• Incorporating recent acquisitions
• Regional investments positive for Singtel
• Reiterate BUY on lower S$4.27 FV

Increased economic interests in AIS and Airtel

Singtel last week announced that it has completed: 1) the acquisition of shares in Intouch Holdings (Intouch) and Bharti Telecom Ltd (BTL) and 2) placement of shares in Singtel to Temasek. Recall back in Aug 16, Singtel announced that it will acquire 21% of Intouch and 7.39% of BTL for a total consideration of ~S$2.47b, of which ~S$1.61b will be funded through a share placement of ~385.6m new Singtel shares to Temasek at S$4.16/share, with the remaining amount funded through internal cash and short-term debt.

Hence, we are also updating our assumptions to incorporate 1) ~2.4% share dilution arising from the share placement, 2) assumption that the remaining S$0.86m will be funded in equal proportion through internal cash and short-term debt, and 3) slightly higher share of results from associates and JVs.

Three key long-term growth drivers of Singtel

Firstly, we expect its investments in regional dominant telecom players to drive growth ahead. Given the limited growth outlook of telecom industry in Singapore and Australia, we believe Singtel’s exposure in developing economies (i.e. India, Indonesia, Thailand and Philippines) will help drive longer-term growth as mobile penetration rates in those countries continue to increase alongside data usage.

Secondly, we like Singtel’s growing presence in the cyber security segment through its recently acquired company, Trustwave. With growing global digitalization of data and increasing number of important transactions performed through the internet, we believe the demand to protect such growth in data will certainly increase, and we expect Singtel to benefit through Trustwave. Thirdly, while its digital marketing arm, Amobee, is still loss-making as at 2QFY17, we remain positive on its longer-term prospects as demand for digital marketing continues to grow.

Increase our risk free rate assumption to 2.6%

Since Trump was chosen as U.S. President, we have seen treasury yields soar and the Singapore government 10-year bond yield has risen alongside as well. As we incorporate assumptions for the recent acquisitions, and raise our risk free rate assumption from 2.0% to 2.6%, our SOTP-based FV decreases from S$4.40 to S$4.27. Reiterate BUY on Singtel.

Source: OCBC Research - 25 Nov 2016