SingTel - CGS-CIMB Research 2021-05-14: Starting FY22 On A Clean Slate

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SINGTEL (SGX:Z74)

SingTel - Starting FY22 On A Clean Slate

• SingTel (SGX:Z74)’s 2HFY21 results (to be released on 27 May) are expected to include net exceptional losses of S$839m (FY21: S$1.21bn).
• These non-cash charges will not impact underlying net profit, and may be a kitchen-sinking exercise as the new Group CEO steers the group into FY22.
• Strategic review of Amobee & Global Cyber Security Business (GCSB) indicate potential monetisation of these investments in the next 1-2 years. Retain ADD and SOP-based target price of S$3.10.

Net exceptional losses of S$839m to be booked by SingTel in 2HFY21

• SingTel announced that its 2HFY21 (Oct 2020 to Mar 2021) results, which will be released on 27 May, are expected to include net exceptional losses of S$839m (FY21: S$1.21bn), subject to the finalisation of statutory audits. These will be due to:
• 1. the recoverable values of Amobee and Global Cyber Security Business (GCSB) being below their carrying values. Thus, non-cash impairment charges of S$589m/S$336m will be charged for Amobee/GCSB, with their remaining carrying values at S$511m/S$695m; and
  2. Optus’s expected non-cash impairment charges of S$204m for its legacy fixed access network (completion of National Broadband Network rollout) and an exceptional charge of S$101m for staff payroll adjustments, professional fees and remediation of systems/processes.
• These charges will be partly offset by:
  1. an estimated gain of S$98m from the dilution of SingTel’s effective stake in Bharti Airtel from 31.9% to 31.7% (after Bharti shares were issued as consideration for the acquisition of equity interest in Bharti Telemedia),
  2. Telkomsel’s estimated gain on tower sales, and
  3. Globe’s estimated tax credit from the reduction in corporate tax rate.

No impact on core net profit; strategic review of Amobee/GCSB

• We are not too concerned with the abovementioned items as they are mainly non-cash one-off charges, which should not impact SingTel’s underlying net profit. While the book values of Amobee and GCSB have been lowered, our SOP valuation for SingTel is unaffected, as we have never factored them in, to be conservative. The charges also appear to be a kitchen-sinking exercise to clear the deck before SingTel’s new Group CEO, Yuen Kuan Moon (appointed on 1 Jan 2021), steers the group into FY22.
• On a positive note, SingTel says it has embarked on a strategic review to consider options to sharpen its focus and ensure Amobee and GCSB are positioned for growth, which may include a full/partial divestment or business combinations with other industry players. We believe this indicates that the new management team might take a more proactive approach towards monetising these investments in the coming 12-24 months (either via IPOs, outright sales or partial divestments to illuminate their values).

Reiterate ADD on SingTel with unchanged SOP-based Target price of S$3.10

• We retain our forecasts, ADD rating and target price for SingTel.
• See
  • SingTel's Share Price,
  • SingTel's Target Price,
  • SingTel's Analyst Reports,
  • SingTel's Dividend History,
  • SingTel's Announcements,
  • SingTel's Latest News.
• Key re-rating catalysts: FY22F core earnings rebound and asset monetisation. Current SingTel's share price implies an FY3/22F EV/EBITDA of just 3.5x for Singtel Singapore and Optus, with decent FY21-23F dividend yields of 3.1-6.0% per annum.
• Downside risk: price wars in its operating markets.

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-14

SGX Stock Analyst Report ADD MAINTAIN ADD 3.100 SAME 3.100