Singtel share price analysis: 4 highlights from Q4 earnings

Here are four key trading takeaways from Singtel's latest financial update.

Singapore Telecommunications (Singtel) released its fourth quarter and year-end results for its 2019/2020 financial year on Thursday 28 May 2020.

Here are four main highlights from the conglomerate’s latest financial update.

1. Covid-19 pandemic had a lower-than-expected earnings impact

Singtel’s operating revenue for the full year declined 2% in constant currency terms at S$16.54 billion, which the group said was a result of lower mobile service revenue and equipment sales aggravated by the onset of Covid-19 this February.

Underlying net profit decreased 13%, due in large part to pronounced fourth quarter weakness in the Australia business caused by continuing data price competition and weak consumer sentiment in the face of Covid-19 movement measures.

Group net profit – minus exceptional items – plunged 65% to S$1.08 billion, which is lower than the S$1.28 billion average predicted by analysts.

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2. Singtel was forced to take a S$302 million exceptional charge

Most of that earnings drop, however, can be attributed to regulatory fees relating to Singtel’s Indian associate Bharti Airtel.

In January 2020, Airtel was fined by the Indian Supreme Court a hefty sum of S$17.44 billion – to be paid in instalments, over a payments dispute regarding the telco’s use of the state’s telecommunications spectrum.

As Singtel owns roughly 35% of Airtel as of October 2019, its portion of the fine for the March-ending quarter worked out to be S$302 million, which was reflected as a net exceptional charge in the final financial statement.

3. Despite Airtel provision, Singtel’s associates saw increased contributions

Overall, Singtel’s regional associates were able to put in good grades in the fourth quarter, with higher data usage growth, and pre-tax contributions rising 29% to S$500 million this quarter and 15% to S$1.64 billion for the full year.

Fines aside, Airtel’s performance had improved following tariff increases in India last December and strong growth in 4G customers. Group CEO Chua Sock Koong said Airtel was also able to gain market share in a three-player market.

Meanwhile, its African operations also recorded double digit revenue growth as well as margin expansion, currency headwinds notwithstanding.

Elsewhere, Globe in The Philippines delivered healthy revenue growth, even though net income fell on higher network depreciation costs. Indonesia’s Telkomsel continued to face intense competition outside Java and pressures on its legacy business.

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4. Analysts lower share price targets on Singtel stock

Singtel’s share price opened 4.6% lower following the financial update. Shares then kept falling to a 2.5-month low of price S$2.47, but have since recovered slightly to close at S$2.58 a share on Wednesday 03 June.

Analysts from OCBC and UOB have given the stock a ‘buy’ rating, alongside lower 12-month price targets, citing the company’s weak outlook for the first quarter of 2021 as a factor.

UOB cut Singtel’s FY2021 and FY2022 earnings forecasts by 14% and 9% respectively, with share price target reduced to S$2.80 from S$3.

OCBC also lowered their earnings per share forecast for FY2021 by 4.1% and increased capital expenditure assumptions, which led them to a new fair value share price estimate of S$3.24 (from S$3.61).

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