SINGAPORE (Mar 11): Analysts are keeping their recommendations on Singapore Telecommunications (Singtel) – for now – after the telco announced it is subscribing for approximately US$525 million ($713.3 million), or 15%, of Bharti Airtel’s US$3.5 billion rights issuance.
The fund raising plan is aimed at cutting debt and shoring up Airtel’s balance sheet as the Indian telecom industry reels from the impact of a price war triggered by the entry of Reliance Jio Infocomm.
See: Singtel to buy US$525 mil worth of stock in India's Bharti Airtel
“As a result, Singtel’s effective stake in Airtel will drop from 39.5% to 35.2% assuming full subscription on the public tranche,” says OCBC Investment Research analyst Joseph Ng in a Monday report.
Singtel also has a 48.9% stake in Bharti Telecom, one of Airtel’s major shareholders.
“Management remains cautiously optimistic of Airtel’s prospects in India, given the significant consolidation, as well as Airtel’s 4% QoQ growth in mobile ARPU after 9 consecutive quarters of decline,” Ng says.
“Crucially, there has been no change to management’s dividend guidance of 17.5 cents per share for FY19 and FY20,” he adds.
OCBC is keeping its “buy” call on Singtel with a fair value estimate of $3.79.
Meanwhile, RHB Research is maintaining its “neutral” call on Singtel, but lowering its target price to $3.09 from $3.22 previously after factoring in the subscription to the rights issue as well as the dilution in stake post exercise.
“Singtel trades at 1.5 SD below its historical EV/EBITDA mean which, in our view, reflects the stock’s risk-to-reward profile, with support coming from the sustained 6% dividend yields for FY19F-20F,” the brokerage says in a report on Monday.
“The stock remains our preferred Singapore telco exposure given its earnings diversity and dividend certainty,” it adds.
As at 2.45pm, shares in Singtel are trading 1 cent lower at $2.93. According to OCBC valuations, this implies an estimated price-to-earnings (PE) ratio of 15.7 times and a dividend yield of 6.0% for FY19.
