Is Singtel’s 28% stock upside potential justified?
The telco’s shares have declined 12% since mid-April 2021, but analysts still foresee a 28% upside on the blue-chip counter in the next 12 months.
- Singapore Telecommunications Ltd (SGX: Z74) share price rallied slightly on Thursday (01 July 2021)
- The telco, through its consortium with transport and food delivery app Grab, has applied for a digital bank licence in Malaysia
- It will be vying for one of five licences that will likely be issued by the first quarter of 2022
- Singtel shares are down by some 12% since mid-April 2021
- Analysts’ latest target prices imply a 28% upside potential on the blue-chip stock
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Singtel share price: What’s the latest?
Singapore Telecommunications (Singtel) shares rose briefly on Thursday morning, after announcing that it has applied for a digital bank licence in Malaysia via its joint venture with Grab.
The joint venture, together with a consortium of other unnamed investors, will be contesting for up to five digital bank licences that will be issued by the first quarter of 2022, according to Bank Negara Malaysia.
Other applicants for the licences include a consortium led by fintech platform iFast.
The Grab-Singtel partnership was awarded one of two digital full bank licences by the Monetary Authority of Singapore in December 2020.
The consortium then appointed Mr Charles Wong as CEO, and set up a dedicated team with the aim of filling around 200 roles in the areas of product, data, technology, risk, finance and compliance. by the end of 2021.
The digital bank is expected to be formally launched in early 2022. Grab owns 60% of the consortium while Singtel holds a 40% stake.
How do analysts view the stock?
Singapore’s largest telco has seen its stock price plunge by 12% since mid-April 2021, erasing all of the gains it made at the start of the year, amid a growing spread of the Delta variant of the coronavirus.
Year to date, the blue-chip counter is down slightly by 0.9%. Latest analyst sentiments published by SGX StockFacts show a consensus rating of ‘outperform’ and an average 12-month target price of S$2.92 on the stock.
The target price presents a 28% upside potential from its last traded price of S$2.28 on 01 July 2021.
The latest investment thesis came from DBS Group Research, which raised its target price on Singtel to S$3.01 while reiterating a ‘buy’ rating.
The analysts wrote that although Singtel’s 2H 2021 underlying profit of S$896 million came in 10% lower than their predictions, they think this ‘could be a part’ of a ‘kitchen-sinking exercise’ to provide new CEO Yuen Kuan Moon with ‘a new slate’.
The worse-than-expected results were also due to a weakening core business in Singapore and lower Telkomsel (Indonesia) and Globe (Philippines) contributions.
They added that the Australia business is expected to recover in fiscal 2022 following improvements in 2H 2021. Meanwhile, Indian associate Bharti Airtel’s earnings contribution is also expected to ‘rise sharply’.
On the whole, the analysts cut their forecast for Singtel's FY2022 and FY2023 earnings by 6% and 5% respectively.
Meanwhile, CIMB analysts reduced their target price to S$2.90 from S$2.31 alongside a ‘buy’ call, after cutting their FY2022 to FY2023 core earnings per share for the group on expected lower earnings from Singapore, Bharti and Telkomsel.
What’s your call on Singtel shares?
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