SingTel – CIMB
Smartening the pipe
• Maintain UNDERPERFORM. SingTel showcased its ambitions to become the leader in cloud computing by hosting an i.Luminate Business Innovations Forum. We view this as SingTel’s attempt to reinvent itself from being a “dumb pipe” broadband provider to one that offers businesses value-added services, much like its ambition to be a multimedia company for residential users. Cloud computing should also help SingTel retain customers with the advent of NGNBN. Riding its existing infrastructure, SingTel can provide these services across the region. While we view its move positively, we estimate that contributions from cloud computing will not be significant in the foreseeable future. Meanwhile, SingTel faces earnings pressure in Singapore, India and Australia. Hence, we maintain our UNDERPERFORM rating and SOP-based target price of S$3.09. We prefer M1 as we believe it will be the largest beneficiary of NGNBN, and offers capital-management potential.
• One-stop ICT solutions provider. SingTel wants to move up the value chain from a mere provider of managed and professional services to cloud computing i.e. SingTel has assembled solutions from many providers, offering software, platform and infrastructure services to which businesses can subscribe as and when they need them.
• SingTel’s counter-attack. We view the above as part of SingTel’s defence of its dominance in broadband services to small and medium enterprises. SingTel’s near monopoly in this market segment has been made vulnerable by NGNBN which will connect all buildings and commercial areas in Singapore with fibre optics.