SINGTEL : Z74 -1.67%&rsquo S push for cost cuts and capital recycling could help raise dividend payouts in the coming years, analysts noted following the telco&rsquo s results release for the first-half 2023.

 

The group on Thursday (Nov 9) posted an 82.6 per cent rise in net profit for the first half ended Sep 30 to S$2.1 billion, supported by an exceptional gain from regional associate Telkomsel.

 

Most analysts have maintained their &ldquo buy&rdquo recommendations on Singtel, but remain measured when it comes to any potential share price appreciation.

 

In a report on Thursday, Maybank projected Singtel&rsquo s move to recycle up to S$6 billion in capital could result in S$1.1 billion in cash proceeds within three years.

 

This will come from selling 20 per cent of its regional data centre business to global investment firm KKR. It also expects S$800 million in net proceeds from the group&rsquo s Comcentre development in FY2025.

 

&ldquo This would leave Singtel with S$4 billion in capital recycling, likely from paring stakes in regional associates (valued at S$49 billion) in the medium term,&rdquo said Maybank analyst Kelvin Tan.

 

These factors, coupled with a programme to cut indirect costs by 15 per cent within three years, could result in excess cash that can help Singtel reach the higher end of its dividend payout range in FY2024.

 

The group recently revised its dividend policy to raise the range to between 70 per cent and 90 per cent of underlying net profit, from between 60 per cent and 80 per cent previously.

 

Maybank has maintained its &ldquo buy&rdquo recommendation and target price of S$3.10 on the counter, implying a potential upside of 31.9 per cent from Singtel&rsquo s last trading price of S$2.35 as at 4.37 pm on Friday. Shares of Singtel were up 2.1 per cent or S$0.05 at the time.

 

Also positive on dividends, UOB Kay Hian has raised its dividend estimates for FY2024 to S$0.12 per share from S$0.115, following Singtel&rsquo s revision of its dividend policy payout range.

 

The adjustment could bring dividends for FY2024 to around S$0.13 per share, which implies an annualised dividend of around 6.5 per cent, the research team said on Friday in a report.

 

It continues to maintain &ldquo buy&rdquo on the counter, with an unchanged target price of S$3.15, which implies an FY2024 enterprise value-to-earnings before interest, taxes, depreciation and amortisation ratio of 15 times.

 

&ldquo In our view, Singtel remains an attractive play against elevated market volatility, underpinned by improving business fundamentals,&rdquo said UOBKH analysts Chong Lee Len and Llelleythan Tan.

 

In a separate report, RHB trimmed its target price on Singtel to S$3.20 from S$3.40 after reducing its estimates for FY2024-26 core earnings by between 5 per cent and 10 per cent. This is to factor in the weaker enterprise performance and foreign exchange adjustments.

 

The research team kept its &ldquo buy&rdquo call on the counter, noting that Singtel remains its preferred pick for exposure to Singapore telcos. It views the revised dividend payout range to be in line with the group&rsquo s strong capital management narrative.

 

SINGTEL : Z74 +1.69% on Thursday (Nov 9) posted an 82.6 per cent rise in net profit for the first half of 2023, supported by an exceptional gain from regional associate Telkomsel&rsquo s integration of IndiHome, a fixed broadband provider in Indonesia.

 

Net profit for the six months ended Sep 30 stood at S$2.1 billion, compared with a net profit of S$1.2 billion in the same period last year. The results translate to an earnings per share (EPS) of S$0.1294, compared with an EPS of S$0.0709 in the year-ago period.

 

Operating revenue, however, was down 3.2 per cent year on year to S$7 billion from S$7.3 billion. The group&rsquo s results were &ldquo adversely impacted&rdquo by the strength of the Singapore dollar against the Australian dollar and regional currencies, said Singtel in its results announcement. 

 

In constant currency terms, operating revenue would be 1.5 per cent higher. Singtel attributed the improvement to strong showings from NCS and Digital InfraCo which offset weakness in the group&rsquo s Singapore and Australia enterprise business.

