With Singtel’s Indian associate Bharti Airtel’s growth plans back on track, and especially the lack of provisions during this period, the group is finally back in the black. Analysts are generally all smiles on the group’s positive 1HFY2021 results.
Singtel reversed into profitability in its latest 1HFY2021 results, with earnings of $466.1 million from a loss of $127.9 million a year ago. This came on the back of a 10.2% fall in revenue to $7.4 billion from $8.3 billion a year ago, mainly due to lower contribution from its Australian business, Optus.
The board has declared an interim dividend of 5.1 cents per share, payable on Jan 15, 2021. This is lower than that of 6.8 cents interim dividend paid out in the same period a year ago. It has also approved the adoption of a scrip dividend scheme and the application of this scheme to the interim dividend.
See: Singtel is back in the black in 1H with earnings of $466.1 mil
RHB Group Research and CGS-CIMB are keeping their “buy” recommendation on the stock with the same target price of $3.10.
“While near-term challenges remain, we expect stronger earnings recovery from 4QF20Y21. At current levels, the valuation of its regional associate has usurped Singtel’s market capitalisation with the core mobile business going for free. Competition and weaker-than-expected earnings are downside risks, with monetisation of non-core assets as the key upside risk,” says RHB.
Meanwhile, RHB expects DPS to be capped at FY2-21 core earnings (FY20: 81%), which implies absolute DPS for the year is likely to decline.
CGS-CIMB’s Foong Choong Chen notes that lower-than-expected share of Bharti losses and 100% interim dividend payout were 1HFY2021 positives, while h-o-h earnings recovery in 2HFY2021 and asset monetisation are potential re-rating catalysts.
UOB Kay Hian is also bullish on Singtel as it keeps its “buy” call with a target price of $2.80.
Lead analyst Chong Lee Len says, “The reopening of economies allowed for a 10% q-o-q top-line recovery in 2QFY2021 and we expect a stronger 2HFY2021. We cut FY2021-2023 net profit forecasts by 20%, 7% and 6% respectively to account for weaker-than-expected consumer revenue in 1HFY2021. We raise DPS estimates to 11.5 cents (100% payout).”
With slightly more bearish sentiments, PhillipCapital is keeping its “neutral” rating on Singtel with a target price of $2.44.
Analyst Paul Chew notes that although Singtel has shown q-o-q and y-o-y improvement in its 1HFY2021 results, Singtel has cut its interim dividend by 25% to 5.1 cents and has adopted scrip dividends. Uncertainties over the pandemic and a commitment to keep investment-grade ratings were among the reasons given. Full-year dividends will not exceed underlying profits.
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He has a full-year underlying EPS of 13 cents for the stock.
Chew also believes that the group’s Australian business is a source of weakness, as Optus remained burdened by running two broadband networks and headcount as it manages the migration of customers from its network to the government’s National Broadband Network (NBN).
“We are encouraged by the gradual recovery in its operations and believe a bottom has formed. For steeper and more sustainable improvements in earnings, roaming revenue would need to return to its mobile business as international travel resumes. Secondly, Optus has to remove the cost of running its on-net broadband business and any other NBN transition expenses,” adds Chew.
As at 11.20am, shares in Singtel are trading at $2.35
