Ringing louder and clearer
? Singtel’s regional digital banking forays may add 29 Scts/share to its SOP
valuation over 3-4 years’ time. Asset recycling may raise another S$2bn-3bn.
? Singapore’s mobile service revenue should finally turn the corner and grow
8%/14% in CY22F/23F, driven by rising 5G adoption and roaming recovery.
? Stay sector Overweight, with Singtel (Add, TP: S$3.30) as our top pick.
A regional digital banking business in the making for Singtel
With more newsflow, we believe the market may get more excited this year and start to
price in Singtel’s foray into building a regional digital banking business, which we estimate
may add 29 Scts/share to its SOP valuation over 3-4 years’ time. We expect Grab-Singtel
to launch its Singapore digital bank (15 Scts/share) in 2HCY22F. In Malaysia, a GrabSingtel consortium (including local partners) is a frontrunner to win a digital banking
licence (6 Scts/share) to be issued in Mar 2022, in our view. In Jan 2022, Grab-Singtel
paid S$96m for a 32.5% stake in Indonesia’s Bank Fama International, marking its move
into the digital banking business in Indonesia (8 Scts/share), ASEAN’s biggest unbanked
and underbanked market. We see further equity injection into Fama and thereafter digital
banking products may be launched by year-end.
Singapore mobile business to finally turn the corner in CY22F
After seven consecutive years of declines, industry mobile service revenue should finally
rebound 8.3%/14.3% in CY22F/23F (CY20/21: -19.7%/-1.3% yoy), we estimate. Our indepth look at market offers found telcos driving subs to sign up for 5G plans for an extra
S$10-15/month (e.g. previous 4G plans now ineligible for re-contracting/device subsidy).
10-20% of postpaid subs are already on 5G plans, 16 months after service launch (South
Korea: 28% in 2.5 years). We also think competition will have less dilutive effect on future
average revenue per user (ARPU) as the Big 3 have lost minimal subs to TPG and
network tests show their lead vs. TPG is widening. Lastly, we see roaming revenue (19%/
12% of Singtel/StarHub’s CY19 mobile service revenue) recovering from 2HCY22F. Even
if it does not, industry mobile service revenue may still grow 5.7%/8.1% in CY22F/23F.
Asset recycling at Singtel to drive future growth & sustain dividends
After raising S$2.4bn cash so far, Singtel may do more asset recycling in the next 1-2
years that could raise another S$2bn-3bn (more tower sales by Telkomsel, divestment of
Comcentre, possible sale of Amobee/Trustwave/Airtel Africa etc.), in our view. Besides
illuminating the market value of its assets, we think this will allow Singtel to invest into
higher growth businesses (e.g. regional data centres and digital banking) to drive future
earnings, while preserving cash generated from its core business to sustain its 60-80%
payout policy, which implies attractive FY3/22-24F yields of 3.6-5.4% p.a.
Stay sector Overweight; top sector pick: Singtel (Add, TP: S$3.30)
Singtel’s key re-rating catalyst: FY3/23F core EPS growth of 30% yoy, forays into digital
banking and more asset recycling. Its current share price implies an FY3/23F EV/EBITDA
of just 2.6x for Singtel Singapore and Optus. We also like NLT for its strong earnings
visibility and attractive FY3/23F dividend yield of 5.4%. Sector downside risks: mobile
price wars, slower roaming recovery and NBN wholesale price cut.