• Maintain BUY, with an SOP-derived TP of SGD3.55, 35% upside, and c.5% yield. Singtel’s divestiture of Amobee is positive with Trustwave (TW) being next in line. A market price repair in Australia is also viewed positively with stronger ARPU uplifts supplementing the progressive recovery in roaming revenue to pre-pandemic levels. Singtel remains our preferred telco pick in Singapore. Our TP bakes in a 12% premium for the company’s leading ESG efforts. Key risks: Competition, earnings setback, and execution of its strategic business reset.

• Amobee axed. Singtel announced the divestment of its digital advertising business for an enterprise value of USD239m. The asset was earlier classified as a subsidiary held for sale. We view the disposal positively (part of its business reset) with resources diverted towards new growth engines within the enterprise (NCS) and data center (DC) segments. Amobee has been mired in losses with an EBIT loss of SGD70m in FY22 (FY21: -SGD82m), having been impacted by the weak ad spending and the pandemic. Net proceeds from the sale after deducting transaction costs and debt adjustments would amount to c.USD197m. Based on SGD160m carrying value of, the disposal gain would be minimal in 3Q22.

• TW next in line. We see the global cyber security outfit - acquired back in 2015 for a lofty USD810m - as next in line for disposal. TW had last October divested the competitive payment compliance industry business for USD80m following an extensive review. For FY22, TW posted an EBIT loss of SGD145m (FY21: -SGD166m). Singtel booked an impairment charge on TW in 2HFY21 of SGD336m (USD250m) with its carrying value at SGD623m as at 1Q22 (pre the carve-out of the Asian business).

• Optus’ repricing in July a plus. An AUD4/mth hike for Optus’ legacy price plans (from 8 Aug) to adjust for inflationary pressure is positive for Singtel’s Australian consumer mobile business with effective 7-10% rise in ARPUs. The repricing is supportive of the overall market price repair with competitor Telstra (TELS AU, NR) having also raised prices by AUD3-4/mth earlier this month.

• Expansive 5G coverage should further spur adoption. We see the >95% 5G population coverage in Singapore (3 years ahead of the regulator’s mandated timeline) fueling stronger commercial 5G adoption and more effective monetisation of enterprise use cases. More recently, Singtel inked agreements with: i) Hyundai Motor Group (HMG) for the deployment of 5G infrastructure solutions at the latter’s Innovation Center in Singapore which includes an electric vehicle (EV) production facility and ii) Micron Technology for the deployment of mmwave solutions for high precision control and manufacturing operations.

Source: RHB Research - 27 Jul 2022