SINGAPORE (May 18): RHB Research, CGS-CIMB Securities and OCBC Research are maintaining their “buy” calls on Singapore Telecommunications with the exception of Maybank Kim Eng which has a “hold” on the telco.

RHB says Singtel is still its preferred Singapore telco. The research house believes the guidance of absolute payout of $0.175 DPS for FY19-20 is “assuring” as it provides certainty to investors on the sustainability of the payout and safeguards against further earnings headwinds from its regional mobile associates.

“For FY18, dividend payout of 81% was the highest since FY11,” says RHB, noting that capex for FY19 is guided to decline to $2.2 billion from $2.4 billion in FY18 which provides headroom for potential M&As in the medium term.

To recap, Singtel’s FY18 operating revenue grew 4.9% to $17.5 billion, largely driven by the Australia Consumer and Group Digital Life segments. FY18 EBITDA grew by a lower 1.8% to $5.09 billion. However, share of associates’ pre-tax profits fell 14.7% to $2.46 billion.

In addition to adverse currency movements, OCBC says associates’ contributions were impacted by Airtel due to steep cut in mobile termination rates and disruptive price competition in India, reduced stake in NetLink NBN Trust and Telkomsel on heightened price competition in Indonesia coupled with higher operating costs.

Still, analyst Eugene Chua remains positive on Singtel’s longer-term outlook for its growing exposure in digital-related businesses, and entrenched position in the regional mobile markets. OCBC is lowering Singtel’s fair value to $4.10 as it factors in Singtel’s guidance and for further dilution of enterprise-blended margin as ICT sales mix grows.

CGS-CIMB has a 3% lower SOP-based target price of $3.90 after factoring in its earnings cut, lower fair values for Bharti, Telkomsel and Globe, and lower FY19-21 capex, in line with Singtel’s guidance.

Analyst Foong Choong Chen says the research house is cutting FY19-20F core EPS by 3.6-5.3% to factor in lower Singapore EBITDA, lower Bharti contribution and weaker Rupee and Rupiah.

Maybank is maintaining its “hold” given a lack of catalysts. In FY18, core EPS was 4% and 2% short of Factset consensus and Maybank’s estimates, as a strong Singdollar and soft associate income offset cost efficiency.

“We revise FY19/20E core EPS by +1%/-5%, which reduces our SOTP target price to $3.57,” says analyst Luis Hilado.

According to him, Singtel is dealing with pressure on several fronts, instituting cost controls and a revised payout policy which are meant to reassure investors of the company’s cashflow and balance-sheet strength.

“These are wise moves,” says analyst Hilado, “A worsening or resolution of the competitive environment in its major markets is the main risk or potential source of upside.”

As at 10.54am, shares in Singtel are down 3 cents at $3.41 or 14.8 times FY18 recurring earnings forecast by RHB.