensive Analysis of Singtel, NETLINK NBN Trust, and StarHub Ltd

Broker: OCBC Investment Research

Date: 14 November 2024

Singtel: A Leading Force in Communications Technology

Singtel stands as one of Asia’s premier communications technology groups, offering a wide range of services from next-generation communication to technology services and infotainment for both consumers and businesses. With an emphasis on revitalizing its core business, Singtel aims to leverage growth trends, such as expanding its 5G market share, and enhancing its digital business footprint. The company is also scaling up NCS, a key growth driver. However, challenges in EBITDA margin improvement are anticipated in the short term due to recruitment costs.

The company’s management targets low double-digit returns on invested capital (ROIC) in the medium term, focusing on cost efficiency, core business margin improvements, and growth in data centers and NCS. Despite weak contributions from associates, Singtel’s capital return remains on track. The interim dividend per share (DPS) saw a significant increase of 34.6% year-on-year.

Financial Performance

In 1HFY25, Singtel’s operating revenue was slightly down by 0.5% year-on-year to SGD 7.0 billion, affected by the absence of Trustwave contributions. EBITDA grew by 9.0% to SGD 1.9 billion, with an expanded margin from 25.4% to 27.8%. EBIT, excluding associates’ contributions, surged by 27.3% to SGD 738 million. However, post-tax profits from associates declined by 4.5%, influenced by currency fluctuations and weaker performances in Telkomsel and Airtel. Despite these challenges, the underlying net profit increased by 6.1% to SGD 1.2 billion.

Outlook and Recommendations

Management revised its EBIT growth guidance to low double-digit growth, supported by cost savings and strong NCS growth. Singtel’s total CAPEX is expected to rise from SGD 2.1 billion in FY24 to SGD 2.8 billion in FY25, focusing on data centers and new facilities. The strategic initiatives under Singtel28 are projected to drive continued improvements. The fair value estimate has been increased from SGD 3.50 to SGD 3.85, with a BUY recommendation.

ESG Considerations

Singtel’s ESG rating was downgraded due to labor management challenges, highlighted by an enforceable undertaking with Australia’s Fair Work Ombudsman over alleged underpayments. The company is exposed to data privacy risks but leads in governance practices. The board no longer includes government representatives, reducing potential intervention concerns.

NETLINK NBN Trust: A Reliable Dividend Payer

NETLINK NBN Trust is known for its stability and consistent dividend payouts. The company’s performance metrics, including price-to-earnings and dividend yield, reflect its steady financial health. NETLINK’s focus on infrastructure ensures a reliable income stream, making it an attractive option for investors looking for stability.

Financial Analysis

NETLINK NBN Trust’s financial metrics, such as a price-to-earnings ratio of 33.9 in FY25E and a dividend yield of 5.8%, demonstrate its strong market position. The company maintains a robust balance sheet, supported by its strategic investments in network infrastructure.

Valuation and Recommendations

With a consistent dividend yield and stable earnings, NETLINK NBN Trust remains a solid investment choice. The company’s focus on maintaining a high-quality network ensures long-term growth potential. Investors are advised to HOLD, given the firm’s steady performance and reliable returns.

StarHub Ltd: Navigating Competitive Waters

StarHub Ltd operates in a highly competitive market, but it continues to show resilience through strategic initiatives and cost management. The company is focused on delivering value to shareholders while navigating the challenges of the telecom industry.

Financial Overview

StarHub’s price-to-earnings ratio stands at 12.8 for FY25E, with a dividend yield of 6.1%. The company’s strategic focus on cost efficiencies and customer retention is vital to maintaining its market position amidst competitive pressures.

Investment Insights and Recommendations

StarHub’s efforts to streamline operations and enhance customer experience are commendable. The company is recommended as a HOLD, with expectations of moderate growth and stable dividends. Continued focus on innovation and customer-centric services will be crucial for future success.

Conclusion

The analysis of Singtel, NETLINK NBN Trust, and StarHub Ltd provides investors with a comprehensive understanding of each company’s financial health and strategic direction. While Singtel shows potential for growth through its strategic initiatives, NETLINK NBN Trust offers stability, and StarHub remains a resilient player in a competitive market. Each company presents unique opportunities and challenges, making them worthy of consideration for diverse investment portfolios.