Singtel' s special dividend is payable in two tranches: December 2022 and August 2023.

 

Singtel faced &ldquo minor speed bumps&rdquo in 1HFY2023 ended September, as patmi missed analysts&rsquo expectations. That said, a special dividend has sweetened the latest set of results.

 

While analysts remain divided on Singtel&rsquo s fair value, four research houses were unanimous in their &ldquo buy&rdquo call on Singtel.

 

RHB Group Research analysts have trimmed Singtel&rsquo s target price to $3.30 from $3.55. The new target price &mdash the highest among four houses mentioned here &mdash represents a 26% upside. RHB&rsquo s target price could have been higher, if not for the cybersecurity hacks at Australian subsidiary Optus. As a result, RHB analysts brought Singtel&rsquo s ESG score down to 3.3 from 3.6.

 

Singtel reported earnings of $1.17 billion for its 1HFY2023 ended September, up 23% y-o-y, as it booked gains from the recent divestment of a 3.3% stake in Bharti, its associate in India. Excluding such one-offs, the telco&rsquo s underlying earnings would be up by just 2% y-o-y.

 

The telco declared a 4.6 cents interim dividend, implying a 76% payout ratio. Singtel also declared a special dividend of 5.0 cents, payable in two tranches of 2.5 cents each in December 2022 and August 2023.

 

Singtel booked a $142 million provision, or exceptional item, for the late-September cyber-attack on Optus together with $1 billion in goodwill impairment (non-cash) from macro headwinds.

 

Optus has restarted customer acquisition activities after suspending them earlier due to the incident, which saw personal data of 9.8 million customers compromised. &ldquo We have reviewed our benchmark ESG score to factor in the cyber-attack, which has negatively impacted Optus&rsquo brand franchise. Overall, our ESG premium was reduced to 6% from 12% with a moderated score for the social pillar,&rdquo write RHB analysts in a Nov 11 note.

 

$3.15 emerges as consensus target price

 

Meanwhile, UOB Kay Hian Research, Maybank Securities and DBS Group Research all arrived at a $3.15 target price on Singtel. UOBKH upped its target price from $2.90, Maybank held steady and DBS slashed the figure from $3.24 previously.

 

Singtel&rsquo s regional associates&rsquo pre-tax contribution grew by 10.6% y-o-y to $1,157 million, in line with DBS&rsquo s expectations. Analyst Sachin Mittal writes: &ldquo A stronger-than-expected Bharti&rsquo s contribution of $336 million (up 129% y-o-y) more than offsets weaker contributions from [Indonesia&rsquo s] Telkomsel ($455 million, down 4% y-o-y) and [Thailand&rsquo s] AIS ($139 million, down 13% y-o-y). Bharti benefits from higher data usage and tariff hikes in India.&rdquo

 

Mittal cuts Singtel&rsquo s forecasted FY2023/FY2024 earnings by 9%/10% on three risks: slowdown in Optus growth momentum, challenges in NCS and derivative-related investment loss. &ldquo We reduced the growth momentum in Optus due to short-term concerns stemming from the recent cyber-attack, and the weaker Australian dollar is expected to reduce the contribution to core ebitda of the group.&rdquo

 

Meanwhile, ongoing scaling activity in NCS will experience near-term challenges, prompting Mittal to cut Singapore core ebitda by 4%/9% during FY2023/FY2024.

 

Finance cost was noticeably high during 1HFY2023, up 46% y-o-y, resulting from a revaluation loss from a derivative as opposed to the revaluation gain achieved a year ago. The bulk of the loss has been absorbed during 1HFY2023, estimated at 80%, and the remainder is expected to be incurred during 2HFY2023, notes Mittal. &ldquo Hence, considering the aforementioned factors, we cut our FY2023/FY2024 earnings by 9%/10%.&rdquo

 

Conversely. UOBKH analysts Chong Lee Len and Llelleythan Tan cite Singtel&rsquo s ability to chase higher return on invested capital (ROIC) in the current macroenvironment for their optimism. &ldquo With a decent yield of 5.5% for FY2023, Singtel remains an attractive play against elevated market volatility, underpinned by improving near- to medium-term fundamentals.&rdquo

 

To Chong and Tan, key re-rating catalysts for Singtel include a successful monetisation of 5G, monetisation of data centres and/or NCS and market repair in Singapore and the resumption of regional roaming revenue.