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$SINGTEL(Z74.SI)$by dbs research

1QFY22 numbers are towards the upper end of our expectations

• Singtel's 1QF22F underlying net profit of S$451m (+31% y-o-y) was towards the upper end of our estimate of S$430m-S$450m

• Sharp recovery in Australia, profit turnaround of Bharti and stabilization of Singapore were key drivers.

• Maintain BUY with unchanged TP of S$3.01 for over 28% upside potential and 3.6% yield

Singtel's 1QF22F underlying net profit of S$451m (+31% y-o-y) was towards the upper end of our estimate of S$430m-S$450m and comprised 22% of our full year estimate. What stood out was a big rise in Australia consumer operating profit to S$44m (excluding National Broadband Network migration revenue) compared to S$26m in 4Q21 and operating loss of S$59m in 1Q21. It was led by broad-based price hikes by all players in March and improving take up of higher ARPU plans. Bharti also staged a turnaround in profit along the expected lines. As expected Singapore consumer business operating profit stabilized on sequential basis to S$74m.

Australia consumer business improving sharply despite a big drop in NBN migration revenue. Optus mobile service revenue was up 11% y-o-y, driven by higher penetration of Optus Choice plans which partially offset the impact of lower roaming and prepaid mobile revenues from the lower number of travellers. In May 2020, Optus raised its SIM-only plans by A$6 across the board, which might also support its mobile service revenue. NBN migration revenue fell to A$42 million from A$108 million in 1Q21 along the expected lines but still Australia consumer EBITDA rose 23.5% y-o-y to S$506m. Excluding NBN migration fee, Australia consumer EBITDA rose by a whopping 36% y-o-y.

Associates’ pre-tax profit contribution grew strongly by 38% y-o-y to S$514m. It was boosted by a turnaround in Airtel’s earnings from a net loss in the year-ago quarter to a net profit contribution of S$64m this quarter due to strong operating momentum in India and Africa, as well as growth from Globe. Bharti is expected to show further improvements in subsequent quarters

Core business improvement should lead to a surge in the value of the core business. ST’s current share price implies that the market is valuing its core business in Singapore and Australia at only 15 Scts compared to our fair value of 64 Scts per share.