RHB, Maybank keep ‘buy’ call amid Singtel sell-down, say long-term growth outlook still intact
This is despite the near-term outlook and share price of its subsidiary Optus being clouded by recurring outages
[SINGAPORE] Analysts on Tuesday (Sep 30) maintained their “buy” call on Singtel despite the telco’s recent share price retreat, sparked by consecutive outages suffered by its Australia subsidiary Optus.
RHB assigned Singtel a target price of S$4.90, 18.9 per cent above its latest closing price of S$4.12 on Monday, when the stock ended 3.3 per cent lower amid heavy sell-offs. Maybank slashed its target price from S$4.75 to S$4.62, still above Singtel’s latest closing price.
This comes as Optus, the second-largest telco in Australia, suffered an outage on Sep 28 that affected 4,500 customers, following a similar incident on Sep 18 that led to three deaths, and a government probe into the botched network upgrade that caused it.
RHB said that the recent retreat of Singtel shares signals a “good opportunity” for accumulation.
“While a series of recurring network incidents at Optus should weigh on near-term stock sentiment, the sell-down represents a good buying opportunity,” said the research house, noting that Singtel’s market capitalisation has fallen by around 7 per cent since the Sep 18 outage.
Maybank analyst Hussaini Saifee remarked that even though Optus’ recent snags may pose “heightened near-term financial risks”, the impact on Singtel shares would likely be contained.
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He pointed to Singtel’s diversification, with Optus accounting for 3 to 5 per cent of the group’s earnings and 15 per cent of its sum-of-the-parts valuation, based on Maybank’s estimates. “Additionally, (Singtel’s) ongoing S$2 billion share buyback programme supports valuation stability. These factors collectively suggest a low likelihood of a significant share price decline.”
Longer-term outlook intact, fundamentals unchanged
While Optus’ recurring network snags should weigh on near-term stock sentiment, RHB analysts remained positive about the telco’s prospects over the long haul.
“Singtel’s longer-term underlying thesis of return on invested capital improvement, capital management upsides, and earnings before interest and taxes growth (are) still intact,” RHB said.
It noted that, following a November 2023 network outage, the stock recovered by around 8 per cent within a week.
Maybank’s Hussaini highlighted that Singtel’s growth fundamentals are unchanged and remain robust, supported by strong associate contributions, ongoing consolidation of Singapore telco sector and opportunities in data centres and artificial intelligence.
Given this, he predicts that Singtel’s earnings for FY2025 to FY2027 will go up at a 17 per cent compound annual growth rate (CAGR), primarily driven by associates.
Moreover, its consolidated earnings before interest, taxes, depreciation and amortisation is set to grow at an estimated 4 per cent CAGR between FY2024 and FY2027 on the back of moderate top-line growth and cost cuts, he added.
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