Singtel Has Seen Some Recovery in Key Mobile Markets but Looks Fairly Valued; FVE to SGD 2.70

We decrease our fair value estimate for narrow-moat Singapore Telecommunications, or Singtel, to SGD 2.70 from SGD 2.74 previously following the release of a broadly in line fiscal-year 2022 result (fiscal year ending March 2022). The reduction was mainly due to currency and associate share price updates. Fiscal 2022 operating revenue and EBITDA declined by 1.9% and 1.7%, respectively. In constant currency terms, excluding NBN migration revenue and Jobs Support Scheme, or JSS, credits, second-half operating revenue declined 4.5% with EBITDA increasing 1.9%, driven by mobile price increases in Australia in May 2021. We retain our narrow moat rating for the company and believe the stock is broadly fairly valued. Our fair value implies a price/earnings ratio for Singtel of 21 times, which is slightly ahead of its average over the past 10 years. On our valuation, the associate businesses are worth around 75% of the total value of Singtel with the remainder from Singtel’s consolidated Singapore and Australian businesses. To a certain extent, the stock remains a dividend play. The company paid a SGD 0.093 dividend in fiscal 2022, implying a dividend payout ratio of 80%. The company has committed to paying somewhere in the range of 60%-80% of fiscal 2023 underlying earnings as a dividend, and we forecast the dividend per share to lift to SGD 0.102 cents in fiscal 2023 and to increase to SGD 0.149 cents by fiscal 2027, assuming an 80% dividend payout ratio.