• 1H22 EBITDA / PATMI met our expectations at 48%/47% of FY22e estimates.
• Australia consumer EBITDA rebounded 28% YoY in 1H22 to A$918mn (excl. NBN). Mobile service revenue expanded almost 10% to A$1.84bn, supported by a 12% rise in ARPU.
• Interim dividend was cut for the 2^nd consecutive year to 4.5 cents (1H21: 5.1 cents, 1H20: 6.8 cents). Dividend guidance is 60%-80% payout of underlying net profit.
• Our FY22e forecast is unchanged. Operationally, we expect earnings to further expand in 2H22. Associate earnings will recover as lockdowns ease and economic conditions improve. Border re-openings will also support Singapore and Australia consumer divisions. We maintain our ACCUMULATE recommendation. Our SOTP TP is raised to S$2.86 from S$2.52 with higher associate market valuations.

The Positives

+ Resurgent Australia mobile. Mobile service revenue expanded almost 10% to A$1.84bn.  Blended ARPU increased 12.6% to A$32, close to pre-pandemic levels. Optus 5G plans have been capturing market share in SME and consumer segments.

+ Bharti turnaround is intact. Despite the pandemic, Bharti Airtel (BHARTI IN, Not Rated) enjoyed a major S$138mn YoY turnaround in 1H22 net profit. Earnings growth is driven by a 10% increase in subscribers and a 7% YoY rise in ARPU. Following the rights issue in October, Singtel’s stake in Bharti nudged up from 31.72% to 31.76%.

The Negative

– Cut in interim dividends. Despite improving earnings, the interim dividend was cut for the 2^nd year to 4.5 cents. 1H22 free cash flow at S$1.7bn was similar to last year. When compared to 1H19, there is a shortfall of S$200mn due to higher capital expenditure needs for 5G. Our FY22e DPS is 9 cents (or 70% payout).

Outlook

Earnings should recover further in 2H22. More economic sensitive associate earnings will rebound as lockdowns ease and economic conditions improve. Singapore and Australia mobile will enjoy a lift in revenues as borders re-open. Improvement will be from higher roaming revenue and equipment and re-contracting sales as shops re-open. We are neutral on the disposal of infrastructure assets. It appears more a refinancing exercise unless cost savings or new revenue opportunities are achieved through the disposal.

In terms of FY22 guidance, Singtel reaffirmed capital expenditure of around S$2.4bn (FY21: S$2.2bn), dividends from associates of at least S$1.3bn (FY21: S$1.3bn) and dividend payout of between 60% and 80% of underlying net profit (FY21: 71%).

Maintain ACCUMULATE with a higher TP of S$2.86, from S$2.52

Our SOTP valuation is based on 6x EV/EBITDA for Singtel’s core Singapore and Australia businesses, at S$0.77/share. Associates are marked to market at S$2.09/share with a 20% discount to reflect volatility in their share prices.