• SingTel will sell a 70% stake in Australia Tower Network (ATN) to AustralianSuper for S$1.9bn, pegging ATN at 38x FY21 proforma EV/EBITDA, higher than Telstra’s & US towercos.
• Proceeds will allow SingTel to reinvest in its core business & drive new growth engines, while preserving operating cashflow for sustainable dividends.
• Reiterate ADD with S$2.90 target price. SingTel is our top Singapore telco pick.

Sells 70% Stake in Australia Tower Network for A$1.9bn

• SingTel (SGX:Z74) has signed an agreement to sell a 70% stake in Australia Tower Network (ATN) to AustralianSuper (Australia’s largest superannuation fund) for net cash proceeds of A$1.9bn (S$1.9bn or 12 cents per share). ATN owns/operates 2,312 towers and rooftop sites (tenancy ratio: 1.6x). Optus will enter into a 20-year lease agreement for its existing towers with ATN and be the anchor tenant on > 565 new ATN sites over the next 3 years for its 5G rollout.
• Post deal completion (by end-Oct 21), SingTel will book in ~S$0.4bn net disposal gain and equity account for a 30% share of ATN’s earnings going forward.

Lucrative 38x EV/EBITDA Valuation Struck for Australia Tower Network Sale

• The A$1.9bn proceeds are higher operating cashflow, and thus dividends, in the longer-run.

Creation of a Regional Data Centre Business With Initial Focus on ASEAN

• Alongside the Australia Tower Singapore. This may involve investments of ~S$1bn, 50% of which can be raised via debt, with the rest possibly manageably funded by equity from SingTel and its partners.

Reiterate ADD With An Unchanged SOP-based Target Price

• We are positive on the sale of Australia Tower Network (ATN) at high valuations and SingTel’s move to quickly establish collaborations to capture the strong growth in DC demand in the Thai and Indonesian markets (28% CAGR over 2020-25, according to Frost & Sullivan). We keep our forecasts, given the minimal impact on our FY23F core EPS ( < 1%) from the ATN deal.
• Key re-rating catalysts: FY22F core EPS recovery, further asset monetisation.

• Current SingTel share price implies an FY22F EV/EBITDA of just 2.4x for SingTel and Optus, and FY22-24F yields of 3.9-5.9% p.a.
• Downside risk: price wars.

Source: CGS-CIMB Research - 1 Oct 2021