• Keep BUY and SGD3.50 SOP TP (20% upside), c.7% FY26F (Mar) yield. 1QFY25 results were broadly in line with strong EBIT growth from the core Singapore and Optus businesses. We see earnings tailwinds lifting ROICs to double-digit territory in FY25F and FY26F. Key investment thesis: Capital management, dividend upside, and price repair in key markets. Singtel is still our preferred Singapore telco pick. Our TP includes a 4% ESG premium.

• In line; solid EBIT growth. 1QFY25’s SGD603m core earnings (+4.1% QoQ, +5.4% YoY; +9% YoY on constant currency) formed 52% and 51% of our and consensus’ estimates. This came from solid pre-associate EBIT growth (+27.4% YoY, +53% QoQ) from 11% core business EBIT growth, the deconsolidation of Trustwave’s (TW) losses, and higher NCS project margins. While EBIT growth is ahead of earlier guidance, we note it has yet to factor in the AUD1.4bn spectrum payment and absence of TW base effects in 2HFY25. Currency headwinds distorted regional associate contributions, which dipped 3% YoY with the steep fall in the Naira (NGN), and 7% slide in the IDR/SGD. We see stronger cost-down efforts from the targeted annual SGD200m cost savings in the ensuing quarters. Our forecasts are unchanged.

• Strong recovery in core mobile revenue. Singapore mobile service revenue (MSR) rose 7% YoY (+4% QoQ) with the normalisation of roaming revenue and higher Internet of Things (IoT) revenue. While EBITDA grew 3.5% from lower opex, EBIT was stable on higher depreciation. In Australia, market price repair saw Optus’ MSR growing 4.7% YoY (+0.5% QoQ) with the repricing of its postpaid plans in late May, while EBITDA rose 5% on cost initiatives. Lower depreciation from the earlier impairment of enterprise assets saw EBIT surging 58% YoY. Optus saw continued recovery in mobile subs addition following the network outage last November.

• NCS executing well on 3-axis strategy; Nxera in expansion mode; Airtel still seeing good ARPU uplifts. NCS’ revenue, EBITDA, and EBIT grew 4%, 13%, and 28% with good cost efforts and a strong SGD788m booking from pipeline projects in 1QFY25. Digital Infraco’s EBIT fell 32% YoY on the expansion of its regional data centre (DC) platform (Nxera), including the recent JV to set up a DC in Johor. Airtel continued to deliver strong double-digit revenue and EBITDA growth (constant currency) with higher 4G/5G subs and ARPU post the repricing of plans.

• Capital recycling. We see the variable realisation dividend supported by a SGD6bn mid-term capital recycling target (c.SGD2bn recognised). We believe this will be from a further sell-down/dilution of associate stake in Airtel (now 28.7%) and/or other non-strategic holdings (eg Singapore Post, Net Link Trust).

Source: RHB Research - 16 Aug 2024