Singapore Telecommunications

Price targets:

DBS Group Research “buy” $3.18 Citi Research “buy” $3.04

DBS and Citi like Singtel’s reorganisation; expects easier value unlocking of infrastructure assets

Analysts like Singapore Telecommunications’ (Singtel) latest reorganisation, with expectations that cost savings can be derived and that value of certain assets can be more easily unlocked.

On April 27, Singtel announced plans to merge its local consumer and enterprise units into one.

“This might lead to significant cost sav

ings in our view although we are not sure of the magnitude of the savings at this stage,” writes DBS Group Research in its April 28 note.

It will also form a so-called “Digital InfraCo” to hold assets ranging from data centres, subsea cables, satellite carrier business and also its Paragon enterprise tech platform.

By grouping these assets as a standalone unit instead of being organic to a business unit, it will make be easier for Singtel to sell stakes to external investors who want a cut of the recurring income from these assets. Singtel, on the other hand, will be able to show investors the market value it can fetch for these assets.

According to estimates by DBS Group Research, the combined market value of Singtel’s overseas associates is around $45 billion. Yet, Singtel’s market cap is now just $42 billion.

This implies that investors are ignoring Singtel’s core Singapore and Australia businesses.

“InfraCo formation will help the investors to crystalize the value of the core business,” says DBS, which has a “buy” call and $3.18 target price on the stock.

Since April 2021, Singtel was able to recycle $6 billion worth of assets. By forming a standalone unit as Digital Infraco could accelerate further partial divestments, adds DBS.

Citi Research’s Arthur Pineda, is similarly positive towards Singtel’s plan. “While details remain limited, we believe the move should generate some degree of operational and financial synergies with likely overlaps on certain elements such as manpower,” writes Pineda in his April 27 note.

The setting up of the Digital InfraCo is likely the first step towards eventual monetization exercises via the taking of a strategic partner or via an IPO route, adds Pineda.

Meanwhile, Pineda likes Singtel for its “highly defensive” nature, giving investors a yield of 5%. “This makes it appealing in light of our view of a more challenging second half of thje year for the Singapore market,” writes Pineda, who has a “buy” call and $3.04 target price. —