Malaysia digital banking licence in the bag!
? A consortium led by Grab-Singtel won a Malaysian digital banking licence.
? Together with Singapore and Indonesia, the digital banking business may add
a total of 30 Scts/share to Singtel’s SOP valuation over the next 3-4 years.
? Reiterate Add and TP of S$3.30. Singtel is our top Singapore telco pick.
Singtel’s consortium wins a Malaysian digital banking licence
? A consortium consisting of GXS Bank (Grab-Singtel’s 60:40 joint venture) and Malaysian
investors (including Kuok Brothers Sdn Bhd) have secured one of a total of 5 digital
banking licences issued by Bank Negara Malaysia (BNM). GXS has a 55.45% stake in
the consortium. Hence, Singtel’s effective stake is 22.2%. The proposed Malaysian
digital bank (GSM) will now undergo a period of operational readiness over the next 12-
24 months (to be validated by BNM) before it can commence operations.
A regional digital banking business in the making
? This is a positive development for Singtel. It adds to the digital banking licence that was
secured by GXS Bank in Singapore (Dec 2020) and the entry into Indonesia in Jan 2022
(via Grab-Singtel’s acquisition of a 32.5% stake in Bank Fama International). We do not
expect GSM to contribute much to Singtel’s FY22-24F earnings given the 3-5 year
foundational phase, and even thereafter, significant costs may be incurred to drive
customer acquisitions. On the other hand, the low minimum capital requirements for
GSM (RM100m in the foundational phase, thereafter RM300m) suggest that Singtel’s
portion of investment will be relatively small in the initial years and can be comfortably
funded by internal cash and its asset recycling initiatives, in our view.
GSM may be worth possibly 7 Scts/share to Singtel
? Based on South Korea’s experience, the 5 digital bank licensees may have a 2% share
in total of the Malaysian loan market by end-CY27F, or RM51bn. If we further assume
they augment the total loan market by 2% by lending to previously unbanked/
underserved segments, their total loans could be RM103bn. If GSM has a 25% share of
this, its total loans could be RM26bn and its book value may be RM3.8bn by end-CY27F.
Applying a P/BV of 5.0x, GSM’s value may be RM19bn by end-CY26F. Given Singtel’s
22.2% effective stake, this would be worth RM4.3bn, with net equity value accretion of
RM3.4bn (after deducting its share of paid-up capital, based on its 22.2% stake) or
S$1.1bn (7 Scts/share). The scenario analysis for this is in Figure 2.
Reiterate Add and SOP-based TP of S$3.30
? Together with Singapore (15 Scts/share) and Indonesia (8 Scts/share), we estimate the
regional digital banking business may add 30 Scts/share to Singtel’s SOP valuation over
3-4 years’ time. We have not factored this in as investors may not ascribe much value
to it until operational indicators are available and Grab-Singtel is closer to unlocking
GXS’s value. Potential re-rating catalysts: FY22-23F core EPS recovery, further asset
monetisation and expansion into higher growth business areas. Its current share price
implies FY22F EV/EBITDA of just 3.1x for Singtel Singapore and Optus. Downside risk:
price wars.