 

The board has approved an interim dividend of S$0.052 per share for the half year period &ndash 77 per cent of the group&rsquo s H1 underlying net profit of S$1.1 billion, which was up 12 per cent year on year.

 

The group also revised its dividend policy to raise the payout range to between 70 per cent and 90 per cent of underlying net profit, from 60 per cent to 80 per cent. The dividend will be paid on Dec 8 after books closure on Nov 21.

 

At its earnings call on Thursday, Singtel group chief financial officer Arthur Lang attributed the move to raise the dividend payout in part to its capital recycling efforts. He noted that the company has recycled, in a short span of time, about S$5 billion in assets, which is more than what was announced as part of the company&rsquo s strategic reset launched in 2021.

 

&ldquo Our interest expense has come down, our debt has come down, the cash balance has gone up, so we do think we&rsquo re in a stronger position after two-and-a-half years of the strategic reset,&rdquo he said.

 

At the same time, the group announced that it intends to monetise an additional S$4 billion in assets in the next two to three years, although it declined to give specifics on what assets could be monetised.

 

Singtel group chief executive Yuen Kuan Moon added that the focus now is on rapidly scaling up the group&rsquo s growth engines, and that Singtel expects its strategic partnership with KKR to accelerate the expansion of the group&rsquo s regional data centre business in Asean.

 

In addition, he announced a programme to drive a 15 per cent reduction in core costs over the next three years. This would come up to about S$200 million a year from FY2024 to FY2026.

 

He said that the company will aim to be more efficient by reducing the number of vendors, and rationalising its networks to make it simpler to maintain and manage.

 

The company&rsquo s workforce will also be optimised as the organisational structure of its Singapore and Australia businesses has been simplified to hold their respective markets&rsquo consumer and enterprise divisions, removing duplication.

 

Still, the company has observed weakness in certain areas.

 

Singtel Singapore chief executive Ng Tian Chong noted that enterprise operating and capital expenditures have fallen as a result of the weakening macroeconomic climate.

 

&ldquo The reading is that the macroeconomic situation, along with a high interest rate that affects big corporations and spending appetite, I think, will be here to stay for a while,&rdquo he said.

 

Still, he said that the company has gained strong traction in connected cars, with four major brands, including Tesla and BYD, signing contracts with the company.

 

Ng said that the brands pay for access to Singtel&rsquo s network to deliver firmware updates and other connected services to drivers. The company also works with its partner telcos under Bridge Alliance, to offer connections to cars in different countries.

 

He added that over time, the company may be able to offer drivers other services and features, such as entertainment offerings.

 

As for the outage that Australian subsidiary Optus experienced on Wednesday, Yuen said that the company is focused on taking care of the customer and investigating the root cause of the incident, and that it is too early to tell how customers will respond.

 

Lang added that the company will make further announcements if there is any financial impact due to any regulatory moves as a result of the outage.

 

The outage affected some 10 million Australians, leaving them without mobile data, broadband Internet and landline services for much of the day.

 

For the half year, Optus&rsquo revenue rose by 1 per cent year on year to A$4 billion (S$3.5 billion).

 

This came on the back of a 3 per cent increase in mobile service revenue due to stronger net connections, led by prepaid, and higher postpaid average revenue per user from moves to reprice its plans. The Fifa Women&rsquo s World Cup also led to greater Optus Sport take-up.

 

Still, earnings before interest and taxes declined 14 per cent to A$141 million as Optus faced pressure from higher energy costs, as well as foreign-exchange driven operating expenditure.

SINGAPORE &ndash Telco Singtel said the strategic reset it launched around 2½ years ago is bearing fruit in the form of enhanced earnings.

 

The firm reported on Thursday that it posted an 83 per cent increase in earnings to $2.14 billion for the six months to Sept 30, although a substantial chunk of this was due to a one-off gain after Indonesian associate Telkomsel integrated the operations of fixed broadband provider IndiHome.

 

Even if this gain is excluded and the adverse impact of the strong Singapore dollar is factored in, the group&rsquo s underlying net profit still rose at a decent clip of 12 per cent to $1.12 billion.

