Brokers' Call

Singtel | Buy

Target price: $3.64

Oct 24 close: $3.14

Broker: DBS Equity Research, Oct 24

Singtel's earnings have possibly bottomed out in Q1 2019 and are expected to grow in financial year 2020 forecasts (after two years of decline), led by Telkomsel, AIS and Globe despite a delay in Bharti Airtel's recovery.

The core business is also likely to be stable as the soon-to-be merger of Vodafone-TPG in Australia and TPG's abysmally low capital expenditure in Singapore have significantly reduced the risk of irrational competition.

Singtel is attractive at a 12-month forward price-to-earnings ratio of 16x, a negative standard deviation of its 17x historical average, and offers of 5.5 per cent yield.

Where we differ, our revised 2019-2020 forecast for earnings per share is 5 per cent below consensus, mainly due to lower projections for Bharti and Telkomsel.

Potential catalysts include a sequential rise in Singtel's earnings in Q2 2019 forecasts due to Telkomsel's recovery, 6.8 cents dividend per share in December, and Singtel raising its stakes in regional associates.

We lower our sum-of-the-parts valuation to $3.64, due to the decline in the market cap of Bharti and weaker regional currencies partially offset by a rise in the value of Telkomsel.


M1 | Neutral

Target price: $2.06

Oct 25 close: $2.09

Broker: RHB Research Institute, Oct 25

9M 2018 core earnings were ahead of estimates, on stronger-than-expected earnings before interest, tax, depreciation and amortisation (Ebitda) margin. Despite the marginal 0.8 per cent quarter-on-quarter decline in Ebitda, core earnings fell a stronger 5 per cent on higher associate losses.

Fixed services remain the fastest-growing segment, up 26 per cent year-on-year in Q3 (9M 2018: +22.6 per cent y-o-y), driven by stronger corporate projects. Hence, its service revenue contribution inched higher to 20 per cent in Q3 2018 (Q2 2018: 19 per cent).

Mobile service revenue was down 2.5 per cent q-o-q (-0.1 per cent y-o-y), mainly due to post-paid revenue weakness, with the previous quarter benefiting somewhat from seasonally stronger roaming revenue.

Our target price is based on the pre-conditional voluntary general offer price of $2.06.


Suntec Reit | Add

Target price: $2.06

Oct 25 close: $1.80

Broker: CGS-CIMB, Oct 25

Suntec's Q3 distributable income rose 1 per cent year-on-year to $66.5 million, with distribution per unit (DPU) at 2.491 cents, thanks largely to a capital top-up of $10 million. For 9M 2018, DPU came in at 7.398 cents, accounting for 74 per cent of our FY2018 forecast.

Office revenue fell on lower income from Suntec office and 177 Pacific Highway. Suntec has a remaining 2.1 per cent and 10.9 per cent of office leases to be re-contracted in FY2018 and FY2019, enabling them to ride on the current office rental upcycle. Suntec signed 73,000 square feet of retail leases in Q3 and achieved committed occupancy of 98.6 per cent for its Singapore portfolio.

A version of this article appeared in the print edition of The Straits Times on October 29, 2018, with the headline 'Brokers' Call'. Print Edition | Subscribe