Hot stock: Singtel falls 6.8% amid concerns over Telkomsel’s profitability softening

SHARES of Singtel neared a two-month low on Wednesday (Aug 2) amid heavy trading, as analysts from Citi flagged softness from Telkomsel, its regional associate in Indonesia.

The Singapore telco’s counter was also trading on an ex-dividend basis in a sea of red among index counters.

Most Straits Times Index constituents slid over the afternoon trading session, mirroring selling across Asian markets after Fitch downgraded the United States’ credit rating to AA+.

The Singapore telco’s counter closed at a low of S$2.46 on Wednesday, down 6.8 per cent or S$0.18. The last time Singtel’s shares closed at this level was Jun 13.

On Tuesday, Citi analysts Arthur Pineda and Luis Hilado opened a “30-day negative catalyst watch” on Singtel, with potential downside to the research team’s and consensus estimates for the first quarter 2024 net profit after tax.

Telkomsel’s net income for the second quarter ended Jun 30 fell 21 per cent on the year to 5.41 trillion rupiah (S$476.2 million) from 6.82 trillion rupiah, according to results posted by Telkom.

Citi estimates that Telkomsel will generate around a quarter (24 per cent) of Singtel group’s pre-tax profit for FY2024, so unexpected softness could weigh on Singtel’s overall Q1 2024 profit outlook.

The telco’s stake in Telkomsel stood at 30.1 per cent as at Jul 1, following a capital injection, while Telkom’s effective ownership rose to 69.9 per cent.

“Over the longer run, we do believe its move to merge Telkomsel with Indihome broadband should bear fruit with the elimination of costly opex duplications as well as drive cross-selling synergies,” Pineda and Hilado said.

That said, near-term earnings softness could potentially drive an earnings miss in the short term, they added.