Brokers’ take: Maybank lowers Singtel target price, but remains positive on prospects
Chelsea Ong
MAYBANK Securities has lowered its target price on Singtel to account for slower growth momentum at the group’s Australian telecommunications subsidiary Optus, near-term challenges at its technology services arm NCS, as well as regional currency headwinds.
The reduced sum-of-the-parts price target of S$3.10 from S$3.15 now values the company’s regional associates at S$2.48 per share, down from S$2.46. The fair value for Singtel’s core business was lowered to S$0.63 per share from S$0.69 previously.
A lower conglomerate discount of 20 per cent was also used to reflect a gradual recovery in Singtel’s core business instead of the previous 25 per cent.
Maybank’s reduced valuations come after the telecommunications company’s profit figures for the first nine months of its fiscal year missed both consensus and the research house’s expectations.
In a Feb 16 note, analyst Kelvin Tan said he foresees the group will face further operating profit challenges as both Optus and NCS enhance their digital capabilities.
This would in turn impact the group’s future core Ebitda (earnings before interest, taxes, depreciation and amortisation) growth, he said.
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He also noted that margin pressures arising from NCS’ strategic reset, which recently resulted in higher labour and acquisition costs, are also likely to continue into the near term.
The analyst has therefore lowered Singtel’s core Ebitda projections for FY2023 to FY2025 by 8 per cent to 9 per cent.
Singtel nonetheless remains Maybank’s top pick within the telecommunications sector as China’s relaxed Covid policies are expected to aid the group’s mobile service recovery.
The research house maintains its “buy” call on the stock. It expects the group to distribute special dividends on top of regular dividends following a further recovery of its mobile service revenue amid China’s easing of restrictions.
As China’s relaxation of restrictions is also anticipated to boost tourist arrivals, Maybank projects roaming and prepaid revenue to contribute a 6 per cent year-on-year growth to the mobile business in FY2024.
Coupled with 5G-led average revenue per user uplift, this is expected to contribute 4 per cent of the overall group revenue growth, which Tan believes will help to offset cost inflation.
“We believe that there is still room for further mobile service recovery, led by a doubling of 5G take-up rate and growing tourist arrivals as the number of tourists is still below pre-pandemic levels,” noted Tan.
Shares of Singtel were trading at S$2.45, down 0.8 per cent or S$0.02 as at 3.43p m on Friday (Feb 17).
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