SINGAPORE (Jan 17): On Jan 9, Bharti Airtel, once again, stretched its hands out, beckoning investors for more capital. By the end of the day, bankers have helped collect total subscription money of some US$10 billion ($13.5 billion) — more than three times the US$3 billion the Indian mobile operator’s trying to raise.
Evidently, investors are optimistic that Bharti’s earnings will recover, as the price war that bled the mobile operators in India reached a truce late last year. For more than three years, deep-pocketed, privately-held Jio, backed by the Reliance conglomerate, waged a price war for market share. Incumbents such as Bharti and Vodafone were forced to lower prices and compete. Commercial sense finally prevailed. With effect from December, mobile users in India now have to pay up to 40% more in data tariffs.
The end of the price war in India is a big positive for Singapore Telecommunications (SingTel), which controls 35.2% of Bharti. For the FY2020 ending March 31, 2020, SingTel’s share of losses suffered by Bharti is likely to reach $402 million, according to a consensus estimate of analysts compiled by Bloomberg. The following year, FY2021, SingTel’s share of Bharti’s earnings may improve to $1 million for FY2021 and $259 million for FY2022.
Along with prospects of similar earnings recovery across SingTel’s other regional associates such as Telkomsel in India and AIS in Thailand, SingTel is set for an earnings recovery of its own. Between FY17 and FY20, Singtel’s core earnings per share is estimated to have dropped by 35%, but will recover 15.1% y-o-y for FY21 and a further 7% y-o-y for FY22, estimates CGS-CIMB analyst Foong Choong Chen.
SingTel’s domestic business is seen to hold its ground too. The Singapore government allowed a fourth mobile operator TPG to enter the already saturated market. Thus far, the impact from the competition is less intense than feared. CLSA observes that TPG has been struggling to roll out its network.
SingTel and other incumbent operators had been cutting costs actively – just look at SingTel group CEO Chua Sock Koong’s 43% pay cut for her most recent annual package. “Negative sentiment should be, or at near its peak,” says Foong.
All three local telcos used to be investors’ favourite for their generous yield. For SingTel, this attribute is accentuated following M1’s privatisation, and StarHub’s cut back of its dividends as its pay-TV business plummeted.
Since FY2015, SingTel has been giving out annual dividends of 17.5 cents or more per share – including the most recent FY2019. DBS Group Research, in October 2019, suggested the possibility that the dividend for FY2020 might be trimmed to between 13 and 15 cents because of lower earnings, even though the guidance from SingTel was to maintain at 17.5 cents.
On Nov 22, when news of the price war truce in India broke, DBS analyst Sachin Mittal upgraded SingTel back to “buy” with a $3.60 price target, versus “hold” call and $3.12 price target previously. On Jan 14, he further upgraded his price target to $3.80.
Others, such as Foong, believe that SingTel will take on more debt or even sell non-core assets so that the dividend can be maintained at the current level. He has an “add” call and price target of $3.70 on the stock. Other houses, such as Credit Suisse, have a more optimistic target price of $3.85. “We believe improving India fundamentals are yet to reflect in SingTel’s share price,” states Credit Suisse in its Jan 6 report.
