SingTel - 4% Yield With Decent Growth Prospects
- 36% holding company (HoldCo) discount should narrow, with recovery in SingTel (SGX:Z74)'s core business. Current HoldCo discount stands at 36% (vs. seven-year average of 24%), as SingTel's share price has lagged its associates’ share price. The discount had widened sharply last year after a 42% decline in core operating profit from Singapore & Australia in FY21.
- Comcentre re-development to extend the life and value of the asset while freeing up cash, non-material impact on earnings.
- The Comcentre building was built in 1979 and needed to be rejuvenated. Through this re-development, SingTel would extend the lease to 2089 and create an asset with a recurring revenue stream.
- SingTel and Lendlease to enter into a joint venture for the redevelopment. SingTel expects to re-develop its Comcentre headquarters into a S$3bn asset, based on the gross development value upon completion, vs the development cost of S$2.7bn to be incurred by the joint venture company (JVCo).
- SingTel will also secure net cash proceeds of S$660m-910m from the JVCo; although, the JVCo’s debt will sit on SingTel’s balance sheet.
- Delay in Singapore recovery: SingTel's 2H22 core underlying operating profit was weak due to Singapore, while Australia continued to recover.
- 2H22 Singapore mobile service revenue did not see much recovery due to non-recovery of roaming revenue and consumers moving to SIM-only plans.
- 2H22 associate post-tax contribution of S$774m (+18% y-o-y, +3% h-o-h) was 8% below our expectations despite a solid Bharti.
- Optus to see healthy growth in FY23F led by recovery in average revenue per user (ARPU).
- We lower our FY23F core EBITDA (before associates’ contribution) by 3% on the slower-than-expected Singapore consumer business.
- Maintain BUY call on SingTel with a higher target price of S$3.20.
- Our fair value for SingTel’s core business is S$0.77 per share (prev S$0.70), as we use 5x FY23F EV/EBITDA (FY22 earlier) and our valuation also benefits from the ~S$2bn decline in net debt.
- We value SingTel's regional associates at S$2.43 per share (unchanged) as a higher value is negated by our higher HoldCo discount of 15% from 10% to reflect slower recovery in the core business.
- SingTel offers ~4% yield based on 75% payout ratio.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Sachin MITTAL DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-06-03 2022-06-03
Read also DBS Research's most recent report:
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