SingTel Earnings: Weak Australian Dollar Offset by Lower Depreciation and Interest Expenses

We maintain our fair value estimate for narrow-moat Singtel Z74 at SGD 2.5 2 following the release of first-quarter results. Revenue was slightly lower than our expectations, but profits were above them. SingTel’s first-quarter fiscal 2024 operating revenue declined 2.7% year on year with EBITDA down 7.7% year on year. Assuming constant currencies, revenue would have been up 2.5% and EBITDA down 3.1%. Note, underlying net profit rose 19.9% mainly on the back of significant reductions in depreciation and net interest expense. Our fair value estimate implies a price/earnings ratio for Singtel of 19 times, which is slightly ahead of its average over the past 10 years. On our valuation, the associate businesses are worth around 80% of the total value of Singtel with the remainder from Singtel’s consolidated Singapore and Australian businesses. Our forecasts assume a fiscal 2024 dividend of 10.1 cents per share, which would imply around 4% dividend yield.

In Australia, Optus reported first-quarter revenue up 1% with EBITDA declining 5.5%. Mobile service revenue grew 2.7%, with increases in roaming and postpaid ARPU more than offsetting the decline in handset insurance revenue following the sale of the insurance business in the June quarter 2022. The EBITDA decline was due to inflation and a spike in energy costs following the expiry of a fixed-price contract. Optus’ EBIT contribution was only SGD 56 million for the quarter, which was only 19% of the ex-associate total consolidated EBIT. Increasing the profitability of Optus is one of management’s key goals. We forecast Optus to grow its EBITDA at around 6% per annum over the next 5 years, helped by pricing recovery in mobiles. NCS reported revenue up 15% and EBIT up 6% driven by a full quarter of contributions from subsidiaries acquired last year as well as growth in the enterprise and telco businesses. NCS recorded strong bookings of SGD 691 million with a pipeline of projects in various sectors.