• SingTel (SGX:Z74)’s Indonesian associate Telkomsel to sell 6,050 towers to Mitratel for Rp10.3bn (~S$950m).
• Telkomsel, being a net cash company, can upstream dividends to its shareholders including SingTel.
• SingTel's share price is trading at +2 standard deviation (SD) dividend yield of 5.6% based on our projections.

Cash Receipts From Telkomsel’s Tower Sale to Support Singtel’s Dividends

Sale and leaseback of 6,050 Telkomsel towers to Mitratel at ~S$950m.

• On 14 October 2020, PT Telekomunikasi Selular (Telkomsel) entered into a sale and leaseback agreement with PT Dayamitra Telekomunikasi (Mitratel). Under this agreement, Mitratel will purchase 6,050 build-to-suit (BTS) towers from Telkomsel for Rp10.3bn (~S$950m). The transaction is expected to be carried out in stages with expected completion by first quarter of calender year 2021. Following the completion of the transaction, Mitratel will have over 22,000 towers in its portfolio, more than any other tower player.
• As part of the transaction, Telkomsel has also entered into a 10-year lease arrangement with Mitratel for rental of tower space, which will take effect from the transfer of these towers to Mitratel. No details have been released on tenancy ratio of these towers and the lease back price of these towers.
• In the future, Telkomsel will focus on its main business as a digital telecommunications company. SingTel (SGX:Z74) has a ~35% stake in Telkomsel.

Receipt of a share of proceeds from the deal to boost Singtel’s ability to meet our dividend projection of ~S$2bn.

• Telkomsel, being a net cash company, can upstream dividends to its shareholders including SingTel. Upon the conclusion of the tower sale, SingTel will receive ~ S$333m pre-tax contributions from Telkomsel. This will help SingTel to meet its dividend obligations for FY21F.
• We project S$2bn to be paid in dividends by SingTel in FY21F although half of this amount potentially, could be paid in scrip to SingTel’s largest shareholder Temasek. SingTel’s management is expected to confirm FY21F dividend with the upcoming 2QFY21F result.

Mitratel IPO Can Take Place in the Future as the Largest Tower Player

• Recently, Mitratel had acquired 2,100 towers from Indosat in November 2019. Following the completion of the transaction with Telkomsel to purchase and lease back 6,050 towers, Mitratel will be the largest tower co in the country, surpassing Sarana Menara Nusantara (21,271 towers at the end of 2Q20).

Maintain BUY on SingTel With a Target Price of S$2.69

• Our fair value for the core business of SingTel is S$0.48 per share based on peer multiples. Our fair value of SingTel's associates is S$2.46 per share without any holding company discount.
• We apply a 10% holding company discount to derive our Target Price of S$2.69.
• Our fair value of Bharti is conservative, based on a 20% discount to Bharti’s median Target Price of Rp690.

Source: DBS Research - 19 Oct 2020