SINGAPORE (Oct 23): UOB KayHian is maintaining Singtel at “buy” with $3.94 target despite Bharti Airtel being hit hard by keen competition and Amobee facing headwinds although Telkomsel pricing looks to be on the mend.

In Indonesia, UOB says churn rate has normalised and pricing recovered after competition intensified ahead of the deadline for mandatory pre-paid SIM cards registration by April 30.

Singtel’s 35%-owned Telkomsel has removed starter pack data bonuses and increased prices for regular top-up packages. Pricing for monthly data packages has increased 11% in July. Subsequently, competitor XL Axiata also increased pricing for selective packages in late September.

In India, Bharti Airtel's rival Reliance Jio reported a strong set of results for 2Q19. This was achieved via a huge net addition of 37 million subscribers driven by its Monsoon Hungama offer, which allows customers to trade-in any old phone for new JioPhone 1, the current top-selling feature phone in India.

JioPhone 1 is soon to make way for JioPhone 2 which has a 2.4-inch display and a full Qwerty keyboard. It went on sale on  Aug 16 at the price of Rs2,999 ($57) and is already out of stock.

Meanwhile, Singtel subsidiary and programmatic advertising platform Amobee is facing headwinds. Revenue from digital marketing decreased 7.1% y-o-y in 1Q19 after Amobee was hit by a pullback in marketing spend by four to five major customers, explains Singtel management.

“We are concerned that Singtel may not be able to meet its guidance of mid-teens FY19 revenue growth for Amobee if the weakness in digital marketing persists,” says analyst Jonathan Koh.

UOB is forecasting Singtel to post a net profit of $747 million for 2Q19, down 19.7% y-o-y and 10.1% q-o-q.

“We expect Bharti to have incurred losses for the third consecutive quarter. The quarter is also hampered by weakness in the rupiah, which corrected 3.9% against the Singapore dollar in 2QFY19. We believe consensus estimate at $882 million is unlikely to be met,” adds Koh.

UOB has a target price of $3.94 based on DCF. Year to date, Singtel shares are down 12.2% to $3.16 or around 17.2 times FY19F earnings.