Singtel’s Associates’ Value Accretion Drives Fair Value Estimate Increase to SGD 2.70

We lift our fair value estimate for narrow-moat Singapore Telecommunications to SGD 2.70 per share from SGD 2.42 per share following the release of a slightly better-than-expected first-half fiscal 2022 result (half-year ending September 2021) update, with the uplift driven mainly by the net increase in share prices for listed associates since the previous update. First-half reported revenue was up 3.1% with operating profit (excluding associate contributions) declining 3.9%. Normalizing for a range of factors including currency, NBN migration revenue in Australia, and Jobs Support Scheme credits in Singapore, revenue was up 2.6% with operating profit up 69%. Improved profitability from the associates, in particular Airtel, and the Australian Consumer business (ex- NBN migration) were the main reasons for the profit increase. We retain our narrow moat rating for the firm and believe the stock is broadly fairly valued. Our fair value implies a price/earnings ratio for Singtel of 18 times, slightly ahead of its average over the past 10 years. On our valuation, the associate businesses are worth around 70% of Singtel's total value with the remainder from Singtel’s consolidated Singapore and Australian businesses. To a certain extent the stock remains a dividend play. With the firm committed to paying somewhere in the upper half of the range of 60%-80% of fiscal 2022 underlying earnings as a dividend, we forecast the dividend per share to lift to SGD 8.8 cents in fiscal 2022 and to increase to SGD 11.6 cents by fiscal 2026.