Why did the Singtel share price drop to an 11-year low?

The Singapore blue-chip stock was unable to fend off the latest onslaught of coronavirus-related announcements, as it crashed over 4% overnight.

Shares of Singapore Telecommunications (Singtel) opened 4.4% lower on Friday 13 March.

Singtel started the day at S$2.61 per share, down from Thursday’s closing share price of S$2.73. Thirty minutes later, share price fell even more to an 11-year low of S$2.57 a share.

The telco’s stock value has been steadily declining for the last one month. On 24 January – just before the outbreak of the coronavirus, shares were trading at S$3.39 apiece.

Share price fall caused by a multitude of factors

This latest share price plunge comes a day after Singapore’s Minister Lee Hsien Loong said in a national address that COVID-19’s threat to the country’s socioeconomic activities is likely to last at least one more year.

On Thursday 12 March, the World Health Organization also declared the coronavirus a pandemic. Following that, the US banned 26 mainland European countries from travelling into the country for 30 days.

These announcements immediately sent European and US benchmarks into a free fall. Both the S&P 500 index and Dow Jones Industrial Average in the US nosedived over 9.5% in Thursday’s session, while Germany’s DAX Performance Index and UK’s FTSE 100 crashed 12.24% and 10.87% each.

Singapore's Straits Times Index also plummeted 5.24% to open Friday's market - its lowest level since 2015.

This massive decline in index value reflects present global sentiments toward equity and other risk-leaning markets, as the coronavirus continues to worry investors and traders who are now looking to cover their losses.

As IG Asia market analyst Pan Jingyi wrote in a client note, ‘caution continues to be rendered’ in the equity market, with even safe-haven assets like gold not spared from the liquidity rush.

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Singtel expects revenue to decline in the fourth quarter

For Singtel, a weak performance in the third quarter of 2019 – its latest financial reporting period – only served to make matters worse.

The company saw net profit for the three months ended 31 December 2019 drop by 23.8%, and earnings per share fall year-on-year to S$0.384 from S$0.504 per share, based on its financial report posted on 13 February.

The group had attributed this to weakness in the enterprise business, the impact of the final settlement of a gain on the Airtel Africa pre-initial public offering investment and lower exceptional gains against the previous year.

CEO Chua Sock Koong added that weak macroeconomic conditions alongside eroding margins in its Australian subsidiary Optus’ fixed retail business – caused by the bushfire disaster, also made for a challenging quarter.

Finally, the group also forecasted overall revenue to decline by a mid-single digit and EBITDA (earnings before interest, tax, depreciation, and amortisation) to decline by low teens in the upcoming quarter.

Share price fell 1.84% the day after earnings were reported.

Singtel stock a ‘safe’ buy amid market sell-offs

Analysts from CIMB have given the Singtel stock a ‘buy’ rating and a 12-month share price target of S$3.70, even calling it a ‘safer name’.

They wrote in a research note posted on 12 March that the stock is currently offering attractive FY20-22F dividend yields of 5.9% per annum, which they believe should provide share price support, as it is close to the 6.1% yield when Singtel's share price hit its trough in October 2008 during the global financial crisis.

The researchers also cautioned that if the US stock market remains in a risk-off mode even with the upcoming stimulus package rumoured to be around US$1 trillion, further global sell-offs would be triggered, which will affect Straits Times Index components like Singtel.

DBS equity researchers also called the stock a ‘buy’ on a target price of S$3.52 per share, based on its favourable 5% yield and earnings compound annual growth rate of 5% over FY20-22F, led by Bharti’s turnaround. They added that Singtel is trading at an attractive Holding Company discount of 22% versus a 15% average.

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