Brokers’ take: DBS raises Singtel target price on potential sale of subsidiaries

DBS has raised its target price for Singtel to S$3.24 from S$3.20 previously, revising its earnings estimates for the telco “after a long time”. It maintained its “buy” call.

The target price represents a 22.3 per cent upside from its share price, which closed 0.4 per cent or S$0.01 lower at S$2.65 on Tuesday (Jul 19).

In a Tuesday report, DBS analyst Sachin Mittal noted that Singtel may potentially classify Trustwave as a “held for sale” subsidiary. Amobee was classified as a “subsidiary held for sale” as at Mar 31 this year (*see amendment note), which means that its revenues and earnings might not be captured in Singtel’s reported profit.

These changes prompted 5 per cent and 4 per cent increases in DBS’s earnings estimates for Singtel in FY2023 and FY2024, respectively.

Sky News reported that Amobee, which has largely been loss-incurring, might be sold to London-listed adtech firm Tremor for an estimated £165 million (S$275.4 million), Mittal said. 

Singtel has also mentioned the potential sale of loss-generating Trustwave a few times previously, DBS said. It anticipates the subsidiary’s divestment in 2023 and classification as “held for sale” in Q2 or Q3.

Overall, the classifications could result in avoiding an estimated S$200 million to S$210 million in annual operating loss, Mittal said, though savings would be slightly lower in FY2023 due to the timing of Trustwave’s classification.

Furthermore, Optus in Australia has raised the price of Optus-choice plans by A$4 (S$3.83) for existing subscribers in early July this year, boosting its average revenue per unit. It will increase the prices of all tier plans from Aug 8, alongside an increased data allowance. 

“Among regional telcos, Singtel offers far superior growth than other telcos that pay dividends,” Mittal said. While core business segments were hit during Covid lockdowns, they are gradually recovering.

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DBS projects core operating profits will recover by 33 per cent in FY2022 excluding one-offs, and another 27 per cent in the following financial year.

With a yield of over 4 per cent, “Singtel offers a better mixture of yield and growth compared to other Singapore large caps” that is similar to Singapore banks, while being less reliant on the economy, Mittal added.

“Increasing contribution from associates will further support the telco’s earnings growth, making the company an exciting stock.”

*Amendment note: A previous version of the article stated that Amobee might be classified as a “held for sale” subsidiary from Q1 of FY2023. It has in fact already been classified as a “subsidiary held for sale” as at Mar 31, 2022.