SingTel - UOB Kay Hian 2022-07-18: On Stronger Footing

SINGTEL (SGX:Z74)

SingTel - On Stronger Footing

SingTel (SGX:Z74) is set to deliver a 3-year earnings CAGR (FY22-25F) of 15% vs -12% during the COVID-19 period (FY19-22). This reflects monetisation of 5G in Singapore and Australia, absence of digital losses (from Amobee), double-digit NCS growth and associates benefitting from the economic reopening.

A regional data centre is shaping up as SingTel aims to add another 100MW of capacity in the next 3-5 years to build a data centre portfolio worth S$7b-8b.

In SingTel’s strategic reset, management aims to monetise its 5G investments in Singapore and Australia, unlock inherent asset value (tower, Singapore HQ redevelopment) and recycle the capital into growth levers (regional data centre and enterprise business via NCS).
This will pave the way for SingTel to narrow its holding company discount as the company actively reallocates capital to drive core business growth and general sustainable cashflow to enhance shareholder’s value.
We project a 3-year earnings CAGR (FY22-25F) of 15% for SingTel vs -12% during the COVID-19 period (FY19-22).

SingTel's FY23 earnings will also benefit from the absence of Amobee losses (FY22 operating loss of S$70m).
As at 31 Mar 22, Amobee was classified as a “subsidiary held for sale”. The sale is expected to be completed within the next year. Net book value of Amobee is estimated at S$220m.
We also expect an announcement regarding Trustwave (North American business looking for best fit in terms of merger or divestment) in 2H22. To recap, both assets have been de-emphasized following the write-down in Dec 21 (amounting to ~S$1b of impairment)
Singapore’s 5G consumers are currently being offered, on a bundled basis (connectivity, entertainment, handset), the XO Plus plan. SingTel is also starting to commercialise 5G enterprise applications, particularly in advanced manufacturing processes. For example, SingTel is working with a key car manufacturer to offer customisable cars to suit a consumer’s preference. Port management is also a target market for 5G application in the near term.

While data competition remains intense, Optus recently announced a price increase of EBITDA margin expansion in FY23.

FY23 should see detailed potential investors.
1. Thailand – SingTel may identify suitable sites to develop data centres in Thailand. Gulf Energy will provide the energy while SingTel will step in with operational expertise. AIS will complete the offer with connectivity services.
2. Indonesia – Telkomsel and SingTel plan to form a JV company to develop DC catering to the regional market. The JV can either acquire existing DCs or develop greenfield projects for DC facilities. If the project is located in Indonesia, Telkomsel will own a higher stake, and if the project is in Singapore, SingTel will be the majority shareholder.

Maintain BUY rating on SingTel with FY23 EV/EBITDA (its 5-year mean EV/EBITDA).
See
Key re-rating catalysts include:
1. successful monetisation of 5G,
2. monetisation of data centres and/or NCS, and
3. market repair in Singapore and resumption of regional roaming revenue.

Chong Lee Len UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-07-18

SGX Stock Analyst Report BUY MAINTAIN BUY 2.900 SAME 2.900