Maybank Kim Eng is keeping its “buy” recommendation on Singtel with a target price of $2.88.

In a Jan 18 report, lead analyst Kareen Chan says, “The stock has rebounded 25% from its decade low but we see further upside as recovery is underway, driven by upswing from Bharti in FY2022. We see deep value in the stock and it is backed by 5.1% yield.”

According to Chan, Singtel’s recovery will be underpinned by associates. Currently, the Indian telco sector is undergoing a structural shift, and it’s benefitting from a surge in data usage. With that, Bharti has outpaced its peers across all operating metrics. It is gaining market share from 2G to 4G conversion as 4G subscriber additions at 14.4 million q-o-q was higher than Reliance Jio’s of 7.3 million in 2QFY2020.

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This positive trend is expected to continue sequentially, resulting in sector ARPU to grow 2-3% q-o-q within six months and Bharti to drive 18% of Singtel’s associates earning by FY2022.

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Meanwhile in Thailand, the scope for higher dividend payout ratio provides dividend upside for Singtel. Regional associates’ recovery was correlated (coefficient =0.6) to Singtel’s share price in the past.

Currently, the market is undervaluing the stock, as it is ascribing almost zero value to Singtel’s core business in Singapore and Australia.

“Further, monetisation of its assets (Optus tower, IPO of Amobee and Trustwave) could unlock an additional 40 cents/share, we estimate,” says Chan.

The stock is trading at 14.7 times March FY2022 P/E, below its historical mean. It is also trading at 5.1% FY2022 yield, in line with its historical average and offers attractive risk-reward.

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Looking at the daily price chart, a breakout above the recent high of $2.60 could validate a major reversal and set a new uptrend, believes Chan.

Meanwhile, the weekly price chart signals a major trend reversal pattern of “inverted head and shoulder”.

“The positive reading from both the stochastic and MACD (gaining strength) suggests Singtel has a decent chance to trade higher if it breaks $2.60. We see potential for short-term consolidation but downside risk may be capped at support zones of $2.27-2.37. Once current selling pressure normalises, uptrend is set to resume,” says Chan.

As at 10.46am, shares in Singtel are trading at $2.46 or 1.5 times FY2021 book with a dividend yield of 4.0%.