Here’s why Singtel is banking on AIS despite dividend policy issues

AIS’s spectrum acquisitions and 4G launch outweigh uncertainties.

While there are uncertainties around Advanced Info Services Public Limited (AIS)’s dividend policy, Singapore Telecommunications Limited (Singtel)'s latest maneuver in acquiring its biggest shareholder shows a sign of confidence.

According to BNP Paribas analyst Wei Shi Wu, Singtel's expansion of its stakes in InTouch Holdings Public Company Limited (Intouch) and Bharti Telecom Limited (Bharti Telecom) signals the group's trust in the competence of the two telcos.

Intouch is the biggest shareholder in AIS, the largest mobile operator in Thailand. Bharti Telecom, meanwhile, is the holding company of India’s biggest telecommunications company, Bharti Airtel Limited (Airtel).

According to Wu, the risk around AIS's dividend policy is offset by its strengthened fundamentals with its spectrum acquisition and 4G launch.

"While there are uncertainties around AIS’s dividend policy beyond 2016, Singtel’s latest move may be viewed as a sign of its confidence in AIS’s dividend outlook. We are positive on Airtel given its spectrum and network leadership, and exposure to data growth," Wu said.

The proposed acquisition would boost Singtel's effective interest in AIS to 31.8% from 23.3% and in Airtel to 36.3% from 32.9%.

Meanwhile, Wu estimates that it would take time for the proposed transactions to affect Singtel's earnings per share (EPS).

"We estimate the proposed transactions would be neutral to Singtel’s FY17 EPS, taking into consideration larger earnings contributions from AIS/Airtel for three months, offset by slight debt increase and an enlarged share base. We believe the EPS impact could be mildly (1-2%) positive in FY18-19," she said.

She added that the transaction worth $2.47 billion may raise the eyebrows of investors who may question if the capital would have been better invested in higher-growth digital businesses.

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