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Brokers' take: Most brokerages maintain calls despite 77% fall in Singtel Q2 profit

DESPITE posting what historical data suggests is its worst quarterly showing since 2003, analysts covering Singtel have mostly maintained their calls on the telco despite earnings for the second quarter falling short of expectations.

It posted on Thursday a net profit of S$667 million for the three months to Sept 30, down by 77 per cent on the year before.

DBS Group Research analyst Sachin Mittal also maintained the brokerage's "add" call, but lowered its target price to S$3.59 from S$3.64.

Mr Mittel reiterated the call on the back of a rebound in Singtel's associates contributions for forecasted FY2020, which are expected to be led by the Telkomsel, AIS and Globe telcos.  He added that Singtel has attractive valuations and an approximate dividend yield of 5.6 per cent.

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UOB Kay Hian's Jonathan Koh noted that while Singtel's associate Telkomsel would continue its recovery, Indian associate Bharti Airtel incurred losses of S$176 million as it faces competition from Reliance Jio’s "Monsoon Hungama offer" in India.

Therefore, the broker cut his net profit forecast for Singtel's FY2019 earnings by 4.4 per cent, and for FY2020 by 4.6 per cent due to reduced contribution from Bharti Airtel. UOB Kay Hian has maintained its "buy" call on Singtel, a defensive stock, but like other brokerages have lowered its target price to S$3.90 from S$3.94.

OCBC Investment Research's Joseph Ng said in a report that despite the earnings blip, he believes Singtel’s diversified regional footprint would allow it to better weather the entry of TPG Telecom better than its local peers.

Mr Ng maintained a "buy" rating on Singtel, but lowered its fair value to S$3.95 from S$4.08 on a cut of the brokerage's earnings estimates of the telco.

CGS-CIMB analyst Foong Choong Chen maintained his "add" call on Singtel, but lowered the target price on the stock from S$3.70 to S$3.40. It remains CGS-CIMB's favoured telco pick.

Meanwhile, Maybank Kim Eng's Luis Hilado maintained a "hold" call, lowering the target price from S$3.46 to S$3.39 on grounds that Singtel's continued outperformance among Straits Times Index (STI) stocks may be challenging going forward.

Sharing the same sentiment as OCBC Investment Research, Mr Hilado said: "Singtel’s geographical diversification and non-wireless earnings base provide some protection against its Singapore wireless and broadband peers.

"This is reflected in its relative outperformance to the STI over the last one and three months. However, with competition in most of its markets outside Singapore in full swing or rising, we think absolute performance remains challenging."

However, RHB Research Institute downgraded Singtel to "neutral" from "buy" with a target price of S$3.22, as it continues to "see earnings and competitive headwinds across most markets Singtel or its associates operate in".