Singtel on Oct 1 announced that its Group CEO, Chua Sock Koong, will be retiring. At 63 years old, Chua has been with Singtel for 31 years and has been holding this position for the past 13 years. On Jan 1, 2021, she will be passing the baton over to fellow CEO of Singapore Consumer Business and the Chief Digital Officer, Yuen Kuan Moon.

Chua, on the other hand, will stay on as senior advisor to the chairman to assist with the transition.

See: Singtel's Chua Sock Koong to retire; Yuen Kuan Moon to succeed as Group CEO

DBS is keeping positive on this change in leadership as it keeps its “buy” call on Singtel with a target price of $2.69.

In an Oct 2 report, analyst Sachin Mittal says, “Yuen is a promising leader who has delivered far superior performance for Singtel’s Singapore Consumer business compared to the core business in Singapore and Australia.”

For example, Singapore Consumer business’s operating profit has been stable despite TPG’s threat compared to the overall core business’s operating profit declining by 14% annually over FY18-20.

Meanwhile, Singtel’s share price has been weak over the last week, mainly due to profit taking on Bharti’s stock. Bharti’s stock price was impacted after Jio launched aggressive post-paid price plans in India.

However, Bharti’s share price correction may be overdone as post-paid users (about 10-12% of total subscriber base in India) tend to be less price sensitive and care more about network quality, an area where Bharti is better-placed than its peers. Bharti accounts for over one-third of the analyst’s Singtel valuation.

Along with Bharti, Mittal expects associates’ contribution to grow into FY21 led by Bharti’s turnaround.

“Singtel could divest assets worth 35 cents per share, possibly Optus towers in the near term followed by data centre and digital business in two to three years.,” he adds.

Currently, the market value of Singtel’s associates is worth $2.49 per share, more than Singtel’s current share price of $2.14, and implies that the market is assigning a negative value to its profitable core business in Singapore and Australia.

Mittal’s valuation however, is slightly less bullish than the market. “Our fair value for the core business is 48 cents per share based on peer multiples. Associates are worth $2.49 per share based on their market values. After applying a 10% holding company discount, associates are worth $2.21 per share,” he says.

Nontheless, if Singtel’s majority shareholder Temasek accepts scrip dividends, Singtel’s net debt-to-EBITDA might improve to 1.8-2.0 times in FY22 from 2.4 times currently, easing any pressure on its credit rating.

As at 12.05pm, shares in Singtel are trading at $2.14, giving it a FY21 price-to-book value of 1.3 times and a dividend yield of 5.7%.