Re-initiate BUY; Cheap Valuation and Decade-low Price

• Re-initiate coverage on SingTel (SGX:Z74) with BUY and SOTP-based target price of S$2.88.
• SingTel's share price is hovering near decade lows amid earnings weakness and cloudy dividend visibility. But we think the worst is over and SingTel should see earnings recovery on
  1. gradual ARPU recovery post-covid
  2. 5G ARPU uplift
  3. associates set for ARPU uptrend.
• We see deep value as market is ascribing almost zero value to its core operations in Singapore and Australia, while offering 4.9% yield.
• Risks include stronger-than-expected competition and failure to monetise 5G commercialisation.

Set for ARPU Recovery

• We think the worst may be behind for SingTel, and expect 25% FY21-FY23E CAGR PAT recovery as travel restrictions are lifted, catalysed by COVID-19 vaccine rollouts and travel bubbles.
• SingTel remains the market leader in Singapore despite competition from MVNOs. We are seeing signs of market consolidation in Australia, with Telstra’s post-merger price hike favourable for Optus.
• Further, regional associates in Thailand and India have also likely bottomed and are positioned for an ARPU uptrend with paced capex spending. Notably, regional associates’ recovery is correlated (coefficient= 0.6) to SingTel's share price in the past.

New CEO to Lift ROIC?

• In Oct, SingTel announced the retirement of group CEO Ms Chua Sock Koong. Mr Yuen Kuan Moon is set to replace her next year. Mr Yuen, who has been with SingTel for 27 years, is currently the CEO of the consumer business and chief digital officer in Singapore. His experience in the digital space should support the execution of digital banking licence (with Grab) if SingTel wins and also catalyse SingTel’s digitalisation strategy, in our view.
• Prior to the current CEO, SingTel generated an average ROIC of 19.2% between FY97-FY07. Should Mr Yuen manage to raise current average ROIC of 11.6% to halfway (15.4%), this can add 21% to SingTel’s market cap or S$0.50/share, we estimate.

Deep Value With Singapore and Australia for Free

• Current valuations, the market is ascribing almost zero value to SingTel's core businesses. The removal of overhang from Bharti from the AGR verdict, earnings recovery from associates and asset monetisation (~S$2b sale of Optus tower, IPO of Amobee and Trustwave) could prompt a re-rating for the stock.
• Click "view full report" button below to see the 23-page PDF report for complete analysis on SingTel.
• SingTel is trading at 14.6x MarFY22E P/E, which is more than 1SD below its historical mean. Additionally, the stock is backed by 4.9% forward 12-mth dividend yield, which is in line with its historical.
• SingTel offers a liquid way to get exposure to its regional associates and it provides exposure to S$ dividends.

Source: Maybank Kim Eng Research - 30 Nov 2020