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Brokers' take

Published Mon, Oct 2, 2017 · 09:50 PM

Singtel | Buy Target price: S$4.30 Oct 2 close: S$3.70 DBS Group Research, Oct 2

The 20-40 per cent valuation discount versus peers is an opportunity to accumulate. Singtel's core plus digital business is trading at only 5.6 times FY18 enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) versus seven times for M1, nine times for StarHub and 7.5 times regional telco average. Despite the 38 per cent rise in the valuation of regional associates over the last three years, the stock has been flattish, due to mounting losses in the digital businesses perhaps. However, with digital advertising arm Amobee achieving an earlier-than-expected Ebitda breakeven in Q1 FY18, and official guidance for narrower digital losses in FY18, we expect the valuation discount to disappear.

Investors ought to value core and digital business separately with Singtel improving its execution of digital businesses. We argue that investors ought to value the core business at seven times and value the digital business separately based on revenue multiple even though it is not profitable yet.

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