Is Singtel A Good Buy Now?
Singtel (SGX:Z74) has recently published its 1Q 2024 financial report. In this article, we will deep dive into its performances.
In case you missed it:
Singtel (SGX: Z74) has recently published its 1Q 2024 financial report. In this article, we will deep dive into its performances.
🏢 Market cap: $51.7B
🔥 Dividend yield: 4.8%
📒 Price to book: 2.16
💰 Price to earnings: 17.26
💸 Return on Equity: 5.95%
📢 EPS 5Y Growth: -24%
🔎 DPU 5Y Growth: -3%
Technical Wise
Singtel has recently broken new high. Technically, we think it is currently overstretched. We will prefer to wait for the a consolidation or correction for better entry.
Financial Highlights
At the group level, Singtel's momentum appears steady. The management team emphasized a more optimistic outlook for its Digital Infraco segment, which is poised for significant growth. While Bharti, its Indian associate, is expected to maintain a strong performance, there are concerns surrounding Telkomsel's growth revival and potential penalties for Optus related to a 2022 cyberattack.
Singtel is on track to achieve around SGD 6 billion in capital recycling, with SGD 2-3 billion anticipated to come from equity partnerships. This financial maneuvering, combined with improving organic cash flows and past capital management initiatives, positions Singtel to potentially pay dividends at the higher end of its guidance—translating to an attractive yield of 6%. Additionally, the management is considering share buybacks and capital reductions, which could provide further downside support for investors.
Dividend per share (DPU)
The DPU chart below is self-explanatory. Singtel has been increasing its DPU since 2021. However, its DPU level has yet to recover to its pre-Covid level.
Yield
Singtel is offering an attractive 4.5% yield, which is currently at its historical average.
Earnings per Share
EPS has been a bit choppy for Singtel. But we are positive on its future outlook, earnings likely to grow or remain stable.
Value Proposition
The future looks particularly bright for Digital Infraco and Bharti. Singtel aims to double its data center business EBITDA over the next four years, tapping into the burgeoning GPU-as-a-Service (GPUaaS) market. With partnerships in place, including a notable collaboration with Nvidia, Singtel is establishing itself as a key player in the national AI cloud sector, catering to government and large enterprises.
On the other hand, Bharti is making significant strides in India, with management targeting an increase in Average Revenue Per User (ARPU) from INR 211 to INR 300. The momentum in enterprise solutions, data centers, and fixed broadband is robust, with expectations of strong earnings and cash flow growth—projected EPS and Free Cash Flow to increase at a staggering 73% and 28% CAGR from FY24 to FY27, respectively, according to Bloomberg consensus.
These developments present a compelling investment case, highlighting Singtel’s commitment to leveraging technology and innovation to drive future growth.
Risk and Competitor Analysis: Navigating Challenges
However, navigating this landscape is not without its challenges. Telkomsel's revenues have remained stagnant over the past year and a half, contrasting sharply with the 8-13% growth reported by its competitors. Factors such as weak consumer spending and a shift towards affordable broadband plans have hindered Telkomsel's momentum, making it imperative for management to adapt swiftly.
Moreover, Optus faces the looming specter of potential penalties related to the 2022 cyberattack. Although management seems poised to tackle these challenges, the uncertainty surrounding the penalties adds a layer of complexity to its operational environment. On a positive note, Optus is improving its operational efficiency through price increases and cost reductions, yet the pressure on consumer spending remains a concern.
From a broader perspective, Singtel operates in a competitive arena across ASEAN, India, and Australia. While the potential for cost and capital optimization exists, especially with the peaking of 5G rollout, the market's competitive dynamics could intensify. The holdco discount of 36% appears unjustified given the positive growth tailwinds, and we forecast a robust 16% CAGR in earnings from FY25 to FY27, primarily bolstered by its associates.
Conclusion:
In summary, Singtel stands at a pivotal junction, with a solid foundation and promising growth prospects in its digital and telecommunications arms. While challenges with Telkomsel and potential penalties for Optus present risks, the overall outlook remains positive. With strategic initiatives in place, including capital recycling efforts and a focus on enhancing shareholder value through dividends and share buybacks, Singtel is well-positioned to navigate the complexities of the telecommunications landscape.
As the company continues to adapt and innovate, stakeholders can look forward to a future filled with opportunities, driven by technology and a commitment to excellence. Whether you’re an investor or simply interested in the world of telecommunications, Singtel’s journey is one to watch as it strides confidently towards its ambitious goals.
Technical wise, we would prefer to wait for better or lower pricing for entries.
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Disclaimer: This article constitutes the author’s personal views and is for entertainment and educational purposes only. It is not to be construed as financial advice in any form. Please do your own research and seek advice from a qualified financial advisor. From time to time, I have positions in all or some of the mentioned stocks when publishing this article. This is a disclosure - not a recommendation to buy or sell stocks.