• 3Q25 results were within expectation. 9MFY25 Revenue and EBITDA were 73%/75% of our FY25e forecast. PATMI exceeded estimates at 79% of FY25e due to stronger than-expected performance from associate Bharti. Dividend guidance for FY25e was around 16.6 cents, higher than our initial estimate of 15.9 cents.
• Singapore continues to face revenue pressure from mobile competition, dragging down Average Revenue Per User (ARPU) and structural weakness in legacy voice. Recovery in Optus gains momentum, with EBIT jumping 43% YoY in 3Q25 to S$91mn. Aggressive cost-cut measures and revenue growth were the key drivers.
• Our ACCUMULATE recommendation is maintained. We raise our target price to S$3.77 (prev. S$3.44) due to mark-to-market gains in associates. Revenue and EBITDA forecast remained unchanged, but PATMI raised 6% to incorporate higher associate earnings and lower depreciation. Multiple growth drivers are underway, including Optus, NCS, and Bharti. We expect S$6bn monetisation to be gradually realized from stakes in Intouch and Bharti Airtel.

• 1H25 results were within expectation. Revenue and EBITDA were 48%/51% of our FY25e forecast. Optus continued its commendable performance with EBITDA growth of 10% YoY in 2Q25 from cost savings and rising prices.
• Associate earnings fell 3% YoY to S$411mn in 2Q25. Mobile competition in Telkomsel has hurt earnings together with expanded losses at Bharti Telecom due to higher interest rates. Singtel has raised their EBIT growth guidance for FY25e from “high single digit to low double digits” to “low double digits”.
• Our ACCUMULATE recommendation and target price of S$3.44 is maintained. We reduced our FY25e associate earnings but offset by a reduction in effective tax. PATMI is unchanged. Cost-out efforts in Singapore and Australia are supporting a recovery in margin. There is no change in the strategy to monetize S$6bn of assets including Intouch, Comcentre and Bharti Airtel.

• 2024 Investor Day: The effects of higher mobile prices in Australia, India, and Thailand will flow into upcoming quarters via higher margins. The S$200mn cost out p.a. in Optus and Singapore are on track together with an additional 20% cut in S$150mn corporate cost. Capital expenditure has peaked and will gradually decline.
• The most exciting division is Digital Infrastructure, which has three major growth drivers. Firstly, data centre (attributable) capacity will almost triple from 62MW currently to 166MW by 2026. Besides capacity, a new GPU-as-a-service revenue streaming service utilising Nvidia AI chips will be rolled out. Finally, revenue from its patented Paragon platform is beginning to surge as deployment is underway in multiple countries.
• We maintain our ACCUMULATE recommendation with an unchanged target price of S$3.44. We expect earnings growth to be largely driven by cost savings, higher mobile prices, and data centre capacity. Paragon and GPU-as-a-Service are two new growth drivers and share price catalysts. AI is also an opportunity for NCS as a catalyst for new application and integration projects. The pace of earning growth for the group will depend on currency and the health of consumer spending, especially in Thailand and Australia.

• 1Q25 results were within expectation. Revenue and EBITDA were 23%/25% of our FY25e forecast. Optus reported stronger margins offset by weaker associate income due to currency depreciation. 1Q25 net profit growth was largely driven by an absence of losses in Trustwave.
• Associate earnings were down 5% YoY to S$406mn. A weaker Indonesia rupiah pulled down Telkomsel's net profit by 6.3% points. Bharti suffered from Nigerian Naira translation losses and higher interest expenses from the additional stake in Airtel.

• Our ACCUMULATE recommendation and target price of S$3.44 is unchanged. We nudge our PATMI by 2% to account for lower depreciation. Optus operations are benefiting from the planned S$200mn cost-out plans p.a. Associates will benefit from higher mobile price plans, especially India’s repricing in July. Currency depreciation will be the headwind. Further monetization of assets will be a share price catalyst.

