SINGAPORE (Nov 19): Analysts are divided in their views on Singapore Telecommunications, after the telco sank to its first-ever quarterly loss.

For 2QFY2020 ended Sept 30, Singtel posted a loss of $668 million, on the back of its share of Bharti Airtel’s provision for license and spectrum fees.

See: Bharti Airtel provision sends Singtel $668 mil into the red

Analysts, however, noted that Singtel’s underlying profit excluding the provision was up 3.1%.

While Airtel continues to make representations to the Indian government for relief, Singtel’s management remains confident of the Indian telco’s financial positions and funding options.

OCBC Investment Research noted that despite the provision, the underlying profit of $737 million was broadly within their expectations.

The research team also saw upside to the massive license and spectrum fees Indian telcos might have to pay. “From another angle, should a deal with the authorities fail to materialise, we believe this could benefit Airtel should Vodafone-Idea’s competitive position become compromised,” says OCBC’s research team in a Nov 18 report.

OCBC has a “buy” call Singtel with a fair value of $3.53.

Similarly, Alvin Chia, an analyst at Phillip Capital, is optimistic on the counter.

Singtel’s regional associates are now rebounding back to growth, with Globe, AIS and Telkomsel contributing to the first y-o-y growth in three years.

However, besides the Airtel provision, Chia notes that the enterprise segment is seeing headwinds, particularly due to poor business sentiment and weakness in the Australian financial sector.

Despite the sector’s shift into spending more on compliance, Chia sees some silver linings in the long-term.

“The shift to cloud services also hurt the legacy hardware business. We expect growth in cloud services to eventually offset the decline in the legacy business,” says Chia in a Nov 18 report.

Chia has an “accumulate” call with a lower target price of $3.31.

Meanwhile, CGS-CIMB Research analyst Foong Choong Chen notes that the Singapore consumer and enterprise segment remained under pressure.

Mobile average revenue per user fell 9.3% on lower voice usage, data price pressure, and amortisation of higher handset subsidies. The enterprise segment also saw lower earnings due to price erosion for the carrier business and renewal of major public sector ICT contracts. 

Despite the challenges in the Singapore market, Foong sees opportunity for Singtel with its associates and Optus. Its regional associates have posted higher earnings, excluding Airtel’s provision. Optus has seen higher earnings in the consumer segment due to higher NBN migration, as well as a q-o-q growth in mobile service revenue due to raised tariffs in August.

“Postpaid subs grew a mild 29,000 q-o-q (+0.5%) while prepaid users continued to fall, albeit a slower 25,000 q-o-q (-0.7%). Blended ARPU eased 6.5% y-o-y but was stable q-o-q,” says Foong in a Nov 15 report.

Foong has an “add” call with a target price of $3.60.

However, Sachin Mittal, an analyst at DBS Group Research, failed to see any bright spots in Singtel’s recent results.

He notes that Singtel’s underlying profit was below estimates due to the enterprise business dragging earnings.

Mittal notes that Singtel’s results were positively impacted by the adoption of new accounting standards. Earnings from Singapore and Australia would be facing a decline of 14% due to the enterprise business. Associates’ pre-tax profit, however, improved due to gains by AIS, Globe and lower losses at Airtel.

“Bharti might benefit from regulatory penalty of approximately US$6 billion if it leads to the exit of Vodafone-Idea Ltd from India but one cannot rule out a rights issue by Bharti to fund the penalty payment,” says Mittal in a Nov 15 report. He has a “hold” call with a target price of $3.12

As at 12.45pm, shares in Singtel are trading 1 cent higher at $3.23.

According to OCBC valuations, this implies an estimated price-to-earnings (P/E) ratio of 17.8 times, a price-to-book (P/B) of 1.8 times, and a dividend yield of 5.7% for FY20F.