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