• Reiterate BUY and SOP-based TP of SGD3.50, 13% upside and c.6% FY25F (Mar) yield. Singtel’s recent Investor Day (SID2024) elucidated on its mid-term growth plan. We remain positive on earnings prospects, backed by capital recycling/dividend upsides, ROIC accretion and price repair. We believe the group is on track to meet its EBIT guidance of high single/low double-digit growth for FY25F. Key risks: Competition, earnings shortfall and SGD strength. A 4% ESG premium is baked into our TP.

• SID2024. At the SID2024 held on 29 Aug, management elucidated the Singtel28 strategy – the group’s mid-term growth plan. The focus is on: i) Driving high quality topline growth, ii), cost optimisation, and iii) capital management. SGD2-3bn of the SGD6bn targeted in the mid-term for assets to be recycled will be sourced from equity partners. While there were no specifics, we think a further sell down in Airtel (29%) is likely following the >SGD3bn successfully raised in recent years coupled with partial divestments of NetLink Trust (NLT) (24.8%) and/or NCS (100%). The proceeds should comfortably meet the 3-6 SG cents in variable realisation dividend. We see ROIC hitting 10% in FY25F and 11.3% in FY26F (FY24: 9.3%).

• Challenging core markets; repricing of Optus plans should sustain revenue momentum. The Singapore mobile operating environment continues to be challenging. Improved roaming demand and IoT connectivity should be supplementing mobile growth. Over in Australia, the high cost of living is a key headwind with Tier-2 operators (c.40 MVNOs in the market) aggressively vying for price sensitive customers. The repricing of Optus postpaid plans has flowed across 65% of its base and should sustain revenue momentum.

• Making good strides in cost rationalisation. The opex savings target of SGD200m pa for FY25F-26F (~26% delivered in 1QFY25) of the SGD600m in cumulative savings into FY26F will stem from manpower rationalisation, digitalisation (adoption of artificial intelligence (AI) and automation) and reduction in operational complexity. Management outlined a 20% corporate cost reduction in the mid-term. A 10% reduction in the Singapore headcount was achieved over the past year while Australia saw a 12% decline with another 4-5% decline envisaged for FY25F.

• Growth engines – NCS and Digital InfraCo; Nxera EBITDA to double by FY28F. It is targeting >200MW in operational capacity by end-2026 (across four markets) from ~60MW currently with expanded capacity of >400MW by 2028. As a result, Nxera’s EBITDA is expected to double by FY28F. GPU-as-a- service (GPUaas) will be replicated across Malaysia, Thailand and Indonesia in subsequent months, providing an added revenue stream. For NCS, management aims to drive stronger profitability by optimising cost (including off-shoring of cost) to align with the 12-13% EBITDA margin benchmark of peers (FY24: 9.4%).

• Associates. Management sees scope for tariffs in India to rise to INR300 with tiered plans that should further catalyse Airtel’s revenue and ensure a healthier market conduct. Higher fibre broadband penetration should also buoy Telkomsel and AIS’ (ADVANC TB, BUY, TP: THB272) performances.

Source: RHB Research - 5 Sep 2024