Singtel share price falls after cyberattack, weaker earnings

• Singtel (SGX: Z74) share price drops 0.8% to S$2.38 a share
• Its standalone third-party file-sharing system was hacked recently
• Ebitda fell 13.5% in the last quarter, though enterprise revenue was resilient
• Analysts like its ‘undemanding’ valuations, and see green shoots for its associates
• Trade Singtel, long or short, with an IG account

Cybersecurity breach

Singapore Telecommunications (Singtel) saw its stock falling 0.8% to end Thursday’s (11 February 2021) half-day trading session at S$2.38, with 9.2 million shares changing hands.

That came after the telco disclosed in the morning that unidentified hackers had illegally attacked a vendor’s file-sharing system, with the cyberattack starting in December 2020. Singtel had also released its third-quarter business update the previous evening.

Singapore’s biggest telco said it uses the standalone system, called FTA, to share information internally as well as with external stakeholders. FTA is a 20-year-old large-file transfer product that is nearing the end of its life, provided by third-party vendor Accellion.

Singtel has suspended all use of the system and is assessing the nature and extent of data that has been potentially accessed. The telco also assured that this was an isolated incident, and its core operations remain unaffected.

Why are analysts still bullish on Singtel?

Singtel’s earnings before interest, tax, depreciation and amortisation (Ebitda) fell 13.5% year-on-year to S$1 billion for its third quarter ended 31 December 2020. Operating revenue dipped 3.2% to S$4.24 billion.

Maybank maintained ‘buy’ on Singtel and a target price of S$2.88, as it thinks the worst is over and foresees earnings recovering sequentially.

The Maybank analysts expect a gradual improvement in average revenue per user (ARPU) post-Covid, a potential 5G ARPU uplift of 1.5% year-on-year from FY2023 to FY2026, and for India’s Bharti Airtel to drive associates’ recovery.

Global Covid-19 travel restrictions clobbered Singtel’s prepaid and roaming revenues on a year-on-year basis, noted RHB’s research team, which kept its ‘buy’ call intact with an unchanged target price of S$3.10.

In contrast, enterprise revenue was ‘fairly resilient’, slipping only 1.3% on the year, as stronger information and communications technology (ICT) revenue growth from corporate digitalisation efforts mitigated legacy revenue decline, RHB added.

Valuations of Singtel shares remain ‘undemanding’, after the multi-year de-rating in 2020, with the stock trading at 0.5 standard deviation below its historical enterprise-value-to-Ebitda mean, RHB analysts wrote.

They also expect a stronger earnings uplift in the telco’s fourth quarter ending March 2021, amid improved associate contributions and the Phase 3 reopening of Singapore’s economy.

CIMB reiterated ‘add’ and its S$3.10 target on Singtel shares, highlighting that Australian unit Optus’ mobile service revenue was stable thanks to higher penetration of higher-margin postpaid plans.

Moreover, Bharti’s losses have narrowed as its mobile subscriptions and ARPU grew further, with Singtel taking a smaller S$28 million share of the Indian associate’s losses during the quarter, CIMB said.

Potential re-rating catalysts, in CIMB’s view, include a significant recovery in core earnings per share in fiscal 2022 and asset monetisation.

How to trade Singtel shares with IG

Are you feeling bullish or bearish on Singtel’s stocks?

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