RHB Group Research continues to rate Singapore Telecommunications (Singtel) “buy” with an unchanged target price of $3.00.
In a Sept 7 report, the RHB research team says, “We expect Singtel to subscribe to its portion of Airtel’s right shares with a manageable uptick in net debt/EBITDA. The recent disposal of towers by Telkomsel is value accretive. Overall, the green shoots of recovery in the group’s mobile business remain the key investment thesis with core earnings set to rebound in FY2022 after four years of decline.”
Singtel’s Indian associate Airtel has recently announced plans to raise up to INR 210 billion ($3.9 billion) via a 1-for-14 rights issue priced at INR 535. Similar to its 2019 cash call which raised US$3.6 billion ($4.8 billion), the promoters (Bharti Telecom and Singtel) who hold a combined 55.8% stake, will collectively subscribe to their entitlements.
See also: From 3G to 5G
In approving the latest cash call, Airtel’s board conducted a comprehensive review of the business environment, industry scenario, and financial/business strategy.
“We believe the exercise is timely to beef up its balance sheet ahead of the 5G network rollout and to meet financial obligations including the paring down of debt. The terms of payment for the rights shares will see 25% payable upon application, with the balance spread over 36 months, subject to requirements,” says RHB.
However, Singtel’s stake may see a marginal dilution following the rights issue.
“As before, we expect Singtel to subscribe to its portion of the rights entitlement with a long-term view held on its investment in India. This would entail a total outlay of $529 million or about $132 million (25% initial outlay) with projected net debt/EBITDA set to increase slightly from 2.1 to 2.2 times which we consider as manageable and in light of the on-going strategic business review,” says RHB, who expects Singtel’s effective shareholding in Airtel to decrease marginally to 31.1% from 31.7%.
To that end, the research house expects Airtel to remain a key driver of the group’s associate earnings, with the Bharti Group having turned profitable.
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Meanwhile, Singtel’s 35% Indonesian associate Telkomsel has also announced the disposal of an additional 4,000 towers to PT Dayamitra Telekomunikasi (Mitratel), the towerco subsidiary of its parent, Telkom Indonesia for US$580 million or about US$145,000 per tower. As part of the transaction, Telkomsel entered into a 10 year lease agreement with Mitratel for site rental.
“We view the sale as overall positive and value accretive for Telkomsel to further unlock the value of its passive infrastructure with proceeds channelled towards network expansion. Telkomsel had earlier sold some 6,000 towers to Mitratel with another 7,000 remaining in its books after the latest deal,” says RHB.
As at 11.20am, shares in Singtel are trading at $2.36 or 1.4 times FY2022 book with a dividend yield of 3.9%.