SingTel - DBS Research 2024-10-15: Can HoldCo Discount Narrow To 10%?

• From a high of 52% in May 2024, SingTel's Hold Co discount has narrowed to 32% on
  1. a rise in the market value of its associates,
  2. improvement in core operating profit and
  3. - Read this at SGinvestors.io -
• The Hold Co discount was below 15% in FY18, rising as SingTel's share price lagged the market value growth of its associates. Excluding divestments, we project core operating profit to grow by 8% in FY25F (vs -1% y-o-y in FY24) led by stronger growth in Optus, NCS and high growth visibility in data-centre business, which could narrow the Hold Co discount.

Optus EBIT growth is a key driver to group core EBIT increase.

• Optus is set to benefit in FY25F with ~65% of its customers on revised tariff plans. Optus’ recent tariff hike was in May 2024. However, with Australia facing a challenging macro environment, another tariff hike could be delayed to next year.
• - Read this at SGinvestors.io -
• The Street expects Optus’ revenue to pick up from 2Q25F onwards, growing by 2% y-o-y (-4% y-o-y in 1Q25), benefitting from the price hikes in May 2024.
• Optus has also appointed Stephen Rue as CEO of Optus with effect from November 2024 while introducing a new governance model to adopt a decentralised operating company-driven structure.
• Telstra and Optus are priced higher than MNVOs in Australia but offer higher data packages. MNVOs lease wireless capacity at wholesale prices and resell it to customers under their brand. The two companies justify their premium pricing based on offering comprehensive coverage with perks such as international roaming and flexible contract options.

Free cash flow (FCF) from Core business and associate dividend needs to return to 60%/40% level from the current 51%/49% for the Hold Co discount to reduce to 10-15%.

• Read more at SGinvestors.io.

Sachin MITTAL DBS Group Research | https://www.dbs.com/insightsdirect/ 2024-10-15 SGinvestors.io

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