• Keep BUY and SOP-based SGD3.60 TP, 13% upside and c.6% FY25F (Mar) yield. 1HFY25 results were characterised by the solid EBIT delivery at Optus and NCS with cost savings tracking in line. Management also declared a higher interim DPS of 7 SG cents (inclusive of 1.4 SG cents in variable realisation dividend (VRD). We continue to see ROIC expansion, capital management headroom and improving earnings momentum as key catalysts. Singtel remains our preferred Singapore telco exposure, with a 4% ESG premium bolted on.

• Broadly in line; higher opex in 2H. 1HFY25 core earnings of SGD1.19bn (+6.1%) formed 78% each of our and consensus forecasts with stable revenue and EBITDA development. We expect seasonally higher 2H opex. An interim DPS of 5.6 SG cents (core DPR of 78%) tracks in line with the DPR guidance of 70-90% with a 1.4 SG cents VRD declared, all payable on 9 Dec. Management has recalibrated FY25 EBIT guidance to a “low double-digit growth” from “high single-digit to low double-digit growth” previously. We retain our forecasts but lift our TP after reflecting the latest valuations of associates.

• Pre-associate EBIT up 28% in 1HFY25 (+16% excluding Trustwave). Singapore EBIT was stable with mobile service revenue (MSR) growth of 4%. Optus EBIT grew a solid 58% in 1HFY25 on strong cost management and higher mobile ARPU (market re-pricing, recovery in subs base to pre-2022 cyberattack) with MSR up 4.3% YoY. Overall cost-outs of SGD100m were achieved to-date, tracking the SGD200m pa guidance in cost savings across Singapore and Optus into FY26F. At NCS, EBIT surged 40% with higher margin projects and strong bookings, particularly from its public sector stronghold which offset weaker enterprise spending. Meanwhile, Nxera data centre revenue grew 18%, with EBIT up 45% from utility cost pass-through. Management views the procurement of the 700MHz spectrum in Singapore as a key service differentiator with the launch of 5G on the band slated for early 2025, ahead of its rivals.

• AssociatesPAT marred by FX(-4%); stable on constant currency.In Indonesia, Telkomsel’s PAT fell 18% in 1HFY25, albeit partially buffered by the stronger showing at AIS (ADVANC TB, BUY, TP: THB298), Globe (GLOBE PM, NR) and Airtel India which grew 10-20% YoY respectively. Airtel is also expected to see the full quarter impact of the July tariff re-pricing in subsequent quarters.

• More than sufficient excess cash to be returned. We see the VRD supported by a SGD6bn mid-term capital recycling target (c.SGD0.2bn achieved in 1HFY25). This could stem from a further selldown/dilution of associate stake in Airtel (currently 28.7%) and/or other non-strategic holdings including Intouch (INTUC TB, NR). There is VRD headroom of c.15 SG cents/share from the earlier proceeds of the Airtel sale (SGD950m) and another SGD1bn from the sale and leaseback of its operational headquarters, Comcentre, which is expected by mid-2025.

Source: RHB Securities Research - 14 Nov 2024