Singapore Telecommunications (ST SP) – Promising Growth Amidst Strategic Moves

Next immediate price target:$3.46, followed by $3.61

9MFY25: Results In Line as Business Outlook Improves – 

For the 9MFY25 period, Singapore Telecommunications (Singtel) reported a robust underlying net profit of S$1,870 million (+11% year-on-year (yoy)), driven by:

• Higher contributions from Optus and NCS
• Effective cost discipline from the group’s cost-out program
• Higher associate earnings, primarily from Airtel and AIS

These results were in line with expectations, accounting for 73% of full-year forecasts. Singtel anticipates paying a dividend per share (DPS) of 16.5 cents for FY25 and has identified S$6 billion of capital recycling for sustainable shareholder returns. Supported by an attractive dividend yield of 5.2% and an improving business outlook, the recommendation to BUY is maintained, with an unchanged target price of S$3.58.

9MFY25 Financial Performance Overview

• Optus and NCS contributed positively due to price uplifts and higher margins.
• Singapore Consumer faced challenges from price competition and a market shift towards lower-end plans.
• Digital InfraCo remained in a gestation phase with lower project-based revenue and increased operating expenses.

Quarter Highlights and Key Drivers

• 3QFY25 saw revenue grow by 1% yoy, with EBITDA and underlying net profit increasing by 1% and 18% yoy, respectively.
• Higher earnings from associates, especially Airtel and AIS, contributed positively.
• Reported earnings surged by 183% yoy due to exceptional gains from partial stake disposals in Intouch and Indara, along with Airtel’s net exceptional gains.

Strategic Insights and Market Dynamics

Optus: Market Repair and Growth

• 3QFY25 operating revenue grew by 4% yoy on a constant currency basis.
• Mobile service revenue increased by 5% yoy due to:
  • Higher postpaid ARPU from price uplifts
  • Increase in prepaid customers
• EBITDA improved by 4% yoy due to disciplined cost management and enhanced mobile performance.

Singapore Consumer: Cost Discipline Amid Competition

• Operating revenue declined by 4.8% yoy owing to:
  • Lower mobile service revenue (-2.6% yoy) from price competition and a market shift to lower-end plans.
• Fixed broadband revenue saw an uptick.
• Despite revenue challenges, EBITDA improved by 1% yoy through cost optimization.

NCS: Enhanced Margins from Strategic Execution

• Revenue growth of 6% yoy due to:
  • Strong growth in Gov+ and Telco+ segments
  • Robust order book of S$816 million
• EBITDA surged by 10% yoy attributed to cost efficiencies and strategic execution.

Digital InfraCo: Growth Potential Amid Early Investments

• Revenue declined by 6% yoy due to:
  • Lower project-based satellite deployment fees
  • Higher maintenance expenses for Nxera and expansion costs for Paragon
• EBITDA dropped by 21% yoy, reflecting initial investment costs.

Capital Management and Shareholder Value Creation

• Singtel has identified approximately S$6 billion in capital recycling through:
  • Reducing stakes in regional associates and non-core fixed assets.
  • Excess cash of S$2-3 billion after considering growth initiatives and 5G capex.
• Potential for increased core dividends towards the higher end of the 70-90% PATMI dividend policy for 2026-27.
• Virtual Real Dividend (VRD) payouts anticipated to be at the mid-to-upper end of 3-6 S cents per share, potentially sustained through 2026-27.

Investment Outlook and Valuation

• BUY recommendation maintained with a DCF-based target price of S$3.58 (discount rate: 7%, growth rate: 2.5%).
• Key growth catalysts include:
  • Successful monetization of 5G
  • Monetization of data centers and/or NCS
  • Market recovery in Singapore

Conclusion: Growth Prospects and Strategic Positioning

Singtel’s strategic initiatives, strong cost discipline, and continued growth in associate earnings position it well for sustainable growth. The company’s robust dividend yield and strategic capital management underscore its commitment to shareholder value creation. The improved outlook and strategic positioning in regional markets and digital infrastructure make it an attractive investment opportunity.

With the consistent growth trajectory and strategic initiatives, Singtel is poised for sustainable growth and value creation.

Thank you