SingTel - RHB Invest 2022-07-27: On A Stronger Footing; Keep BUY

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

SingTel - On A Stronger Footing; Keep Buy

  • SingTel (SGX:Z74)’s divestiture of Amobee is positive with Trustwave being next in line. A market price repair in Australia is also viewed positively with stronger ARPU uplifts supplementing the progressive recovery in roaming revenue to pre-pandemic levels.
  • SingTel remains our preferred telco pick in Singapore. Our target price bakes in a 12% premium for the company’s leading ESG efforts. Maintain BUY rating on SingTel with an SOP-derived target price of S$3.55, 35% upside, and ~5% yield.
  • Key risks: Competition, earnings setback, and execution of its strategic business reset.

Amobee axed.

  • SingTel announced the divestment of its digital advertising business for an enterprise value of US$239m. The asset was earlier classified as a subsidiary held for sale.
  • We view the disposal positively (part of its business reset) with resources diverted towards new growth engines within the enterprise (NCS) and data center (DC) segments.
  • Amobee has been mired in losses with an EBIT loss of S$70m in FY22 (FY21: -S$82m), having been impacted by the weak ad spending and the pandemic.
  • Net proceeds from the sale after deducting transaction costs and debt adjustments would amount to ~US$197m. Based on S$160m carrying value of, the disposal gain would be minimal in 3Q22.

Trustwave next in line.

  • We see the global cyber security outfit - acquired back in 2015 for a lofty US$810m - as next in line for disposal. Trustwave (TW) had last October divested the competitive payment compliance industry business for US$80m following an extensive review.
  • For FY22, Trustwave posted an EBIT loss of S$145m (FY21: -S$166m). SingTel booked an impairment charge on Trustwave in 2HFY21 of S$336m (US$250m) with its carrying value at S$623m as at 1Q22 (pre the carve-out of the Asian business).

Optus’ repricing in July a plus.

  • An AUD4 per month hike for Optus’ legacy price plans (from 8 Aug) to adjust for inflationary pressure is positive for SingTel’s Australian consumer mobile business with effective 7-10% rise in ARPUs. The repricing is supportive of the overall market price repair with competitor Telstra (TELS AU) having also raised prices by AUD3 to 4 per month earlier this month.

Expansive 5G coverage should further spur adoption.

Singapore Research RHB Securities Research | https://www.rhbgroup.com/ 2022-07-27
SGX Stock Analyst Report BUY MAINTAIN BUY 3.550 SAME 3.550