Brokers’ take: Analysts positive on Singtel’s growth prospects despite earnings miss
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Tan Nai Lun
ANALYSTS are still positive on Singtel’s growth prospects, although its latest set of earnings had fallen short of expectations.
In a report on Sunday (May 29), Maybank raised its target price on the telco to S$3.02 from S$2.98, after it revised estimates of earnings contributions from Singtel’s regional associates.
Analyst Kelvin Tan, who has a “buy” call on the counter, said he sees potential growth engines in the regional data centre and digibank areas.
Tan said he remains “sanguine about the overall opportunity”, although he expects immediate contributions will likely be small.
RHB also raised its target price on Singtel to S$3.55 from S$3.37 in a report on Monday, noting that the reopened borders can likely drive a rebound in roaming and mobile revenues. The brokerage has a “buy” call on the counter.
The research team noted that core earnings rebounded in FY2022 after 4 consecutive years of decline, and expects the telco will see a stronger recovery in the June quarter from stronger roaming and prepaid sales, as the Malaysia-Singapore borders fully reopen.
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OCBC Investment Research on Monday raised its fair value estimates on Singtel to S$3.06 from S$2.98 as well, noting that the telco is likely “well-positioned to benefit from reopening tailwinds”.
The research team, which has a “buy” call on Singtel, said Singapore – as well as the markets where the telco’s regional associates are located – will likely benefit from increasing normalisation.
It is also positive on Singtel’s ICT services arm NCS as an important growth driver, though upside to the telco’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins may be challenging given the costs involved in recruiting suitable talents.
As for CGS-CIMB, its research team cut its target price on Singtel to S$3.20 from S$3.30, after it adjusted its estimates for FY2023 and FY2024 earnings per share amid lower earnings from Singapore, Australia unit Optus, Indonesia associate Telkomsel and Bharti Airtel.
The research team maintained its “add” call on the counter in a report on Monday, adding that Singtel is its top Singapore telco pick.
Breaking down its estimates for FY2023, CGS-CIMB said Singapore earnings will likely grow 24 per cent on year amid higher mobile revenue, better device sales and lower content cost.
The research team also expects the spike in fourth quarter earnings for Bharti should bode well for FY2023, while prospects in Indonesia are likely improving as competition is easing, with various players optimising tariffs.
Meanwhile, Optus will unlikely rebound due to a further drop off in migration fees from the National Broadband Network (NBN), plus higher depreciation and net finance cost.
Singtel on Friday reported S$994.5 million in net profit for its second half ended March, up more than 10 times from S$87.6 million in H2 FY2021, as the group’s exceptional items turned positive, from a net exceptional loss booked the previous year.
Operating revenue, however, fell 6.5 per cent on year to S$7.69 billion, amid lower sales of equipment as well as a decrease in revenue from its mobile, data and Internet, fixed voice and pay television segments.
Shares of Singtel closed S$0.06 or 2.3 per cent lower at S$2.59 on Tuesday.
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