Singtel’s Associates Show Positive Signs Despite Unhelpful Currency Weakness

Although we are broadly maintaining our earnings forecasts following the release of in-line third-quarter fiscal 2023 (quarter ending December 2022) results, we decrease our fair value estimate for narrow-moat Singtel Z74 to SGD 2.62 per share from SGD 2.72 due to the currency updates and lower associate share prices.

In our valuation, the associate businesses are worth around 80% of the total value of Singtel, with the remainder from Singtel’s consolidated Singapore and Australia businesses. Third-quarter operating revenue declined 5.1% year on year with EBITDA down 8.0% year on year and EBIT before associates’ contributions down 8.1%. Associate contributions up 22.6% year on year and SGD 28 million of exceptional losses mainly from Airtel drove reported net profit down 28%. We note underlying results, which assume constant currency and exclude NBN migration payments and Amobee in prior-year periods, were stronger with revenue up 6%, EBITDA down 3.2%, and net profit up 24.5%. Costs associated with NCS Group’s expansion including postacquisition charges for new subsidiaries and higher staff costs from investments in digital capabilities to support growth were factors in the underlying EBITDA decline.

We retain our narrow moat rating for Singtel. Our fair value estimate implies a price/earnings ratio of 20 times, which is slightly ahead of its average over the past 10 years.