• SingTel (SGX:Z74)’s divestiture of Amobee is positive with Trustwave being next in line. A market price repair in Australia is also viewed positively with stronger ARPU uplifts supplementing the progressive recovery in roaming revenue to pre-pandemic levels.
• SingTel remains our preferred telco pick in Singapore. Our target price bakes in a 12% premium for the company’s leading ESG efforts. Maintain BUY rating on SingTel with an SOP-derived target price of S$3.55, 35% upside, and ~5% yield.
• Key risks: Competition, earnings setback, and execution of its strategic business reset.

Amobee Axed

• SingTel announced the divestment of its digital advertising business for an enterprise value of US$239m. The asset was earlier classified as a subsidiary held for sale.
• We view the disposal positively (part of its business reset) with resources diverted towards new growth engines within the enterprise (NCS) and data center (DC) segments.
• Amobee has been mired in losses with an EBIT loss of S$70m in FY22 (FY21: -S$82m), having been impacted by the weak ad spending and the pandemic.
• Net proceeds from the sale after deducting transaction costs and debt adjustments would amount to ~US$197m. Based on S$160m carrying value of, the disposal gain would be minimal in 3Q22.

Trustwave Next in Line

• We see the global cyber security outfit - acquired back in 2015 for a lofty US$810m - as next in line for disposal. Trustwave (TW) had last October divested the competitive payment compliance industry business for US$80m following an extensive review.
• For FY22, Trustwave posted an EBIT loss of S$145m (FY21: -S$166m). SingTel booked an impairment charge on Trustwave in 2HFY21 of S$336m (US$250m) with its carrying value at S$623m as at 1Q22 (pre the carve-out of the Asian business).

Optus’ Repricing in July a Plus

• An AUD4 per month hike for Optus’ legacy price plans (from 8 Aug) to adjust for inflationary pressure is positive for SingTel’s Australian consumer mobile business with effective 7-10% rise in ARPUs. The repricing is supportive of the overall market price repair with competitor Telstra (TELS AU) having also raised prices by AUD3 to 4 per month earlier this month.

Expansive 5G Coverage Should Further Spur Adoption

• We see the > 95% 5G population coverage in Singapore (3 years ahead of the regulator’s mandated timeline) fueling stronger commercial 5G adoption and more effective monetisation of enterprise use cases.
• More recently, SingTel inked agreements with:
  • Hyundai Motor Group (HMG) for the deployment of 5G infrastructure solutions at the latter’s Innovation Center in Singapore which includes an electric vehicle (EV) production facility and
  • Micron Technology for the deployment of mmwave solutions for high precision control and manufacturing operations.

Source: RHB Invest Research - 27 Jul 2022