Singtel share price: 4 key considerations ahead of Q4 earnings

When will Singtel’s Q4 and full-year FY2020 financial results be released?

Singapore Telecommunications (Singtel) is set to announce its fourth quarter earnings for the three months ended 31 March 2020 and full-year earnings, on Wednesday 28 May 2020.

Here are four things that investors should know ahead of the upcoming financial report.

1. Singtel to include S$357 million charge for Bharti Airtel in Q4 results

In a Singapore Exchange filing dated 19 May 2020, Singtel said that its Indian subsidiary Bharti Airtel ‘had recognised an amount of Rs. 56.4 billion (S$1.1 billion)’ as part of its fourth quarter earnings, ‘as an exceptional charge on account of reassessment of regulatory cost based on a recent judgement on one-time spectrum charge related matter’.

In short, Airtel was ordered by the Indian Supreme Court in January 2020 to pay a fine amounting to S$17.44 billion to the Indian government over a payment dispute for its use of the state’s telecommunications spectrum.

Singtel, which has a 35.2% in the Airtel as of October 2019, said in the document that it will recognise its share of the above provision, amounting to S$357 million (S$232 million on a post-tax basis), as an exceptional item in the upcoming financial results.

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2. Singtel secured S$4.17 billion of credit facilities in April 2020

On 24 April, Singtel announced that its wholly-owned subsidiaries entered into agreements for total credit facilities of S$4.17 billion for general corporate purposes and refinancing of existing facilities.

In Singapore, Singtel Group Treasury Pte. Ltd., a subsidiary of Singtel, signed the agreement for a three-year S$2.5 billion committed revolving credit facility (guaranteed by Singtel) with 13 banks, including ANZ Bank, Citibank, DBS Bank, HSBC Singapore, Standard Chartered Bank (Singapore) and UOB.

In addition, Singtel Group Treasury inked agreements of one-year committed facilities totalling S$950 million with a group of banks, guaranteed by Singtel.

In Australia, Optus Finance Pty Ltd, a subsidiary of Singtel Optus Pty Limited (Optus), entered into 364-day committed facilities totalling A$800 million with a group of banks. The facilities are guaranteed by Optus and certain of its subsidiaries.

3. Singtel was recently awarded 5G operating licence

The Infocomm Media Development Authority (IMDA) awarded one of two 5G network operating licences to Singtel Mobile Singapore (Singtel). The other went to long-time competitor StarHub.

As part of the provisional 5G ‘standalone network’ licences – pending their completion of regulatory processes, Singtel will be allocated radio frequency spectrum to deploy nationwide 5G networks from January 2021.

Licence holders will be required to provide coverage for at least half of Singapore by end-2022, scaling up to nationwide coverage by end 2025.

Other mobile operators will be able to access these network services through a wholesale arrangement.

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4. Singtel share price analysis and forecast

Following the outcome of the bids, OCBC analysts said the result was ‘not surprising’, naming Singtel as its ‘preferred’ stock. They gave Singtel shares a ‘buy’ rating and a 12-month price target of S$3.61 per share.

While they believe the licences are a ‘net positive for the winners of the 5G bid’, they also cautioned that with commercial 4G arrangements in the market, there would be lengthy appeal processes involving the regulator should operators not come to an agreement regarding 5G arrangements.

Undercutting would also become more challenging with TPG Telecom Singapore having to secure wholesale 5G services from one of the two winners.

The consensus share price target for Singtel as at 26 May 2020 is S$3.31 per share - an upside of 25% from the latest share price of S$2.65, based on ratings from five analysts.

DBS analyst Sachin Mittal maintained a ‘buy’ rating and a target price of S$3.22, on the basis that his underlying profit projection for Singtel’s fourth quarter at S$518 million is likely to match consensus estimates of S$500 million.

He added that the stock is currently trading at an all-time high discount of 36%, above its 16% historical average.

Meanwhile, CIMB brokers estimate that Singtel’s core net profit for Q4 will come in at between S$620 million and S$640 million, ‘which is largely in line with our but slightly below consensus forecasts’. They gave the stock a target price of S$3.40 per share and an ‘add’ rating.

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