Beefs up war chest via Comcentre sale
? Singtel will transfer Comcentre to PropCo (51:49 JV with Landlease) & rake
in net proceeds of S$1.2bn-1.3bn. It will commit S$420m-570m to develop it.
? Proceeds will be reinvested to drive growth & sustain a 60-80% payout ratio.
Reiterate Add and TP of S$3.20 for Singtel, our top Singapore telco pick.
To reap net proceeds of S$1.2bn-1.3bn from Comcentre divestment
? Following Singtel’s announcement on 23 Feb of the divestment and redevelopment of
Comcentre (its headquarters along the Orchard Road belt), it today announced the
selection of global real estate group Landlease as appointed developer. As part of the
deal, Singtel will transfer Comcentre to PropCo in which Landlease will subscribe for a
49% stake (the balance 51% to be owned by Singtel) in 2024.
? Singtel will pay S$300m-400m for the differential and lease top up premium payable
on the land for the redevelopment prior to the subscription, while PropCo will pay the
land cost of S$1.63bn to Singtel on completion of the subscription. Net proceeds to
Singtel in 2024 will be S$1.2bn-1.3bn.
? Total redevelopment cost is c.S$2.7bn (including land) and will be funded by external
financing as well as equity commitments from Singtel (S$420m-570m expected) and
Landlease over CY24-28F. Gross development value upon completion is estimated to
be S$3bn.
Part of asset recycling to drive future growth and sustain dividends
? This forms part of Singtel’s asset recycling initiatives. Besides illuminating the market
value of the asset, the net proceeds from the divestment will be reinvested into the
core business (e.g. 5G rollouts, spectrum payments) and used to drive expansion into
higher-growth/new businesses (e.g. NCS, regional data centre, and digital banking).
? This will also help preserve cash generated from the core business to sustain its 60-
80% dividend payout policy, which our analysis of the projected outflows and inflows in
FY3/23-25F (see Fig 1) suggests Singtel can comfortably meet.
? Upon completion of the redevelopment, Singtel is expected to be the anchor tenant,
occupying c.30% of the total space, while the leasing of the remaining space to
external tenants will deliver long-term recurring revenue for Singtel. Alternatively, we
think it is also possible that Singtel could monetise its 51% stake in PropCo.
Reiterate Add and SOP-based TP of S$3.20
? We keep our forecasts, Add rating and TP unchanged for Singtel. Key potential rerating catalysts: FY23-24F core EPS recovery, further asset monetisation and
expansion into higher-growth business areas. Its current share price implies an FY23F
EV/EBITDA of just 3.3x for SG and Optus, while dividend yields are attractive at 4.4-
6.1% p.a. Key downside risk: price wars.
