Analysts from Maybank Securities and RHB Bank Singapore maintain their &ldquo buy&rdquo calls for Singapore Telecommunications (Singtel) Z74 0.4% , even though the telco missed consensus expectations for the FY2023 ended in March, which they attribute to foreign exchange depreciation in the region.

 

Singtel reported a set of positive results for FY2023, where earnings were up 14% to $2.23 billion, compared to $1.95 billion a year ago, due to the strong performance of its core businesses, underpinned by robust mobile growth and price increases as international travel and roaming recovered, and 5G adoption and demand for information and communications technology (ICT) services rose.

 

Analyst Kelvin Tan from Maybank says that on a constant currency basis, profit after taxation and minority interests (patmi) would be in line with estimates. Tan has therefore kept his &ldquo buy&rdquo call with an unchanged target price of $3.10, while rolling forward the telco&rsquo s valuations to FY2024.

 

Similarly, analysts from RHB note that the key deviation from consensus earnings for Singtel was due to a weaker Australian dollar, which fell 6% ytd. However, they note that Singtel has had its highest dividend per share (DPS) payout since FY2019, and have since raised their target price from $3.30 to $3.40, representing a 34% upside and 4% FY2024 yield.

 

RHB analysts say that Singtel has a &ldquo good operational showing&rdquo with a return on invested capital (ROIC) at 8.3%.

 

Although group revenue and ebitda fell by a marginal 5% and 2.2% ytd, a stronger ebitda margin of 25.2% was achieved, largely on account of tight cost controls.

RHB analysts note that the positive offsets were from associate contributions (+6.1% ytd) on Airtel&rsquo s outperformance and lower depreciation expense.

 

&ldquo A final DPS of 5.3 cents (FY22: 4.8 cents) puts full-year DPS at 14.9 cents (including special DPS of 5 cents), the highest since FY2019 with ordinary DPS of 9.9 cents at the top-end of its 60-80% payout, ahead of our and market expectations,&rdquo they say.

 

Likewise, Tan from Maybank Securities says that historical data shows that ROIC has a positive correlation with Singtel&rsquo s share price, and as the telco continues to commit to lifting ROIC toa low double-digit within two to three years while improving core profitability and narrowing holding company discount, he believes the share price should react positively.

 

Tan &ldquo continues to be encouraged by Singtel&rsquo s focus on reinvigorating its core business while capitalising on growth trends&rdquo , noting plans to scale regional data centres, expanding its footprint and digital banking products for GXS bank, and scaling up NCS, the telco&rsquo s digital ICT arm, to deliver sustainable dividends (+60% y-o-y) for shareholders.

 

Meanwhile, RHB analysts note that Singtel&rsquo s roaming demand has come back. Singapore consumer revenue grew 5% y-o-y in 2HFY2023, an additional 11.2% ytd, while ebitda gained 15%. Mobile services revenue jumped 12% supported by a further recovery in roaming revenue and higher migrant traffic which bolstered prepaid sales and a stronger 5G adoption.

 

They also note that Singtel&rsquo s asset recycling has resulted in more than $6 billion, and see scope for more cash to be returned as management has set targets for additional $6 billion from further asset divestments.

Singtel has reported full year FY2023 earnings of $2.23 billion, up 14% from the preceding year ended March 22. The company attributes the better showing to all-round growth of its businesses ranging from 5G mobile services, roaming revenue as well as stronger ICT contribution too.

 

Excluding unfavourable currency movements plus the absence of revenue from NBN migration and digital marketing unit Amobee which has been sold, operating revenue rose 5% to $14.62 billion from mobile and ICT services growth.

 

EBITDA and EBIT also increased 3% and 8% respectively, thanks to better margins with costs held down.

 

As a result, underlying net profit was 7% higher at S$2.05 billion, and would have risen 11% on a constant currency basis.

 

For second half ended March, earnings was up 6.1% y-o-y to $1.06 billion, while revenue was down 4.2% to $7.37 billion.

 

Singtel plans to pay a final ordinary dividend of 5.3 cents per share. Including the interim dividend of 4.6 cents per share, the total ordinary dividends would be 9.9 cents per share, representing a payout ratio of 80% of underlying net profit.

 

Together with the two-tranche dividend of 5.0 cents per share from its asset recycling initiatives announced during the half-year results, this brings total dividend for FY2023 to 14.9 cents, up 60%, giving a yield of 5.8%.

 

Singtel reiterates its commitment to pay ordinary dividends at between 60% and 80% of underlying net profit.

 

&ldquo Our solid financial performance in the second year of our strategic reset reflects the tangible progress we have made against our business priorities in spite of the uncertain macroeconomic environment,&rdquo says group CEO Yuen Kuan Moon.

 

&ldquo Our capital recycling programme continued to unlock value this year with more than S$2.8 billion raised largely from Airtel, allowing us to strengthen our balance sheet and deliver greater returns for shareholders,&rdquo he adds.

 

During the year, Singtel&rsquo s regional associates increased their pre-tax profit contributions by 10% to $2.27 billion despite generally unfavourable forex movements caused by the stronger Singdollar.

 

If forex was discounted, the improvement would have been 15%, with India&rsquo s Airtel driving a big part of the growth as its business recovers.

 

&ldquo Our regional associates have also benefitted from the rebound in mobile services post-COVID, and Airtel delivered yet another year of solid growth,&rdquo says Yuen.

 

Going forward, Singtel expects the healthy recovery to continue as economies reopen and international travel resumes.

 

&ldquo However, the group is mindful of the uncertain macroeconomic environment with elevated inflation and high interest rates.&rdquo