• Keep BUY, with new SOP-based SGD3.25 TP from SGD3.15, 35% upside and c.6% FY25F (Mar) yield. We view Singtel’s new absolute commitment on surplus cash to be returned and the sharpened narrative on earnings delivery positively. FY24 return on invested capital (ROIC) expanded further to 9.3% and is expected to rise to >10% in FY25F, based on our estimate. Capital management upside, ROIC accretion and price repair in key markets are key investment thesis and share price catalysts.

• Resilient growth. 4QFY24 core PAT (stripping out SGD2.5bn in impairments and one-offs in 2HFY24) of SGD579m (+3% QoQ, +19% YoY) brought FY24 core PAT to SGD2.26bn (+10.1%), 3% ahead of our forecast albeit a slight consensus miss (95%). Operating revenue and EBITDA fell 3.4% and 2.4% YoY with the 6% AUD against the SGD. However, lower depreciation expense and net financing cost bolstered the bottomline. A final 6 SG cent DPS brought full year core DPS to 11.2 SG cents, at 82% of core PAT (in line with 70-90% DPR guidance). A 3.8 SG cent additional DPS (surplus from capital recycling) puts total FY24 DPS at 15 SG cents, on par with FY23. Key FY24 results highlights and takeaways:
  
  i. Singapore. EBIT narrowed 5.2% from higher network and digital investments. Mobile revenue grew 3%, helped by the recovery in roaming revenue. Notable synergies from the consumer and enterprise integration should be seen into FY25;
  
  ii. Optus turned in flat revenue and EBIT. EBITDA was stable on cost optimisation. Further price uplifts in the market with the cost savings executed should see stronger EBIT uplift in FY25F (FY24: +0.5%);
  
  iii. Associate contributions (+2.2% YoY) were lifted by Airtel India, Advanced Info Service (ADVANC TB, BUY, TP: THB259) and Globe, albeit partially offset by lower Telkomsel contributions;
  
  iv. Digital Infraco grew 8% on data center (DC) revenue growth of 10% from price uplifts and higher utility revenue. EBITDA fell 4% from capacity build-up.

• New ST28 plan sees more capital management upside with a focus on earnings delivery. A new two-pronged strategic plan (ST28) to drive sustained value realisation has been unveiled alongside a commitment to return 3-6 SG cents pa in additional DPS pa (on top of the core DPR policy). This offers visibility and some certainty on the return of surplus cash with SGD6bn additional capital to be recycled in the mid-term.

• Minor forecast adjustments. Management expects EBIT (ex-associates) to grow at high single digit to low double digit for FY25F (FY23: + 4%, driven by: i) core improvements in key growth engines (NCS, Digital InfraCo), ii) SGD0.2m opex savings pa (communicated earlier), and iii) stronger associates. Our FY25F-26F core earnings are raised by 2-4%, with valuation rolled forward and FY27F introduced. Key risks: Competition, weaker-than- earnings/margins, and FX volatility. Our TP includes a 4% ESG premium.

Source: RHB Research - 24 May 2024