SINGAPORE (Nov 9): CGS-CIMB Securities and DBS Group Research are maintaining their “buy” calls on Singtel with lower target prices of $3.40 and $3.59 respectively.

Both houses slashed their near-term forward estimates after the telco missed expectations with its lower earnings of $667.2 million for 2Q19 with CGS-CIMB factoring in lower contributions from Optus, Telkomsel and Bharti while DBS expects weaker Singapore contributions.

In a Thursday report, CGS-CIMB analyst Foong Choong Chen is forecasting core earnings per share (EPS) to fall 17.5% y-o-y in FY19F, before growing 2.5% and 5.6% y-o-y in FY20F and FY21F.

At the share price of $3.14 as at the close of Nov 7, the stock’s FY20F enterprise value/operating free cash flow (EV/OpFCF) of 15.7 times is at a 10% premium over the Asean telco average – but is nonetheless backed by FY19-21F yields of 5.7% per annum, notes Foong.

As such, Singtel remains CGS-CIMB’s preferred Singapore telco pick, with earnings recovery in FY20F being a potential re-rating catalyst.

Separately, DBS analyst Sachin Mittal notes that almost 60% of the telco’s earnings miss came from Singapore where mobile service revenue, EBITDA from Amobee and enterprise EBITDA registered declines.

Despite cutting FY19-20F EBITDA in Singapore by 4% each, Mittal reiterates his “buy” call on expectations of a rebound in associate contributions in FY20F, led by Telkomsel, AIS and Globe.

He also continues to like the stock for its attractive valuation of 16 times FY20F P/E – which is about 1 standard deviation point lower than the historical average of 17 times – as well as its implied ~5.6% dividend yield.

On the other hand, RHB Research thinks Singtel’s latest earnings disappointment warrants a downgrade as it continues to see earnings headwinds and competitive risks across most of the telco’s mobile footprint.

The research house has cut its rating on the stock to “neutral” from “buy”, and lowered its target price to $3.22 from $3.70 previously after reducing FY19-21F core earnings estimates by 11-12% to reflect for weaker contributions from Bharti; lower margin assumptions for the enterprise business; and longer-term Singapore MSR growth assumptions.

Regardless, Singtel remains its preferred domestic play.

“We see the stock’s outperformance (relative to FSSTI) as a reflection of the group’s diversified earnings base and sizeable market capitalisation, although these are likely priced-in,” says RHB.

Maybank KimEng analyst Luis Hilado, however, thinks continued outperformance will be challenging for Singtel considering the extent of competition in most of the telco’s markets outside of Singapore, which are either in full swing or rising.

He continues to rate the stock at “hold” while lowering the price target to $3.39 from $3.46 after making recent earnings revisions for Bharti and AIS.

Instead, Hilado prefers Singtel’s 25% associate NetLink NBN Trust within the Singapore telco space and rates the stock “buy” with a target price of 93 cents.

“Although unlisted Telkomsel in Indonesia staged a q-o-q rebound from a partial recovery of data-pricing power, third-entrant risks have significantly increased for Globe in the Philippines,” adds the analyst.

As at 11.52am, shares in Singtel are trading 1 cent higher at $3.09.