SingTel - Maybank Research 2022-09-06: Driving Return On Invested Capital (ROIC) Higher

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SINGTEL (SGX:Z74)

SingTel - Driving Return On Invested Capital (ROIC) Higher

Data centers and IT services to help drive growth

• We attended the recent SingTel (SGX:Z74) Investor Day where management re-iterated its commitment to improve Return on Invested Capital (ROIC) to high single-digits in the mid-term (FY22:5.4%) by:
  1. delivering on enterprises’ 5G innovation for monetisation,
  2. capturing growth opportunities in data centres (DCs) and IT services as enterprises increase spending on digitalisation, and newly launched GXS bank,
  3. leveraging on positive price momentum in India, Indonesia and Australia to grow ARPU and
  4. unlocking value from asset recycling and capital partnerships to fund growth investment.
• Refer to SingTel's announcement dated 2022-08-30 for the presentation slides.

Regionalising NCS

• Following 3 levers of growth (client industries, services and geographies) and expanding into Australia through recent acquisition, NCS targets to improve its revenue from FY22’s S$2.4bn to S$5bn by FY26E. To achieve this, NCS plans to expand its regional talent pool from 12k to 20k within 4 years. The additions will mainly come from lower cost locations (i.e. Vietnam and India).
• We expect NCS EBIT pressure will likely persist for the next 1-2 years due to rising talent cost and impact cost of recent acquisitions in Australia.

Attractive opportunity in Data Centre

• SingTel aims to build-up its Regional Data Centre (RDC) platform capacity by 4-fold to more than 220MW (including JV Co capacity) across Singapore, Thailand, and Indonesia in the next 3-5 years where there is highest demand and growth. It is also looking for suitable partners to expand into other ASEAN countries (e.g. Malaysia, Vietnam).
• SingTel expects healthy Regional Data Centre (RDC) EBITDA margin of ~50%, even outside of Singapore.

Sustaining shareholders value

• SingTel remains comfortable with its current net debt/EBITDA (1QFY23: 1.6x), while proceeds from announced asset recycling programme ~S$6b would fully cover incremental 5G capex and growth initiatives over the next few years. Hence, we think it will be able to pay FY23-25E dividends at the top-end of its 60-80% payout policy. See SingTel's dividend history.
• Re-iterate BUY call on SingTel with an unchanged SOTP-based target price. Refer to report attached below for the SOTP-based details. SingTel is our Top Pick among Singapore telcos.
• See
  • SingTel's Share Price,
  • SingTel's Target Price,
  • SingTel's Analyst Reports,
  • SingTel's Dividend History,
  • SingTel's Announcements,
  • SingTel's Latest News.

Kelvin Tan Maybank Research | https://www.maybank-ke.com.sg/ 2022-09-06

SGX Stock Analyst Report BUY MAINTAIN BUY 3.150 SAME 3.150