UOB Kay Hian cuts earnings estimate for telecoms by 1%

The projected full-year net profit for 2022/2023 is now at $2.254m.

Despite posting an 11% year-on-year (YoY) growth in its earnings in 2021/9MFY22, UOB Kay Hian still cut its net profit forecast for the telecommunications sector by 1%.

The analyst said the sector will likely post a net profit to increase 15% YoY to $2.254m for full-year 2022/2023 amid high single-digit service revenue growth.

On the big three telecoms, UOB Kay Hian believes Singtel will perform best in 2022 given the “postpaid trajectory seen in Singapore.”

Singtel, which posted a 10.8% YoY growth in its core net profit in 9MFY22, would also be the best to invest in given that it is a proxy to “economic reopening in Southeast Asia; and monetisation of assets to narrow the valuation gap, including setting up a regional data centre and potentially, a regional digital banking outfit in Southeast Asia.”

Apart from Singtel, Netlink will also be a good as a “defensive shelter,” according to the analysis.

“We continue to see the stock as a good shelter amid market volatility given its strong earnings visibility, healthy balance sheet and cautious approach in terms of overseas/domestic acquisitions,” UOB said, adding that the telecom offers a 5% dividend yield.

In 2021, Netlink posted the second-highest growth in core net profit of 12.6%.

Meanwhile, StarHub will also ring the new financial year with a robust 10% YoY service revenue growth; however its “EBITDA will be adversely impacted by inflationary pressure (higher utility) and upfront investment for IT transformation,” the analyst said.

“Starhub expects the margin to recover from 2023 onwards (to at least 23% from 20%),” UOB Kay Hian added.

Looking at the FY2021, however, StarHub was among the drivers for the growth of the sector given its strong enterprise revenue.

StarHub posted the highest increase in core net profit of 17.0% YoY.

Netlink and Singtel also contributed to the growth with their stronger non-building address points (NBAP) connections and strong associates’ contributions, respectively.

The main reason for the growth in the sector’s earnings in FY2021 ($1.683m) however was the stronger postpaid revenue, lifted by 5G average revenue per unit (ARPU), UOB Kay Hian said.

“Telcos have been reporting good take-up rates, as smartphone users are embracing 5G to improve user experience with mobile applications. This was evidenced in the higher postpaid average revenue per user (ARPU) trend in both Singtel and Starhub, which offset the dilution from SIM-only plans.” the analyst said.

In the fourth quarter of 2021, postpaid revenue rose 5% YoY and 4% QoQ thanks to a 5% YoY increase in postpaid subscribers and a 2% YoY increase in ARPU.