Singtel

Singtel | Buy

May 7 close: S$3.50

Target price: S$3.85

DBS Group Research, May 7

Singtel is a unique telco-tech play which is beginning to reap the benefits of digital investments made 3-4 years ago and is ahead of its regional peers on digital transformation efforts. However, we trim our earnings forecast for FY18 and FY19 by 5 per cent and 10 per cent respectively mainly on the back of a potential drop in contribution from Telkomsel.

Excluding the market cap of its associates, Singtel's core business is trading at only 5.7 times of FY19's forecasted EV (enterprise value)/Ebitda (earnings before interest, taxes, depreciation and amortisation) – some 20-30 per cent discount to regional and local peers.

Due to Ebitda losses incurred in the Digital Life! and cyber security businesses, the market ascribes a negative value to them. We argue that these businesses are worth S$0.14 per share based on a 1X revenue multiple as scale is the key for such businesses and Singtel has already shown the capability to turn around a loss-making digital advertising business into positive Ebitda territory.

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