Brokers' take: CGS-CIMB, Maybank raise Singtel targets on higher valuations for associates

CGS-CIMB and Maybank Securities on Wednesday (Feb 16) raised their target prices (TP) for Singtel Z74 after placing higher valuations on the telco's associates.

The research team of CGS-CIMB increased its TP on Singtel to S$3.30 from S$2.90 due to higher fair values for Singtel's associates - led by India associate Bharti. It maintains its "add" call on Singtel.

The new TP implies a potential upside of 29.4 per cent from the counter's Wednesday closing price of S$2.55. Singtel's shares were down 0.8 per cent or S$0.02 at the time.

Meanwhile, Maybank raised its TP to S$2.98 from S$2.83 after inputting higher valuations for these associates. This implies a potential upside of about 16.9 per cent. The research team has also maintained its "buy" call on the stock.

Singtel remains a top pick when it comes to Singapore telcos for CGS-CIMB, Maybank as well as RHB.

RHB maintains "buy" on the counter, along with an unchanged TP of S$3.37 - implying a potential upside of 32.2 per cent. It said its TP incorporates a 12 per cent ESG (environmental, social and governance) premium based on in-house methodology.

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DBS, in a separate report on Tuesday, maintained its "buy" call on Singtel with an unchanged TP of S$3.13, implying a potential upside of 22.7 per cent.

Singtel's core net profit for the 9 months ended Dec 31, 2021 has missed expectations slightly. The S$1.45 billion posted for the period was 65 per cent of consensus estimates, 70 per cent of CGS-CIMB's and DBS's forecasts, and 71 per cent of RHB's projections.

CGS-CIMB has cut its estimates for FY2022-24 core earnings per share (EPS) by 5 to 6 per cent after factoring in lower Singapore earnings. It projects core EPS to rebound 13 per cent year on year in FY2022, then rise 30 per cent in FY2023 and 17 per cent in FY2024.

This will come on the back of higher associate earnings (led by Bharti) due to easing competition, roaming revenue recovery and higher Optus earnings due to more rational competition and cost savings.

Maybank noted that operational revenue should improve further as associate earnings recover from lockdowns and as economic conditions stabilise. Meanwhile, easing border restrictions should support the Singapore and Australia consumer divisions.