• A new company (NewCo) will be created to own Singtel’s 24.99% stake in Intouch and Gulf Energy Development’s assets such as gas-fired and renewable power plants. In exchange, Singtel will own 9.08% of NewCo and receive S$135mn in special dividends.
• Singtel and Gulf Energy will launch a voluntary tender offer for the 36.25% stake in Advanced Info Service (AIS) they do not own. The offer price of Bt216.30 per share is below the closing price of Bt220. Therefore, we assume Singtel’s stake in AIS will remain unchanged at 23.31%.
• We are positive on the transaction. It partially monetises Singtel’s stake in Intouch and AIS with the S$135mn special dividend. Furthermore, the Intouch stake will become part of a much larger (and likely more liquid) Newco with a market cap of S$25bn. We believe the trade-off is lower dividends from Intouch into a faster-growing NewCo, propelled by the planned build-up of energy assets. The eventual listing of NewCo shares above the implied Bt45 per share will be a value accretive catalyst. We downgrade our recommendation from BUY to ACCUMULATE due to the recent price rally. Our target is raised from S$3.00 to S$3.44 as we lower the discount on associates from 30% to 25%. The discount is narrowing as Singtel moves closer to achieving its S$6bn divestment target. No change in our forecast.

Key Highlights
There are essentially two transactions. The first is to amalgamate Intouch and Gulf Energy Development (Gulf Energy) assets in a new company (NewCo). The second transaction involves a voluntary tender offer (VTO) of Advanced Info Service (AIS).

• 4Q24 revenue was within expectations, with FY24 revenue at 97% of our EBITDA exceeded 105% of forecasts due to higher other income and Optus margins. The final dividend was raised by 13% to 6 cents and an inaugural “value realisation dividend” (or recurrent special) of 3.8 cents.
• Optus managed to expand 4Q24 EBITDA margins to the highest in six quarters. Headcount at Optus declined by 12% over the past twelve months. Mobile price repair is also underway with postpaid ARPU rising 2.4% YoY.
• We maintain BUY with a higher target price of S$3.00 (prev. S$2.80). We raised our FY25e EBITDA by 5% and the market valuations of associates are higher. We see multiple earnings and share price drivers for Singtel. These include (i) S$200mn p.a. cost down in Australia and Singapore. FY24 combined headcount is down almost 7% YoY; (ii) S$300-400mn EBITDA opportunity in GPU-as-a-Service; (iii) planned asset disposals of S$6bn; (iv) recovery in associate earnings post current de-valuation in Airtel Africa, growth in home broadband and higher mobile prices. The dividend yield is now 6.2%.

The Positive

+ Margin recovery in Optus. Optus 4Q24 EBITDA margin of 27% was the highest in six quarters. The recovery was due to aggressive cost management. Headcount was lowered by 12% YoY to 6,313. The lower cost structure will carry into the FY25e. Another driver to earnings has been the growth in mobile service revenue of 5% YoY in 4Q24 as postpaid ARPU and subscribers creep up.

The Negative

- Weakness in Singapore and NCS. Singapore's profitability was negatively impacted by lower equipment sales and constant drag from legacy voice services. Weakness in margin was due to higher staff, selling, and administrative costs. NCS's drop in earnings was due to a loss from an undisclosed project. Earnings would have grown, excluding this impact.

• Singtel announced exceptional non-cash impairment provisions of around S$3.1 bn in 2HFY24. As a result, Singtel will report a net loss in 2H24. Reasons for the impairment include higher interest rates, the rollout of NBN, weaker enterprise spending, and softer macro conditions.
• Singtel also announced that Optus has signed an 11-year agreement to provide TPG Telecom with access to Optus mobile network sites in regional Australia. Optus will receive a service fee worth A$1.6bn over the 11 years. There is an A$900mn fixed fee and A$690mn variable as the Optus 5G network rolls out.
• We view the write-offs as one-offs without impacting our valuations. Singtel also made a S$1bn goodwill impairment on Optus in FY23. Sharing networks with TPG would be positive in terms of conserving cash flows and reducing excess capacity if TPG were to roll out its network. We maintain BUY with an unchanged target price of S$2.80. We expect Singtel's operational performance to improve as mobile price repair occurs in multiple countries. Other share price catalysts include plans to monetise S$4bn of assets further, S$600mn of operating expense savings, and GPU-as-a-Service with Nvidia.

