SingTel – CIMB

Selling down Far EasTone

SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.

Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.

What Happened

SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.

What We Think

This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.

What You Should Do

Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.

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