Singapore Telecommunications - UOB Kay Hian 2016-08-19: Raises Stake In InTouch Holdings And Bharti Telecom

Singapore Telecommunications (ST SP) - UOB Kay Hian 2016-08-19: Raises Stake In InTouch Holdings And Bharti Telecom SINGTEL Z74.SI

Singapore Telecommunications (ST SP) - Raises Stake In InTouch Holdings And Bharti Telecom

  • The proposed acquisitions of 21% of InTouch Holdings and 7.4% of Bharti Telecom allow Singtel to entrench its positioning in the high-growth emerging markets of Thailand and India. 
  • The deal has a neutral impact on EPS but increases its NTA/share by 10.6%. 
  • Maintain BUY. Target price: S$4.70.


Up stakes in mobile associates. 

  • Singtel has proposed to acquire from parent Temasek Holdings a 21% stake in InTouch Holdings and a 7.4% stake in Bharti Telecom for S$2,470m. The acquisition values InTouch shares at Bt60.83 (20-day VWAP) and Bharti Telecom at Rs235.62 (10% discount to 20-day VWAP as it is not listed).
  • InTouch owns 40.5% of Advanced Info Service (AIS), 41.1% of Thaicom and other smaller businesses in Thailand, such as ITAS, MB, ITV and InTouch Media. Bharti Telecom is a holding company for a 45.1% stake in Bharti Airtel.

Financing an integral part of the packaged deal. 

  • The deal would be funded by the proceeds of S$1,605m from the placement of 386m new Singtel shares to Temasek at S$4.16 each, and the balance from internal cash and short-term debt.
  • The three legs of the transactions - the acquisition of InTouch, the acquisition of Bharti Telecom, and the issue of new shares to Temasek - are inter-conditional upon each other. The whole deal would be aborted if any leg of the deal fails to go through.
  • The acquisition is subject to approvals from Singtel's minority shareholders during an EGM by end-October, and from regulators in Singapore, Thailand and India. Completion of the transaction is expected by end December.


Building entrenched positioning in high-growth emerging markets. 

  • The proposed transactions are in line with Singtel's intention to increase its stakes in its regional mobile associates. Thailand and India are high-growth emerging markets. AIS is the largest mobile operator in Thailand with 39m mobile subscribers and a market share of 46%.
  • Bharti Airtel is the largest mobile operator in India with 256m mobile subscribers and a market share of 25%.
  • We are pleasantly surprised that the price tags for InTouch Holdings and Bharti Telecom are lower than their prevalent market prices.

No general offer for AIS. 

  • The acquisition, if completed, will increase Singtel's effective stake in AIS from 23.3% to 31.8%. The 25% threshold for takeover is based on direct stake. Singtel is buying into InTouch and its direct stake in AIS remains unchanged at 23.3%. Thus, the acquisition does not trigger a general offer for AIS.
  • Singtel’s effective stake in Bharti Airtel will increase from 32% to 36.2%. Temasek’s stake in Singtel would increase from 51.1% to 52.3%.

Neutral impact on EPS. 

  • Management estimates the transactions will increase Singtel’s NTA/share by 10.6% to S$0.84 and increase FY16 EPS by 0.4% to 24.4 cents. Singtel has not provided specific guidance on the impact on gearing. We estimate Singtel’s net debt/equity would be relatively unchanged at 0.32x.

No impact on Singtel’s dividend policy. 

  • The transactions are not expected to affect Singtel’s dividend policy, which remains unchanged at 60-75% of underlying net profit.


  • We maintain our earnings forecasts pending approval and completion of the proposed transaction.


  • We did a scenario analysis based on two possible outcomes: 
    1. best case - no new telco entrant, and 
    2. worst case - a fourth mobile operator disrupts the status quo. 
    We attribute a probability of 25% for the best case and 75% for the worst case.
  • Our probability-weighted target price is S$4.70 (best case: S$5.02, worst case: S$4.61).
  • The risk-reward trade-off is favourable with potential upside of 9.8% to 19.5%.


  • Singtel is the least affected by a fourth mobile operator in Singapore as its overseas businesses account for about 70% of its bottom-line.
  • Singtel will benefit from growth at its regional mobile associates, such as Telkomsel in Indonesia, Bharti Airtel in India, Advanced Info Service in Thailand and Globe Telecom in the Philippines.
  • Singtel is the largest and most liquid defensive stock listed on the Singapore Exchange and deserves to trade at a premium.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-19
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.700 Same 4.700