The exceptional provisions will not impact Singtel’s dividend policy (70% and 90% of underlying net profit). Singtel is on track to pay at the upper end of its dividend policy for FY24 (PSR: 84% payout ratio).

Network sharing agreement between Optus and TPG Telecom

• What will Optus provide? Optus will provide TPG Telecom access to its 2,444 regional radio access network sites in regional Australia, of which only 200 are 5G enabled. Optus will accelerate its 5G sites in regional Australia to 1,500 by 2028 and 2,444 by end-2030. There is an option for TPG Telecom to extend the agreement for a further five years. Optus will receive total service fees of around A$1.6bn over the 11-year agreement (net of the spectrum fees A$1.17bn).

• What will TPG provide? TPG will license some of its spectrum to Optus. Optus will pay A$420mn over the entire 11-year term for the use of the spectrum, which allows Optus to improve the capacity of its network without requiring more network sites.

• 3Q24 earnings were within expectation. 9M24 revenue and EBITDA were 73%/75% of our FY24e forecast. Currency was almost a 2% point drag to earnings.
• 3Q24 associate contribution disappointed with an 8% YoY decline to S$374mn. Airtel Africa suffered a YTD24 translation of S$130mn following a massive depreciation of the Nigerian Naira during the quarter. Direct stake in Airtel Africa has been divested.
• We maintain BUY with an unchanged target price of S$2.80. We lowered our associate earnings by 10% due to the weakness in Airtel Africa. But this was offset by a lower finance expense assumption. Our FY24e PATMI is reduced by 3%.  We expect an upside surprise in EBITDA margins in 4Q24 if Singtel can deliver its S$200mn of cost out by the end of FY24. Mobile price repair is underway in multiple countries where Singtel operates. We expect this to drive earnings together with plans to monetise S$4bn of assets further. 

The Positive

+ Early mobile price repair in Australia. Optus postpaid ARPU of A$42 is the highest in more than four years. We believe price repair is underway. Competition, especially for entry-level price plans, has eased, and prices are edging higher. Despite the network outage, mobile service revenue grew 3.4% YoY.

The Negative

- Airtel Africa currency hit. Contribution from Bharti Telecom declined 23% YoY to S$87mn. Operations in India grew 14% YoY supported by an 8% rise in ARPU to Rp208. Currency took a toll on the results, with a 4% decline in the rupee against the Singapore dollar. A translation loss hit Africa operations due to the weakness in the Nigerian Naira.

Outlook

We expect mobile price recovery in Australia, India, Thailand, and Indonesia to drive earnings growth. An upside surprise in margins will stem from Singtel’s planned S$600mn reduction in core cost, largely in Optus.

Maintain BUY with unchanged TP of S$2.80

Our SOTP valuation is based on 6x EV/EBITDA (in line with peer valuation) for Singtel’s core Singapore and Australia businesses, and associates are marked to market after a 20% discount to reflect volatility in their share prices.

• 1H24 revenue and EBITDA were within our expectations at 46% of our FY24e forecast. EBITDA declined 5% YoY to S$1.78bn due to an 11% contraction in Optus earnings. Underlying net profit rose 11% to S$1.12bn despite a 4% point drag on currency.
• Singtel increased interim dividends by 13% to 5.2 cents and revised higher its payout ratio from 60-80% to 70-90%. A 3-year programme to remove S$600mn (of S$200mn p.a. FY24-26) of indirect cost was announced.
• We maintain BUY with an unchanged target price of S$2.80. Our earnings are largely unchanged before incorporating exceptional items. We believe Singtel is making significant strides in restructuring the entire group, monetising assets, and shedding unprofitable entities. Mobile competition in Australia is not abating and Optus needs to realign its cost structure to this reality. Underlying net profit in 1H24 fell 69% YoY to A$13mn.

