Profile

Singtel is the largest telecom operator in Singapore and its Australian subsidiary Optus is the second-largest operator in Australia. Singtel also has substantial stakes in various telcos in the region – Telkomsel in Indonesia, Bharti Airtel (Bharti) in India, AIS in Thailand and Globe in the Philippines.

Previous Close Price

Key Statistics

Mar S$ m20202021f2022f
Revenue16,54213,79514,277
Net Profit2,4571,8262,140
Profit Gth (%)(13.0)(25.7)17.2
PE (X)3704.42947.81908.6
Div Yield (%)0.100
P/BV (X)148.7155.0153.8

Source: DBS Group Research (At the time of publication)

Our Views

Core business is trading at 55% below our fair value of 58 Scts per share. The market value of Singtel’s (ST) associates is S$2.18 per share after factoring in a 10% holding company discount. ST’s current share price implies that the market is valuing its core business in Singapore and Australia at only 25 Scts compared to our fair value of 58 Scts per share.

Potential catalysts: Resumption of earnings growth after four years of decline and divestments of assets. (i) Earnings to benefit from stabilisation of core earnings before interest, taxes, depreciation and amortisation (core EBITDA) in FY22F (after 23%+ decline in FY21F) and a sharp rise in associates’ profits led by Bharti, (ii) ST could divest assets – Optus’s towers in the near term followed by others, which should (a) help to sustain dividends in the long term, and (b) unlock trapped value based on true market value of those assets.

We project FY21F/22F dividend per share (DPS) of 10.9 Scts/11.5 Scts based on 100%/90% payout ratio. ST’s net debt-to-EBITDA can improve to 1.8-2.0x in FY22F from 2.4x currently, easing any pressure on its credit rating.

Risks

Bear-case valuation of S$2.00. Under this scenario, we assume that ST’s share price could drop to offer a 5% yield based on a 10-Sct DPS assuming 75% earnings payout ratio of our FY22F earnings forecast.

Valuation

Maintain BUY with a higher target price (TP) of S$2.93. Our fair value for the company’s core business is S$0.58 per share (previously S$0.46). We value its regional associates at S$2.35 per share (previously S$2.29) after factoring in a 10% holding company discount. We raise our fair value of Bharti to Rs630 per share (previously Rs620).