 

Singtel chief executive Yuen Kuan Moon told a briefing in Sydney on Thursday: &ldquo Our underlying performance was resilient in the first half despite a challenging macroeconomic backdrop and inflationary pressures.&rdquo

 

The firm&rsquo s balance sheet has strengthened steadily since the start of the reset, with cash holdings at a healthy $2.6 billion.

 

Mr Yuen said the group&rsquo s &ldquo financial position remained robust&rdquo , and it is well poised to continue to invest for growth.

This follows the streamlining of Singtel&rsquo s portfolio of assets, which has simplified the business.

 

The initiatives Mr Yuen set in motion included the freeing up of $7 billion of capital, with another $4 billion waiting in the pipeline over the medium term.

 

He also cleared out a slew of loss-making and non-core businesses, ploughing the freed-up cash into divisions with better growth potential.

 

The latest was the sale of threat-detection platform Trustwave, which will be completed in December and will mark the end of the group&rsquo s strategic review of non-core digital businesses.

 

This divestment alone is likely to result in the company posting more than $100 million in cost savings annually.

 

Mr Yuen noted: &ldquo Half the job is done the hard part is behind us.

 

&ldquo We&rsquo ve simplified our organisation, so our businesses have greater agility to pursue growth, divested non-core digital businesses and strengthened our financial position.

 

&ldquo We&rsquo re in a stronger position to improve our return on invested capital and returns to shareholders.&rdquo

 

However, the challenge now is to show investors what Singtel&rsquo s share price ought to be after the reset, given that the stock has barely moved despite the group expanding the value of the sum of its parts significantly.

 

However, Mr Yuen believes that savvy investors will recognise the positive changes he has implemented.

 

DBS analyst Sachin Mittal noted that Singtel&rsquo s sale of loss-making businesses will help the upward re-evaluation of the stock price, but added that what matters more is increasing the operating profits of its core businesses.

 

Another analyst, who declined to be named, said further cost savings would help, and Singtel&rsquo s move to merge its consumer and enterprise divisions across both Singapore and Australia was a good start.

 

&ldquo However, we have to wait and see if this translates into meaningful margin expansion,&rdquo he added.

 

Meanwhile, Singtel&rsquo s ability to scale its growth engines &ndash multinational information technology subsidiary NCS and the data-centre business under Digital InfraCo &ndash will also help, as both are relatively small contributors to group earnings, he said.

 

Overall, the analyst felt that Singtel has made good effort in realising cost synergies and trying to drive non-telco revenues.

 

SHARES of Singtel : Z74 -4.84% lost as much as 5.2 per cent during the morning trading session on Wednesday (Nov 8), after major outages hit its Australian subsidiary Optus on the same day.

 

The Singapore telco&rsquo s counter dropped to a low of S$2.35, down S$0.13 as at 9.58 am.

 

By 11.27 am, Singtel&rsquo s shares were the second most traded by volume on the Singapore bourse, with 34.9 million shares changing hands. The counter recovered slightly to S$2.38 at the time and was down 4 per cent or S$0.10.

 

Optus has issued an apology to its customers for the outage, which disrupted mobile and Internet services for more than 10 million of its customers across Australia, affecting phone lines and crashing payment systems.

 

&ldquo Since Optus first identified the issue, its engineers have been working hard to restore services,&rdquo the Australian telco said in a statement. It later confirmed that services have been restored.

 

DBS Group Research on Wednesday said: &ldquo While a matter of concern, it is a bit of relief to know that Optus has not fallen victim to a cyberattack again.&rdquo

 

Last year, the Australian government raised the maximum penalties for serious or repeated privacy breaches from about A$2.2 million (S$1.9 million) to either A$50 million, or three times the value of any benefit obtained through information misuse, or 30 per cent of a company&rsquo s adjusted turnover in the relevant period, whichever is higher.

 

While DBS believes there could be some penalties due to the breach of service level agreements, a bigger issue Optus may face is customer churn if the telco is unable to resolve its issues promptly.

 

That being said, DBS does not expect the matter to have any big impact on Singtel&rsquo s earnings, as Optus is a small contributor to the group&rsquo s net underlying profit.