Overview of the Report

This report dives into the financial and operational performance of SingTel and other telecommunications companies in the ASEAN region. It covers detailed financial metrics, recommendations, potential risks, and growth forecasts. The focus is on SingTel, but the analysis also extends to Bharti Airtel, Globe Telecom, Advanced Info Service (AIS), and other regional players. The report provides actionable insights for investors and highlights key trends in the telecommunications sector.

SingTel: A Deep Dive

SingTel, a major telecommunications provider in Singapore, is positioned for substantial growth in the coming years. The company is expected to raise its FY25 EBIT growth guidance to mid-to-high teens, supported by ongoing cost optimization and operational improvements.

Financial Highlights

• 3QFY25 core net profit is estimated at S\$660 million, an increase of 12% quarter-on-quarter (qoq) and 18% year-on-year (yoy).
• Stronger contributions from Optus and associate profits have driven this growth.
• FY26-27 dividend yields are projected at 5.9% and 6.5%, respectively, backed by improved free cash flow (FCF) generation and a robust asset monetization pipeline worth approximately S\$12 billion.

Optus: Operational Turnaround

SingTel’s Australian subsidiary, Optus, has shown significant improvement. EBITDA margins increased by approximately 180 basis points (bps) yoy in 3QFY25 due to postpaid mobile price hikes, cost-cutting measures, and a focus on higher-margin enterprise accounts.

Optus aims to further optimize margins, with potential asset sales, such as its sports streaming platform, underscoring its commitment to profitability. However, the commencement of the 900 MHz spectrum in July 2024 has led to higher amortization expenses.

Dividend and Asset Monetization

SingTel’s dividends are expected to rise steadily, reaching 21 Singapore cents by FY27. This growth is supported by reduced capex intensity, a focus on improving ROIC across key business units, and the monetization of assets like the Bharti Airtel stake and the redevelopment of Comcentre.

Key Risks

• Potential large impairments of assets.
• Escalating mobile competition in Singapore and Australia.
• Prolonged forex headwinds due to a stronger Singapore dollar.

Recommendation

The report reiterates an “Add” recommendation for SingTel with a target price of S\$3.70, reflecting a 14.9% upside from its current price of S\$3.22. The attractive dividend yield, robust asset monetization pipeline, and operational improvements make it a compelling investment.

Bharti Airtel: Strong Growth Momentum

Bharti Airtel, one of SingTel’s associates, continues to show robust performance. The company has benefited from tariff hikes and a low base in 3QFY24, which was impacted by mark-to-market FX losses.

Financial Metrics

• 3QFY25 pre-tax profit contribution is estimated at S\$309 million, a 10% qoq and 74.6% yoy increase.
• Bharti Airtel remains a key growth driver for SingTel’s associate profits.

Recommendation

The report maintains a positive outlook on Bharti Airtel, emphasizing its critical role in SingTel’s portfolio.

Advanced Info Service (AIS): Solid Performance

AIS, a significant telecommunications player in Thailand and another of SingTel’s associates, has demonstrated strong growth in broadband contributions and operating margins.

Financial Highlights

• 3QFY25 pre-tax profit contribution is projected at S\$98 million, up 4.2% qoq and 27.2% yoy.
• AIS’s valuation has been slightly raised due to an increase in its target price to THB287.

Recommendation

The report recommends a “Hold” rating for AIS, reflecting its steady performance and potential for growth.

Globe Telecom: Modest Recovery

Globe Telecom, a leading telecommunications provider in the Philippines, has shown signs of recovery after a challenging FY24.

Financial Highlights

• 3QFY25 pre-tax profit contribution is estimated at S\$71 million, down 3.1% qoq but up 10.5% yoy.
• Globe Telecom is benefiting from improved broadband contributions and cost efficiencies.

Recommendation

The report does not provide a specific recommendation for Globe Telecom, but its improved performance is noted.

Telkomsel: Facing Challenges

Telkomsel, a subsidiary of Telkom Indonesia and a key associate of SingTel, has faced headwinds due to a weaker Indonesian rupiah and a slight decline in EBIT margins.

Financial Highlights

• 3QFY25 pre-tax profit contribution is projected at S\$166 million, reflecting a 7.1% yoy decline.
• Despite these challenges, Telkomsel remains a significant contributor to SingTel’s associate profits.

Recommendation

While Telkomsel’s performance is under pressure, it continues to play a vital role in SingTel’s associate portfolio.

ESG Highlights

SingTel stands out as a leader in ESG initiatives among ASEAN telcos. Its commitment to achieving net-zero carbon emissions by 2045, internal carbon pricing, and ESG-linked executive remuneration are noteworthy.

Key ESG Metrics

• SingTel’s carbon emissions fell 11% yoy in FY23 and 20% compared to FY15.
• Efforts include introducing half-sized SIM cards and pursuing higher energy efficiency in data centers.

Potential Risks

Increased carbon taxes or stricter regulations could impact profitability, although these risks are not yet factored into the financial forecasts.

Conclusion

SingTel and its associates, including Bharti Airtel, AIS, Globe Telecom, and Telkomsel, present a mixed but generally positive investment outlook. The report underscores SingTel’s operational improvements, strong dividend yield, and ESG leadership. While risks such as forex headwinds and competition persist, the overall trajectory for SingTel and its key associates appears optimistic. Investors are encouraged to consider SingTel as a compelling addition to their portfolios, supported by its robust financial performance and strategic initiatives.