CGS International analysts Kenneth Tan and Lim Siew Khee have kept their “buy” call for Singapore Telecommunications (Singtel) with an unchanged target price of $3.70, ahead of the telco’s results for the 3QFY2025 ended Dec 31, 2024.
The analysts expect the telco’s 3QFY2025 core net profit to be at $660 million, 18% higher y-o-y and 12% up q-o-q. The increase in quarterly net profit is mainly attributed to growth in ebit and associate profit and despite foreign exchange (forex) headwinds from a stronger Singapore dollar (SGD).
In 3QFY2025, the analysts estimate that Singtel’s ebit rose by 10% y-o-y but remained flat q-o-q to $356 million. “Ongoing cost optimisation efforts likely translated to meaningful margin expansion for Optus and key Singapore business units, while partially offset by higher spectrum amortisation expenses,” the analysts write in their note dated Feb 4.
With positive growth momentum expected for Singtel’s 9MFY2025 ebit, at 21% y-o-y, the analysts believe that the telco could increase its full-year ebit growth guidance from the current low double-digits to mid-to-high teens. Any indication of an increase would be seen as a sign of Singtel’s confidence in return on invested capital (ROIC) repair, Tan and Lim write.
During Singtel’s results, the analysts surmise that all eyes will be on Optus’ operational metrics. The pair estimate Singtel’s wholly-owned Australia-based subsidiary to report an ebit margin of 5% in 3QFY2025, 140 basis points (bps) higher than the 3.6% reported in 3QFY2024.
This is driven by postpaid mobile price hikes, reduction in low-margin enterprise accounts and products, and increased traction from its cost-cutting programme.
See also: DBS is RHB’s top pick with dividend yield ‘too good to ignore’
Looking ahead, Tan and Lim see a brighter outlook for Optus ahead due to fewer operational distractions — including management reshuffle, regulatory settlement of network outage issue — and an improved cost base.
Meanwhile, in Singapore, the analysts see “flattish” revenue growth on a y-o-y basis. This is likely to stem from stronger performance from NCS, driven by a healthy order pipeline, but offset by weaker growth in Singtel Singapore, particularly in enterprise services, mobile, and handset sales.
In their report, Tan and Lim say they anticipate Singtel’s dividends to continue rising over FY2025 to FY2027 due to improved free cash flow generation and continued execution of Singtel’s asset monetisation pipeline.
Their distribution per share (DPS) estimates for FY2025, FY2026, FY2027 are 16.7 cents, 18.9 cents and 20.9 cents respectively. All of them are above the Bloomberg consensus of 15.4 cents, 17.1 cents and 18.7 cents respectively.
“[Our estimates] are premised on a reasonable 82% core payout ratio (within company core dividend policy of 70% to 90%) and value realisation dividends (VRD) of 4.3 cents to 5 cents,” the analysts write. “If OpCo margins and ROIC improve faster than expected over the coming quarters, we do not rule out the possibility of Singtel improving its dividend policy via raising its core dividend payout ratio”.
To this end, they remain positive on Singtel’s prospects for its compound annual growth rate (CAGR) of 12% for its earnings per share (EPS) over FY2024 to FY2027, the telco’s attractive yield, scope of asset monetisation and potential share buybacks.
As at 5.12 pm, shares in Singtel are trading 2 cents lower or 0.62% down at $3.21.
