Simons Trading Research

SingTel - Starting FY22 on a Clean Slate

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Publish date: Fri, 14 May 2021, 02:43 PM
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  • SingTel (SGX:Z74)’s 2HFY21 results (to be released on 27 May) are expected to include net exceptional losses of S$839m (FY21: S$1.21bn).
  • These non-cash charges will not impact underlying net profit, and may be a kitchen-sinking exercise as the new Group CEO steers the group into FY22.
  • Strategic review of Amobee & Global Cyber Security Business (GCSB) indicate potential monetisation of these investments in the next 1-2 years. Retain ADD and SOP-based target price of S$3.10.

Net Exceptional Losses of S$839m to be Booked by SingTel in 2HFY21

  • SingTel announced that its 2HFY21 (Oct 2020 to Mar 2021) results, which will be released on 27 May, are expected to include net exceptional losses of S$839m (FY21: S$1.21bn), subject to the finalisation of statutory audits. These will be due to:
    1. the recoverable values of Amobee and Global Cyber Security Business (GCSB) being below their carrying values. Thus, non-cash impairment charges of S$589m/S$336m will be charged for Amobee/GCSB, with their remaining carrying values at S$511m/S$695m; and
    2. Optus’s expected non-cash impairment charges of S$204m for its legacy fixed access network (completion of National Broadband Network rollout) and an exceptional charge of S$101m for staff payroll adjustments, professional fees and remediation of systems/processes.
  • These charges will be partly offset by:
    1. an estimated gain of S$98m from the dilution of SingTel’s effective stake in Bharti Airtel from 31.9% to 31.7% (after Bharti shares were issued as consideration for the acquisition of equity interest in Bharti Telemedia),
    2. Telkomsel’s estimated gain on tower sales, and
    3. Globe’s estimated tax credit from the reduction in corporate tax rate.

No Impact on Core Net Profit; Strategic Review of Amobee/GCSB

  • We are not too concerned with note, SingTel says it has embarked on a strategic review to consider options to sharpen monetising these investments in the coming 12-24 months (either via IPOs, outright sales or partial divestments to illuminate their values).

Reiterate ADD on SingTel With Unchanged SOP-based Target Price of S$3.10

  • We retain our forecasts, ADD rating and target price for SingTel.
  • Key re-rating catalysts: FY22F core earnings rebound and asset wars in its operating markets.

Source: CGS-CIMB Research - 14 May 2021

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