Hot stock: Singtel down 1.7% on A$304m Australian tax case exposure

SHARES of Singtel Z74 hit a 3.5-month low on Monday (Dec 20) after the telco flagged A$304 million of exposure, interest and penalties from its recent Australian tax case loss.

Singtel fell as much as 1.7 per cent, or S$0.04 to S$2.33 as at 9.56 am. The last time the counter closed near this level was Aug 31. Singtel was also the sixth most traded by volume by 10.17 am, with 9.9 million shares changing hands.

No married deals were recorded, according to ShareInvestor data.

On Sunday (Dec 19), Singtel said it estimated a net tax exposure and related interest and penalties amounting to A$304 million (S$295.9 million).

The dispute relates to the acquisition financing of Singtel Optus. In 2016 the Australian Taxation Office objected to how the acquisition was paid through cross-border financing arrangements between Singtel's subsidiaries, and estimated a primary tax payable of A$268 million from an increased taxable income of about A$895 million.

Singtel lodged its appeal against these assessments, and announced it received unfavourable judgement from the Federal Court of Australia last Friday (Dec 17). Its shares closed 2.5 per cent or S$0.06 lower at S$2.37 on the same day, before the announcement.

Citi has lowered its target price on Singtel to S$3.56 from S$3.58 following the latest developments, after applying a 10 per cent holding-company discount. Its sum-of-the-parts (SOTP) valuation for Singtel leads to a fair value of S$4.05, the research team said.

Citi analyst Arthur Pineda sees the Australian tax case loss as a "minor negative", although the research team sees no material impact on Singtel's recurring earnings - where dividends are paid - or on its SOTP valuation.

The Citi research team estimates the tax case would slightly raise Singtel's FY2022 net debt or adjusted Ebitda to 1.6 times from 1.5 times. It also expects FY2022 reported earnings to decline by 11 per cent on one-time charges with "very minimal" impact on recurring profits owing to financial impact.

"We conservatively assume that the ruling is not contested in the higher courts and Singtel opts to pay outright," Pineda added.