SingTel - Phillip Securities 2019-07-12: Regional Associates Driving Recovery

SINGTEL (SGX:Z74) | SGinvestors.io SINGTEL (SGX:Z74)

SingTel - Regional Associates Driving Recovery

  • Improving regional associates driving the recovery in SingTel’s operations.
  • Recent revisions in mobile offerings have narrowed TPG Telecom’s opportunity in Singapore
  • Opportunity in monetising the digital business from a successful listing could see SingTel unlocking S$3.6bn in value or S$0.22 to its share price.
  • Downgrade to ACCUMULATE with an unchanged target price of S$3.66. No changes to our estimates. The downgrade is due to recent SingTel share price performance. Our target price is based on FY20e 7X EV/EBITDA of SingTel’s Singapore and Australia businesses and the valuation of its listed associates.



Background

  • SINGTEL (SGX:Z74) is the largest mobile network operator in Singapore and the leading telecommunications company in the region. SingTel provides a diverse range of services including fixed, mobile, internet, television, info-communications technology and digital solutions. The group structure consists of Consumer, Group Enterprise and Group Digital Life.
  • Optus, a subsidiary of SingTel, is the 2nd largest telecommunications company in Australia.
  • SingTel is also invested in leading companies in the region such as Bharti Airtel (India, South Asia & Africa), Telkomsel (Indonesia), Globe Telecom (Philippines) and Advanced Info Service (Thailand).


Investment Merits/Outlook


Regional associates are driving recovery.

  • The competitive landscape in the region is improving.
    • In India, the launch of Airtel Thanks alongside with the minimum recharge plans has led ARPU to improve 18% q-o-q.
    • In Indonesia, regulators have relaxed SIM card limit per operator from 3 to 5, this has helped reduce churn rates.
    • Globe expects continued data monetisation and for the competition to be softer.
    • Over in Thailand, operators have phased out lowly priced data plans this should improve ARPU. Advanced Info Services (AIS) is anticipating subscriber growth.
  • The regional associates have recovered substantially (up ~17% YTD). Recovery is led by Bharti Airtel (up ~18% YTD) and Telkomsel (up ~12% YTD). We expect the recovery to continue in 2H19.

The window of opportunity for TPG has narrowed considerably.

  • When Infocomm Media Development Authority (IMDA) announced that TPG Telecom (TPG) would be Singapore’s 4th mobile network operator (MNO) in 2016, there was a huge unaddressed opportunity in the SIM-only segment. MNOs and Mobile Virtual Network Operators (MVNOs) have now closed the gap through recent revisions of their mobile offerings. The revisions have specifically targeted the SIM-only segment which we expect TPG to contest in.
  • The price sensitive SIM-only space is crowded with competition. With the latest entry of Grid mobile and redONE, there are now 11 mobile operators in Singapore compared to 4 in 2016. The increased competition has a marginal impact on SingTel since some revenue flows back to the MNO, and mobile service revenue in Singapore contributes only 9% of total revenue in FY19.

Opportunity in monetising the digital business.

  • SingTel plans to unlock value in its digital business (Amobee) within the next three years either through an IPO or private investors. Average industry revenue multiple is at 6.4X applying a 50% discount a successful listing could see SingTel unlocking approximately S$3.6bn, which could add S$0.22 to its share price.


Recommendation

  • Downgrade to ACCUMULATE with an unchanged target price of S$3.66.
  • There are no changes in our estimates. The downgrade is due to recent SingTel share price performance.
  • Our target price is based on FY20e 7X EV/EBITDA of SingTel’s Singapore and Australia businesses and the valuation of its listed associates. We like SingTel because of the improving outlook of its regional associates and its stable dividend yield of 5%.





Alvin Chia Phillip Securities Research | https://www.stocksbnb.com/ 2019-07-12
SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 3.66 SAME 3.660



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