Earnings boost from “held for sale” assets?
What’s New
We raise our FY23F/24F earnings by 5%/4% on potential classification of Amobee and Trustwave as “held for sale” subsidiary. According to Sky News, Amobee might be sold to London-Listed adtech firm Tremor for an estimated GBP165m (S$280m). Amobee has been largely loss-making (S$70m in EBIT loss in FY22). Furthermore, as Amobee is in advance stage of sale, Amobee might be classified as a subsidiary that is “held for sale” from 1QFY23F onwards; therefore, its revenue and earnings will not be captured from FY23F onwards in Singtel’s reported profit. We also expect Trustwave to be divested in FY23F as Singtel has mentioned about its potential sale a few times and it could be classified as “held for sale” in 2QFY23F or 3QFY23F in our view. Trustwave generated an estimated S$140m EBIT loss in FY22. Overall, this could result in avoiding an estimated S$200-210m annual operating loss (~9% of FY23F underlying profit) from Amobee and Trustwave although the savings would be slightly lower in FY23F due to the timing of Trustwave classification. Hence, we have raised our Singtel’s earnings by 5%/4% in FY23F/24F.
Optus in Australia implements an upward revision in tariffs in July 2022. In early Jul 2022, Optus has raised the price of Optus-choice plans by A$4 for existing subscribers, which translates to about a 10%-15% on an average ARPU of A$31. Telstra had raised the mobile tariffs by A$4 across all its plans in the beginning of July. The last tariff increase by Optus in May 2021 was not applicable to existing subscribers who had joined before May 2021. This July upward revision will be applicable to subscribers who joined before May 2021 which will further boost ARPU growth. The price of all tier plans – from the A$39 per month tier offering 10GB of data to the A$79 per month tier offering 120GB – will be increased from 8 August along with an increase on the data allowance on these plans as well.
Singtel has begun its growth journey while paying healthy dividends to its shareholders. Core business segments in Singapore and Australia saw a tumultuous period during the lockdowns and are gradually recovering following the resumption of foreign travel. Singtel should be less reliant on the Singapore economy compared to local banks in Singapore who offer similar growth. Furthermore, increasing contribution from associates will further support the telco’s earnings growth, making the company an exciting stock that offers a better mixture of growth and yield. At current prices, Singtel offers a yield of over 4.0%.
