Singtel, Sea shares get boost from digital bank licence win

Singapore

LISTED companies that were selected to set up digital banks in Singapore saw their shares rally to fresh highs, while those with failed bids, including iFast Corp and Razer Inc, tumbled on Monday. The three local banks, meanwhile, ended the day lower.

Shares of Singapore Telecommunications (Singtel), whose alliance with fintech and ride-hailing giant Grab Holdings secured a digital full-bank (DFB) licence, rose as much as 10.5 per cent to an intraday and six-month high of S$2.585. Singtel eased slightly to close at S$2.41, up 3 per cent or S$0.07 on the day. Some 102.7 million shares changed hands, making it the top traded counter by value on the bourse.

The other DFB licence is going to Sea, whose New York-listed stock rose 8.3 per cent or US$15.25 to finish Friday at US$198.78. This marked an all-time high since its October 2017 market debut.

The Monetary Authority of Singapore (MAS) on Friday announced the four digital banks that will start operations from early 2022. Of these, the two DWB licences went to Alibaba's Ant Group and a consortium with China's Greenland Financial.

In a note on Saturday, CGS-CIMB said Singtel's DFB win means it will expand into a potentially profitable business in the medium to long term while diversifying away from its mature telco businesses.

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Singtel's share of the capital requirements for the new digital bank may be at least S$600 million in three to five years. Assuming an annual investment of S$200 million per annum over three years, the CGS-CIMB analysts estimate that Singtel's ratio of net debt to group earnings before interest, taxes, depreciation and amortisation would rise a little - to between 1.53 and 1.56 times at the end of FY23-25.

This level of debt is "unlikely to affect dividend paying capacity", they said.

Meanwhile, DBS Group Research said in a Monday report that Sea is set to see accelerated growth in digital financial services across South-east Asia thanks to the banking licence.

In his report, DBS analyst Sachin Mittal added that the expected impact from the DFB is "promising", as millennials who use Sea's Garena gaming platform "might find it comfortable" to also maintain a bank account with Sea. Taking deposits and serving as a lender for its merchants on Shopee will also give Sea an edge over its e-wallet competitors, Mr Mittal said.

CGS-CIMB noted that Sea has a niche understanding of the needs of millennials as well as small and medium-sized enterprises in the region. Its digital bank will thus be able to offer differentiated products and build more revenue streams in digital financial services. Aggressive expansion into this segment may, however, pressure margins in the medium term.

Those that did not win digital bank licences can be expected to save on such investment costs. But the market appeared particularly disappointed in the outcome for wealth management platform iFast. Its stock lost 31 per cent or S$1.21 to close at S$2.69 on Monday, with 12.7 million shares traded. That marked a two-month low for the counter.

The iFast-led consortium bidding for a DWB licence included China's Yillion Group and Hande Group. In recent months, iFast shares had risen - possibly on hopes of a DWB licence, prospects for work on Hong Kong's digital pension system, and higher stockbroking revenue. The fintech firm on Saturday said it still plans to continue pursuing a digital banking licence in Singapore and abroad.

Hong Kong-listed gaming hardware firm Razer, which failed to land a DFB licence, saw its shares fall 7.1 per cent or HK$0.19 to close at HK$2.49. Its consortium, including Sheng Siong's founders, had planned to focus on youth and millennials. Razer Fintech said it still intends to roll out Razer Youth Bank where the group has established a strong user base and local business presence.

Singapore-listed shares of AMTD International finished 4.7 per cent or S$0.80 lower at S$16.20 on Monday. The AMTD-led group vying for a DWB licence had consisted of Funding Societies, SP Group and Xiaomi Finance.

The three local banks, too, saw some selling on Monday. Shares of OCBC, DBS and UOB ended the day down 1.2 per cent, 1.6 per cent and 1.7 per cent, respectively.