The Positives

+ Increase in dividends and payout ratio. Singtel raised interim dividends by  13% to 5.2 cents. The company also increased its committed dividend payout ratio to 70-90% of underlying net profit (prev. 60-80%).  Supporting dividends was FCF (plus associate dividends and lease payments) of S$817mn (1H23: S$1.29bn).

+ Strong margin expansion at NCS. NCS is beginning to contribute more significantly to group earnings. EBITDA expanded 24% YoY to S$136mn from revenue growth and cost optimisations. NCS booked S$1.4bn in orders in 1H24 (1H23: S$1.3bn). Much of the growth was outside the traditional government sector.

The Negative

- Still stubborn cost structure at Optus. Optus EBITDA declined 3% YoY to A$1.03bn despite revenues growing. There was an almost 50% jump in utility cost or an additional A$24mn. It was encouraging that staff costs have started to stabilise. 1H24 underlying net profit fell 69% ToT to A$13mn on lower operating earnings and higher finance costs. There was a staff restructuring cost of S$21mn under exceptionals, but which division was not disclosed.

Outlook

We believe management’s restructuring strategy is beginning to yield results:

• Of the planned $6bn of assets to be monetised in the near-term S$2bn has been unlocked*.
• Re-organising the group and resources into growth sectors has seen improvement in earnings at NCS and monetisation of the digital infrastructure division.
• Closure of Hooq (Mar20), divestment of Amobee (Jul22) and Trustwave (Oct23) has removed an estimated S$200mn of operating losses.
• The planned S$600mn cost out programme (or removal of S$200mn p.a. of indirect cost) from FY24 to FY26, will be a key initiative to lower fixed costs, especially at Optus.

Maintain BUY with unchanged TP of S$2.80

Our SOTP valuation is based on 6x EV/EBITDA (in line with peer valuation) for Singtel’s core Singapore and Australia businesses, at S$0.90/share. Associates are marked to market at S$1.90/share after a 20% discount to reflect volatility in their share prices.

• 2023 Investor Day: Mobile price recovery is underway in India, delayed in the Philippines and Thailand and likely in Indonesia. Australia and Singapore face challenges due to low-end competition by MVNOs.
• Growth drivers for Singtel include fixed broadband (Indonesia, India and Thailand), data centres and NCS. There is an upside to ordinary dividends with S$2bn of excess cash yet to be returned. Generative AI will soak up data centre supply even faster due to the spike in power and cooling requirements.
• Our BUY recommendation and SOTP TP of S$2.80 are maintained. We believe earnings have troughed as mobile prices start to edge up higher and new growth engines gather scale. The downside will depend on Optus's ability to rationalise cost to cope with the unrelenting price competition. Other catalysts for Singtel include the disposal of loss-making Trustwave, paring down of associate stakes (to narrow holding co-discount) and monetisation of fixed assets (towers, real estate) and other businesses (IPO).

Key Highlights from Singtel Investor Day 2023

1. Corporate

CEO: Unwavering focus on strategic reset

1. Consolidation amongst mobile operators is underway and healthy for the industry. For Singtel, 4 of the 6 countries they operate have consolidated. In Singapore, Singtel is not allowed to become the consolidator.
2. With mobile market repair, ARPU and EBITDA margins are improving such as India, Thailand and Indonesia.
3. 5G is not up to scale but you do see early adopters at the Hyundai factory deploying robotics at a commercial level to assemble cars and not just trials. Other adopters are aviation and ports. Singtel’s Paragon 5G software has been developed with interest from North American and European telcos.
4. GXS digital bank was launched in August 2022 and deposits were even rolling in too fast. Malaysia and Indonesia are the opportunities with a target launch date end 2023.
5. Fibre broadband penetration is low at 10-17% and will be a high growth area for the next five years. There will be synergies and momentum with bundling with mobile phone plans.

