• HOOQ, a loss-making company, to undergo liquidation.
• Raise SingTel’s FY21F/22F earnings by 4.5%/2.5% including benefits from Enhanced Wage Credit Scheme.
• Maintain BUY on SingTel with a slightly higher Target Price of S$2.85. Its 5.6% dividend yield based on a 14-Sct dividend per share (DPS) is +2 standard deviation from its 15-year average of 4.5%, implying low downside risk.

What’s New

• HOOQ Digital, a joint-venture company in which SingTel (SGX:Z74) has an indirect 76.5% effective interest, has commenced a creditors' voluntary liquidation. HOOQ has appointed Messrs Lim Siew Soo and Brendon Yeo Sau Jin as its joint and several provisional liquidators.
• According to SingTel, the liquidation is not expected to have a material impact on its net tangible assets or earnings per share.

Our View

We raise Singtel’s FY21F/22F earnings by 4.5%/2.5% including benefits from Enhanced Wage Credit Scheme.

• SingTel had wanted to capture the growth in the over-the-stream (OTT) space via HOOQ in Asia, and so it is a bit surprising that it has given up on OTT space. But OTT is a highly competitive space with the likes of Viu, iFlix, Catchplay etc.
• HOOQ was incurring S$15-20m losses each quarter which is likely to stop from 1Q21F onwards. This is likely to boost SingTel’s bottom line by S$60-65m each year in FY21F/22F.
• We raise our FY21F/22F earnings by 4.5%/2.5% as we also add a one-off benefit of S$65m in FY21F from Enhanced Wage Credit Scheme in Singapore.

Our Sum-of-the-Parts (SOP) Target Price rises to S$2.85.

• We raise the value of the core business (Singapore plus Australia) to S$0.77 from S$0.71 per share earlier.
• SingTel’s 5.6% dividend yield based on a 14-Sct dividend per share (DPS) is +2 standard deviation from its 15-year average of 4.5% yield, implying low downside risk.

The key catalyst for Singtel would be a higher DPS of 15Scts in FY21F.

• If SingTel can reduce its FY21F capex with a slower 5G rollout, DPS could be higher at 15 Scts, implying 5.9% yield at the current price.
• Our worst-case valuation of SingTel in case COVID-19 crisis becomes as severe as Global Financial Crisis of 2009, is S$2.18 based on an all-time high dividend yield of 6.2% (based on a 13.5-Sct DPS), which implies potential loss of 10% including dividend yield.

Source: DBS Research - 27 Mar 2020