SingTel’s share price has fallen some 7% to hit a recent S$3.64 low since we downgraded our call to Hold on 14 Aug; this in line with the lower overall market as well as the persistent slide in the AUD against the SGD (50% of its revenue is from Optus). But we note that the share price has fallen close to our comfort level of S$3.60, which in our view, should have captured most of the negativity surrounding the AUD’s slide. While we are paring down our AUD/SGD assumption slightly, which reduces our FY15 estimates for topline by 2.2% and bottomline by 0.5%, our SOTP-based fair value remains unchanged at S$4.08 due to the higher market value of its listed associates. Upgrade to BUY.
Shares down 7% since mid-Aug
SingTel’s share price has fallen some 7% to hit a recent S$3.64 low since we downgraded our call to Hold on 14 Aug. While part of the fall could be due to the overall weaker market, with SingTel being the largest market cap stock listed here, the continued slide in the AUD against the SGD could have also played a part; this as Optus accounts for some 50% of the group’s revenue, and about 30% of the NPAT, based on our estimates.
Near our comfort level
But we note that the share price has fallen close to our comfort level of S$3.60, which in our view, should have captured most of the negativity surrounding the AUD’s slide. In any case, some market watchers expect the AUD to consolidate around current levels and possibly edge up slightly against the SGD towards the year end before easing slightly towards end 2015. And with SingTel expected to pay around 60-75% of its underlying net profit as dividend, we believe that the forecast yield of 4.6% for FY15 is starting to look quite respectable.
Moving beyond a pure telco play
We note that SingTel is making progress in moving beyond just a pure telco play; this following its move to acquire Adconion and Kontera for a total of US$359m in Jun this year – a move to further its Digital Life strategy of turning amobee into the global leader in mobile-led digital advertising space. However, we note that this is still very much work in progress – SingTel has also alluded that it may take 3-5 years for amobee to break even and become profitable. Nevertheless, we recognize that this is an important step as the traditional telco space which is increasingly being commoditized.
Upgrade to BUY with S$4.08 fair value
While we are paring down our AUD/SGD assumption slightly, which reduces our FY15 estimates for topline by 2.2% and bottomline by 0.5%, our SOTP-based fair value remains unchanged at S$4.08 due to the higher market value of its listed associates. Upgrade to BUY.
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