Singtel will see a weak 1HFY2021 with higher bad debt provision before recovery begins in the second half, in line with reopening markets, say UOB Kay Hian analysts Chong Lee Len and Chloe Tan in a Jul 28 report. The analysts recommending “buy” on share price weakness, with a target price of $2.80.
“The Covid-19 pandemic has resulted in lower roaming, prepaid, and handsets revenues for Singtel’s consumer segment. In addition, corporates’ and advertisers’ cutbacks have adversely impacted the enterprise segment. As such, we expect the full impact of the Covid-19 lockdown in 1QFY2021 and higher bad debt provisions for the quarter. We expect Singtel to focus on good cost containment in 1HFY2021 in lieu of weak top-line trends,” say the analysts
Hence, Singtel’s net turnover for FY2021 is expected to dip to $15.2 million from $16.5 million. Likewise, operating profit is projected to fall in FY2021 to $1.3 million from $1.8 million in the previous year.
Against the backdrop of upcoming 5G capex, Singtel will focus on cash conservation and the introduction of scrip shares for FY2021, say analysts. In the longer run, the 5G roll-out from Jan 2021 will provide monetisation opportunities for the Singapore consumer segment.
Capex intensity is expected to spike up to 14% and 16% for FY2021-2022, from 12% in FY2020, as Singtel rolls out 5G coverage in Singapore, with the target of 50% population coverage by 2022 to extend nationwide by 2025.
While FY2021’s free cashflow of $3.8 billion can sustain a 12.25 cent net DPS, representing a payout of approximately 80%, Chong and Tan gather that Singtel is proposing a share scrip scheme for FY2021-2022.
This will give investors the option to receive dividends in cash or stock. Based on a 12.25 cent net DPS, the stock offers a 4.9% dividend yield – a spread of 400 base points against Singapore Interbank Offered Rates (SIBOR).
Positively, recovery trends are encouraging across Singtel’s operating companies in light of the reopening of economies and resumption of customer’s acquisition activities, say analysts. “We expect earnings to play catch up in 2HFY2021 and Singtel will thematically benefit from the reopening of economies.”
“In the longer run, Singtel is expected to benefit from strong demand from enterprise customers for cyber security services, cloud applications, and business digitisation solutions as a result of accelerating technological adoption. We expect the Info-Communications Technology division, which accounts for 50% of enterprise revenue, to gain traction in FY2021 as Singtel replenishes its orderbook (4QFY2020: +8% y-o-y).”
However, on the morning of July 30, Singtel announced that it will be be booking additional charges of $911 million from its equity share of its associate Bharti Airtel, which has been dogged by stiff competition and regulatory woes in recent years.
On July 29, Airtel reported it has made additional provisions for license fee and spectrum usage charges of some 107.4 billion rupees for the quarter to June 30. This was the result of an Indian court ruling on July 20. Airtel also recognised 67.1 billion rupees as exceptional tax charge arising from reassessment of the carrying amounts of deferred tax balances.
See: Singtel to book another $911 million in charges from Bharti Airtel stake
As at 11.51am, shares in Singtel are trading at 1 cent lower, or 0.4% down, at $2.49.