CFO: ROIC, growth and monetisation (to rerate share price)

1. Will “double down” (capital) in the growth engines of digital infraco and NCS. Telco industry EBITDA has been lost and will never be replenished. Singtel will focus on new growth areas.
2. Current ROIC is 8% (excluding Optus goodwill or ignoring the purchase price of Optus) with the target of low double-digits by FY26. Drivers to ROIC improvement are increasing efficiencies for Optus and Singtel SG; sale of loss-making businesses (e.g. Trustwave with EBIT loss of S$100mn p.a.); reduced capital intensity and improvement at Airtel.
3. On NCS and regional data centre (RDC), the combined EBITDA contribution to rise from 12% to more than 20% by 2028 of Group EBITDA. This implies outpacing the growth of matured telco businesses by only 1.6% points per year (including acquisitions). The current market is not conducive to IPO, but NCS or RDC can bring in 20-25% stake partners.

1. On the associate stakes, Singtel will look to pare down the stakes but not completely dispose them. There is S$50bn in value in the associate stake which can be reallocated to growth areas.
2. There is more latitude to raise ordinary dividends with the S$2bn excess cash (or 11 cents) in operating cash flow not paid out. Will not borrow to pay dividends.

1. Subsidiaries

Optus: MVNOs the formidable 4^th operator

1. Tier 2 brands or MVNOs have been capturing market share by 5.7% points from 19.7% in 2019 to 25.4% in 2022. This was despite Optus purchasing the largest MVNO amaysim in 2021 for A$250mn.
2. MVNOs value proposition is lower prices with a Telstra network for coverage. Telstra has a sticky postpaid market share of 50% share and uses wholesale to take the lower-tier plans. The trend of the 40 MVNOs capturing more share or customers trading down is unlikely to stop unless downtrading hurts Telstra or prices come down to wholesale cost. Telstra's wholesale price arrangement with MVNOs can be revenue share, fixed fees, etc.
3. The deteriorating consumer confidence is also causing a trade-down effect. Any price repair in the industry will be anchored down by the MVNO prices.
4. Optus is competing in mobile service innovation. These include donating data plans to the underprivileged, the ability to pause network connection (for the whole household), mobile turbocharge during congested periods, unlimited data days, call translation between speakers, call notes, subhub to consolidate all content providers and smartspace experts to install a well-connected home for customers.

Singtel Singapore: Merging consumer and enterprise for cost and revenue synergies

1. The ROIC is healthy at low20% but still working on cost synergies at the operating and capital expenditure level post the integration of both businesses.
2. Mobile ARPU is down despite an uplift in roaming due to SIM-only plans. EBITDA is a better gauge.
3. On consolidation of mobile operators, regulators could be more understanding and voicing an opinion. If it does happen, Singtel will be the major player.
4. Hyundai is using 5G for their Ionic 5 assembly in Singapore and requires only 10 workers in the factory. Robotics can help resolve labour and union issues. 5G is better than WiFi due to low latency. WiFi performance also degrades when more devices are connected. If successful, other models could be assembled in the Singapore plant. Micron is also using 5G for detecting faults. 5G can also provide slicing for security purposes or reserved bandwidth for emergency cases.
5. Other countries are still pacing out their 5G rollout because the application is not here yet. But 5G can raise prices when transitioning from 4G. 5G penetration is now 40%. Any mass adoption of 5G still relies on the consumer market.

NCS: Targeting key sectors

1. Started in 1981, it is the largest systems integrator in SE Asia with more than 12,000-strong workforce and more than 4,000 ongoing projects. The top 30 clients provide 70% of revenue and more than 10 years of relationship. The target is S$5bn revenue in three years from current S$2.7bn. This likely includes acquisitions after completing the recent acquisition of Australian businesses.
2. EBITDA declined in 2022 due to the acquisition cost of four companies in Australia to penetrate the market, and a one-off wage increase in the middle of last year but the situation has settled down and there are investments to change the model to three strategic focuses. The book to bill is 1.02.
3. The government sector customers are stat boards, ministries, defence and homeland security. NCS is essentially the tech partner of the government. Some projects include tax collection solutions, IOT sensors in the housing estate, smart lighting/lifts/sensors, robotics for surveillance, and data analytics for the tourism sector.