Although things are looking rather gloomy for Singtel, CGS-CIMB is keeping its “buy” call on the stock with an unchanged target price of $3.40.

On July 30, Singtel announced that its 31.9%-owned associate in India, Bharti Airtel, booked some $911 million in exceptional charges for 1QFY21. This comprises additional provisions for licence fee and spectrum usage charges pursuant to the Indian Supreme Court’s decision on the Adjusted Gross Revenue matter and tax-related charges.

But, Singtel will book a $550 million gain on dilution from Bharti Telecom's 2.75% Bharti stake sale in May.

See: Singtel to book another $911 million in charges from Bharti Airtel stake

In an Aug 11 report, lead analyst Foong Choong Chen says, “These will affect Singtel’s 1QFY21 reported net profit (likely to be announced on Aug 13), but will have no impact on its core net profit and cash flows.”

However, 1QFY21 core net profit is still expected to drop by 15-17% to $480-490 million, based on Singtel’s associates’ reported results and the analyst’s projections for Optus and Singtel’s operations in Singapore.

Covid-19 likely hit the consumer and enterprise businesses in Singapore (including Digital Life) and Optus, while NBN (Australia) migration revenue may have been lower.

On the other hand, 1QFY20 was boosted by a $55 million one-off gain from pre-IPO investment in Airtel Africa, which will be absent in the upcoming results.

“1QFY21 core net profit may form 19-20% of both our and Bloomberg consensus’ FY21 estimates, dragged down by weak Telkomsel, Singapore (bigger Covid-19 impact) and Bharti (slower narrowing of losses) contributions,” adds Foong.

On a q-o-q basis, Singtel’s net profit is expected to drop 17-19%.

“Besides Covid-19 and lumpy withholding taxes on associate dividends (the bulk is usually booked in 1Q), we estimate contribution from Telkomsel falling a substantial 21-23% q-o-q on lower revenue and higher costs,” says Foong, who feels that Telkomsel as Singtel’s largest earnings contributor (36% of FY20 core net profit), is a major disappointment for 1QFY21.

Meanwhile, the negative contribution from Bharti may not have improved much q-o-q, based on its reported results.

Separately, Singtel on July 30 saw its chairman Simon Israel step down as chairman and director of the board. He was then succeeded by chairman-designate Lee Theng Kiat.

See: Singtel chairman Simon Israel steps down after nine years

Although a weak 1QFY21 may signal that y-o-y earnings recovery could be delayed by several quarters, Foong remains positive on the stock as it may chart improved earnings q-o-q in the later part of FY21, which could act as a potential re-rating catalyst.

As at 4.10pm, shares in Singtel are trading at $2.37 with a FY21 dividend yield of 5.04%.