CGS-CIMB and RHB Research have cut their target prices for Singtel : Z74 0% after the telco giant’s half-year results fell short of their expectations.

CGS-CIMB analysts on Thursday (Nov 10) lowered the target price to S$3 from S$3.20, as they slashed core earnings per share (EPS) projections for FY2023 to FY2025 by 10 to 12 per cent. The cuts were based on adjustments for lower associate earnings and foreign exchange weakness. 

The revised target price also assumes a higher risk-free rate of 3.5 per cent, compared with 2.75 per cent previously.

Although Singtel’s H1 FY2023 core net profit rose 2.2 per cent year on year to S$1 billion, the amount still came in at 40 per cent of the research house’s expectations for the period.

CGS-CIMB noted that the increase in core net profit was driven by contributions from Airtel. The Indian associate’s contributions more than tripled to S$172 million in H1 FY2023 from S$49 million the year before, bringing Singtel’s total associate contributions up 8 per cent year on year.

While the researchers foresee the telco’s earnings improving in H2, they also expect Airtel’s contributions to decrease as the currencies of Singtel’s regional associates stand weaker against the Singapore dollar. A weaker Australian dollar also led CGS-CIMB to adjust EPS projections.

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Nonetheless, the research house continued to like the company for the “positive surprise” of providing a special dividend of S$0.05 per share to make up for the earnings miss. It reiterated “add” on the stock, calling Singtel its top Singapore telco pick.

RHB likewise maintained “buy” on Singtel while cutting the target price to S$3.30 from S$3.55 on Friday. It lowered the core earnings forecast for FY2023 by 11 per cent to reflect the weaker Australian dollar and the recent operating expenses run-rate.

Analyst Jeffrey Tan also lowered earnings projections for FY2024 to FY2025 by 5 to 6 per cent. While he recognised “positive momentum” in Singtel’s mobile revenue recovery – thanks to an uptick in global travel resulting in rising roaming revenue – he pointed out that the telco’s earnings before interest and taxes fell 49 per cent.

The decline was due to higher depreciation, staff expenses and investments in digital capabilities.

However, the analyst continued to like Singtel for its stronger associate contributions, which offset higher financing costs in H1 FY2023. He said overall impact from foreign exchange weaknesses will be manageable for Singtel, as the group has a diversified portfolio with 93 per cent of its debt hedged by fixed rates.

Singtel is also RHB’s preferred sector pick.

While Maybank Securities noted that Singtel’s H1 FY2023 profit after tax and minority interests fell short of its forecasts to come in at 46 per cent, the brokerage’s FY2023 to FY2025 predictions for the telco’s core business remained unchanged.

Its call and target price on the stock were both maintained at “buy” and S$3.15, respectively. 

In a Thursday report, Maybank analyst Kelvin Tan said he expects Optus to pay an additional A$2.2 million (S$2 million) fine to Australian regulators, on top of the A$142 million exceptional expense it incurred in H1 in light of the data breach. 

“But we see little earnings impact, as Singtel has a high operating cash flow of S$2.7 billion as at H1 FY2023,” said Tan.

Shares of Singtel were trading 2.3 per cent or S$0.06 higher at S$2.69, as at 11.34 am on Friday.