Compiled by Navin Sregantan
SINGTEL | HOLD (DOWNGRADED)
JULY 8 CLOSE: S$3.48
TARGET PRICE: S$3.60
DBS Equity Research, July 8
Singtel's holding company (hold-co) discount has narrowed to 17 per cent from a high of 35 per cent with the recent rally in Singtel's share price.
Further upside may be limited on a number of factors. First, the hold-co discount is now close to the 5-year average of 14 per cent. Second, the dividend yield, which is below 5 per cent, may not appeal to yield hunters.
Potential catalysts include a tariff hike in India, stabilisation of core operations in Singapore and monetisation of digital business.
Any tariff uplift in India (our base case is for stable tariffs), signs of stabilisation of core operations in Singapore, or an exit from digital businesses are key catalysts.
Due to the lack of clarity around these catalysts, we downgrade the counter to "Hold".
A bull case valuation has a target price of $4 while bear case valuation has a target price of $3. The bull case valuation assumes stronger core business, Bharti Airtel's share price is 15 per cent higher, and lower hold-co discount of 10 per cent vs 14 per cent under our base case.
SINGAPORE BANKS | OVERWEIGHT (MAINTAINED)
RHB Research Institute, July 8
Market expectations of softer 2019 GDP growth for Singapore and cut in US Federal Funds Rate (FFR) in the second half of 2019 could dampen investors' appetite for Singapore banks. However, with economic recovery likely in 2020, we remain bullish on the sector.
A cut in RHB's forecast for Singapore's GDP growth to have limited impact on banks' earnings.
Market expectations are for the US FFR to be cut in the second half of 2019. This could lead to subsequent softness in the 3-month Sibor, given its high correlation with the US FFR.
With a time lag of about a quarter, the banks' NIM may narrow. Our sensitivity analysis suggests that any decline in Sibor would impact DBS' net profit the most vs its peers.
The impact from digital bank licences appears to be muted. In addition, lower cost:income ratio from digitisation should drive ROEs over the next few years. Among the three banks, DBS should gain the most from a higher Sibor over the near term, although any subsequent fall in the FFR would be negative for DBS. UOB is less exposed to Greater China, and therefore, more insulated from the US-China trade developments.
Top picks for the sector are DBS and UOB. Both have "Buy" recommendations with a target price of $30.80.
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