Analysts are overall positive on Singapore Telecommunications (Singtel) following its latest 3QFY2020 business update, which saw a 3.2% y-o-y drop in operating revenue to $4.2 billion, but on a q-o-q basis, revenue was 8.9% higher. This marks the second consecutive quarter of q-o-q revenue recovery across the business.
On the back of this, EBITDA fell 13.5% y-o-y to $1.0 billion, while EBIT fell 38.3% y-o-y to $328 million.
The group’s y-o-y results continue to be impacted by the Covid-19 situation, where travel restrictions have severely reduced roaming and prepaid revenue. But on a q-o-q basis, the group is showing recovery, especially with revenue from its ICT segment growing as businesses adopt and accelerate their digitalisation efforts.
Although the outlook is still uncertain, Singtel’s group CEO Yuen Kuan Moon says, “We are well positioned for the new normal, especially with the group’s 5G rollout, the scaling of NCS and our digital bank joint venture in Singapore. These differentiated assets and developments will prime us for new digital growth, particularly in areas where we can leverage the scale and experience of our Group across Asia, and drive greater efficiencies.”
Maybank Kim Eng is keeping its “buy” call on Singtel with an unchanged target price of $2.88.
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In a Feb 10 report, analyst Kareen Chan says, “We think the worst is over as we see earnings recovering sequentially due to: gradual ARPU recovery post-Covid; potential 5G ARPU uplift of 1.9% y-o-y from FY2023-2026; Bharti driving associates’ recovery.”
The analyst has also kept the stock as the top pick in the Singapore telco space, as she sees deep value in the stock. Currently, the market is ascribing almost zero value to its Singapore and Australia operations, while offering 5.3% FY2022 yield.
RHB Group Research too has reiterated its “buy” recommendation on Singtel with an unchanged target price of $3.10, while also keeping the stock as its preferred Singapore telco pick.
According to the research team in a Feb 11 report, “We expect a stronger earnings uplift in 4QFY2021, following the Phase 3 reopening of the Singapore economy, and improved associate contributions. Valuations remain undemanding, after the multi-year derating in 2020, with the stock trading at 0.5SD below the historical EV/EBITDA mean.”
Similarly, CGS-CIMB Research has maintained its “add” call on Singtel with a target price of $3.10.
Lead analyst Foong Choong Chen notes in a Feb 10 report that Singtel’s 3QFY2021 and 9MFY2021 results were slightly ahead of his FY2021 forecast, on narrower-than-expected Bharti losses. He also likes the stock for its fairly resilient enterprise segment, which eased by a model 4.4% y-o-y and 3.5% q-o-q on fewer JSS credits, despite business disruptions and weaker macroeconomic conditions.
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Its strong ICT revenue growth of 7.9% y-o-y helped mitigate the decline in the carriage business, while earnings were also buffered by cost management. Digital Life LBIT narrowed 60.0% y-o-y (narrowed 42.9% q-o-q), due to the deconsolidation of HOOQ from Mar 1, 2020.
Holding a slightly less bullish stance, PhillipCapital is “neutral” on Singtel with a target price of $2.44.
Head of research Paul Chew likes the stock for its resilient enterprise earnings, stable consumer segment in Australia and the turnaround of its India associate Bharti. But he is still weary on the group’s contracting consumer segment in Singapore as roaming revenue continues to recede, and the high fixed costs in Australia from its on-net broad band business.
“Singtel remains in the grip of roaming losses, high costs in Australia and competition in Indonesian mobile. That said, it had some bright spots in 3QFY2021, such as its enterprise resilience, mobile revenue stability in Australia and Bharti’s recovery,” says Chew, who continues to value Singtel’s core Singapore and Australia businesses at 6 times EV/EBITDA and mark its associates to market with a 20% discount to account for their share-price variability.
As at 1.10pm, shares in Singtel are trading at $2.42 or 1.5 times FY2021 book with a dividend yield of 4.0%, according to Maybank Kim Eng’s estimates.
