• Maintain BUY and SOP-based TP of SGD3.37, 28% upside and c.4% FY23F (Mar) yield. We see a strong turnaround for Singtel’s mobile business from the reopening of borders and further value unlocking from its capital recycling and portfolio optimisation programmes. The stock is the best performing ASEAN-4 telco YTD with its latent value progressively realised from sharper execution. Singtel scores highly in our in-house ESG benchmark (baked into our TP). Downside risks: Competition and weaker- than-expected earnings.

• Capital reallocation (SGD2bn target) and value unlocking exercises resonating well with the market. The strategic business reset (unveiled in May 2021) has seen management executing on a series of value accretive exercises over the past eight months. This includes the unlocking of value of infrastructure assets and capital recycling (sale of Australian Tower Network, regional data centre investments, monetisation of its Singapore HQ and stake in Airtel Africa, amongst others) and the expansion of its ASEAN B2B footprint via organic/inorganics means. The group has also streamlined its mobile advertising arm (Amobee) and cyber-security outfit (Trustwave) with a potential divestment of a strategic stake in the former still on the cards. In our view, the stock’s 14% price gain YTD suggests the overall transformation narrative is resonating well with investors.

• Aussie enterprise business now a force to be reckoned with. With two major acquisitions in a span of weeks, Singtel’s Australian enterprise business (under wholly-owned NCS) has seen its headcount surge by over 3x to 1,900 with a presence across most states. Dialog Group – Australia’s largest privately-owned IT outfit acquired for AUD325m – is EBIT accretive from the outset and boasts a lucrative Tier-1 clientele base in the public sector, healthcare, transportation, financial services and technology segments. The recent acquisition of ARQ Group (AUD290m) has deepened its cloud and digital capabilities Down Under with a complete suite of digital enterprise offerings. Gartner Research has projected a market value of AUD39bn in 2022 (+6.1%) for IT services while IDC expects that digital services in the Asia-Pacific region will grow at a CAGR of 14.6% from 2020- 2025, reaching USD171bn in 2025. We see good revenue upside from scale benefits and cost synergies. This should allow Singtel to fortify its Australia enterprise business and capture stronger ICT growth opportunities in the Asia-Pacific region.

• Stronger FY23F in order. We see group consumer mobile revenue posting stronger YoY growth in the March quarter (4QFY22) from the recovery in roaming and prepaid revenues as border controls are relaxed. The reopening of the Singapore-Malaysia border effective 1 Apr should further bolster inbound/outbound roaming revenues given the huge number of daily commutes between both countries and the route making up a sizeable share to overall roaming revenue. We note that Singtel’s roaming revenue made- up c.20% of mobile service revenue pre-pandemic but this has since slipped to mid-single digit levels due to travel restrictions and lockdowns over the past two years.

Source: RHB Research - 6 Apr 2022