SINGAPORE (Dec 4): Maybank Kim Eng Research is raising its target price for Singapore Telecommunications by 8% to $3.72, after its Indian associate Bharti Airtel announced tariff increases.

“A return of pricing power to India’s market is a key positive for one of Singtel’s major businesses,” says analyst Luis Hilado in a Dec 2 report. “This leaves the Singapore wireless market as its remaining major overhang.”

According to Hilado, this tariff increase, which was announced by all three major telcos in India, should result in a positive impact for Singtel. This is despite $6.5 billion in spectrum fees and penalties potentially levied against Bharti Airtel in a recent Indian Supreme Court ruling.

As a result of the Indian telco’s short-to-medium-term balance sheet pressure, Hilado is cutting his forecasts for Singtel’s core profits for FY2020 and FY2021 by 2%.

However, the analyst opines that the recent industry-wide wireless-tariff increases in India should create positive EBITDA momentum for Bharti Airtel.

“[This] should translate into a 1% increase in Singtel’s FY2022E core profit,” says Hilado.

While Bharti Airtel might be providing a lift, the Singapore market remains a challenge for Singtel.

Hilado notes that Singtel’s management remains guarded about the state of mobile competition in Singapore.

Singtel has seen q-o-q mobile revenues stabilising. But with more mobile virtual network operators entering the market, along with TPG Telecom’s commercial launch, the analyst sees more hurdles ahead for Singtel to overcome.

“Meanwhile, cashflow pressure from prospective 5G investments without a clear mass-market price recovery remains a risk,” says Hilado.

Despite the Singapore market overhang, Hilado is keeping his “hold” call on Singtel.

“By nature of its diversified country and business exposure, Singtel’s profits can and have been pulled in several directions,” Hilado says. “Competition direction in India should provide positive momentum after several quarters of hits. Stability in other parts combined with a more constructive outlook for Singapore would improve the picture, in our view.”

As at 3.36pm on Wednesday, shares in Singtel are trading 3 cents lower, or down 0.9%, at $3.39.

According to Maybank valuations, this implies an estimated price-to-earnings (P/E) ratio of 19.9 times, a price-to-book value (P/BV) of 1.9 times, and a dividend yield of 5.2% for FY2020E.

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