Key Mobile Markets Show Some Positive Signs, but Currency Working Against Singtel; FVE to 2.72

We decrease our fair value estimate for narrow-moat Singtel to SGD 2.72 per share from SGD 2.80 following the release of a broadly in-line result for the fiscal 2023 second quarter, ended September. The decrease was mainly due to currency and associate share price updates, particularly the 6% fall in the Australian dollar/Singapore dollar exchange rate since our previous update. First-half operating revenue declined 5.1% year on year with EBITDA down 2.6% year on year and EBIT before associate contributions up 1.2%. Associate contributions up 10.5% year on year and SGD 165 million of exceptional gains related to asset sales and exceptional items from associates drove reported net profit up 25% with underlying reported profit up 4.9%. Interestingly, the company made its first large write-down of goodwill in Optus of SGD 1.004 billion although this seemed mainly driven by currency movements and a weakened economic outlook rather than any change in the fundamental view on Optus. We retain our narrow moat rating for Singtel. Our fair value estimate implies a price/earnings ratio of 22 times, slightly ahead of the average over the past 10 years. In our valuation, the associate businesses are worth around 80% of the total value of Singtel with the remainder from Singtel’s consolidated Singaporean and Australian businesses.