• We hosted SingTel for Malaysia virtual investor meetings on 8 Sep.
• Still challenging near-term outlook but 5G may help to stabilise competition in Singapore and Australia.
• Potential Optus Tower sale may not be far off.
• Reiterate ADD on SingTel, with an unchanged SOP-based target price of S$3.10.

Virtual Meetings With Malaysian Investors

• We hosted SingTel (SGX:Z74)’s Group CFO, Ms Lim Cheng Cheng, CEO of Singapore (SG) Consumer, Mr Yuen Kuan Moon, and CFO of Optus, Mr Murray King, for virtual meetings with Malaysian investors on 8 Sep.
• Overall, our impression is that the near-term earnings outlook is challenging due to COVID-19 (roaming and Enterprise) and the still-tight mobile competition in SG and Australia, though 5G may help in the longer-run.
• SingTel will provide its FY21F guidance during its 1HFY21 results announcement in November. Q-o-q earnings recovery in 3Q/4QFY21F and asset monetisation are potential re-rating catalysts, in our view.
• Ex-market value of its associate stakes, the implied FY21F EV/EBITDA of the SG and Optus is 3.1x.
• Downside risk: price wars in its markets.

5G May Help Anchor Singapore’s Mobile ARPU in the Longer Run

• While competition in the mobile SIM-only segment has been intense, SingTel said it is starting to stabilise as there have been no major sub movements to TPG’s network, while mobile virtual network operators have not gained much new subs traction.
• SingTel also thinks 5G may bring back some price stability, as it and StarHub (SGX:CC3) are charging a S$10 premium (with extra quota) in the current 5G trial service. In addition, TPG will need to buy wholesale capacity when 5G commercial service is launched in 2021, which could lead to more rational pricing.
• In the near-term, SingTel’s ARPU will stay under pressure by lower roaming, but ARPU has been quite stable at the local service level.

Optus to Hold Mobile Prices; Vodafone’s Offer Something to Watch

• While Telstra raised prices across most of its plans by A$5/month from 1 Jul due to 5G, Optus will hold its prices for the rest of 2020 given subscribers’ financial hardship due to COVID-19. Meanwhile, Vodafone launched a new A$35/month SIM-only plan with 50GB in Aug (rising to A$45/month after 12 months, comparable to Optus 60GB A$49/month plan).
• While aggressive, Optus thinks this may be a tactical offer (ends on 22 Sep) and that Vodafone-TPG will ultimately focus on deriving synergies from their merger.

Potential Optus Tower Sale May Not be Far Off

• SingTel has engaged advisors for a potential Optus tower sale. While still in the preparation stage, we believe a tender may be called in the next few months. The Australian Financial Review reported in Mar 2020 that the towers may be worth at least A$2bn (S$2bn). SingTel said potential proceeds may be used to fund 5G capex and pare down debt, though we think a small special DPS (2-4 Scts, if we assume 20-30% of S$2bn) is also possible.
• The IPO of Amobee and Trustwave are still being considered but may not happen in 2020-21F, as earnings are still not at optimal levels.

Source: CGS-CIMB Research - 11 Sep 2020